SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of August 30,
2006, by and among Charys Holding Company, Inc., a Delaware corporation, (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured
convertible notes of the Company, which notes shall be convertible into the
Company's common stock, par value $0.001 per share (the "COMMON STOCK"), in
accordance with the terms of the notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) that aggregate principal
amount of the Notes, in substantially the form attached hereto as Exhibit A (the
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"NOTES"), set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (as converted, collectively, the "CONVERSION SHARES"),
and (ii) warrants, in substantially the form attached hereto as Exhibit B (the
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"WARRANTS"), to acquire that number of shares of Common Stock set forth opposite
such Buyer's name in column (4) on the Schedule of Buyers. Any shares of the
Common Stock issued or issuable upon the exercise of the Warrants are
hereinafter referred to as the "Warrant Shares."
D. At the Closing (as defined below) the parties hereto shall execute
and deliver a Registration Rights Agreement, substantially in the form attached
hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the
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Company has agreed to provide certain registration rights with respect to the
Conversion Shares and the Warrant Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
E. The Notes, the Conversion Shares, the Warrants and the Warrant
Shares collectively are referred to herein as the "SECURITIES."
F. Except as may be otherwise provided herein, the Notes will rank
senior to all outstanding and future indebtedness of the Company, subject to
Permitted Senior Indebtedness (as defined in the Notes), and except as may be
otherwise provided herein will be secured by a first priority, perfected
security interest in all of the assets of the Company and each of the Company's
subsidiaries, as evidenced by the security agreement attached hereto as Exhibit
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D (the "SECURITY AGREEMENT") and any ancillary documents related thereto,
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collectively the "SECURITY DOCUMENTS").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
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(a) Purchase of Notes and Warrants.
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(i) Notes and Warrants. Subject to the satisfaction (or waiver)
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of the conditions set forth in Sections 6 and 7 below, the Company shall issue
and sell to each Buyer, and each Buyer severally, but not jointly, will purchase
from the Company on the Closing Date (as defined below), (x) a principal amount
of Notes as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers and (y) Warrants to acquire that number of Warrant Shares as
is set forth opposite such Buyer's name in column (4) on the Schedule of Buyers
(the "CLOSING").
(ii) Closing. The Closing shall occur on the Closing Date at the
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offices of Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000.
(iii) Purchase Price. The aggregate purchase price for the Notes
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and the Warrants to be purchased by such Buyer at the Closing (the "PURCHASE
PRICE") shall be the amount set forth opposite such Buyer's name in column (6)
of the Schedule of Buyers. Each Buyer shall pay $0.95 for each $1.00 of
principal amount of Notes and related Warrants to be purchased by such Buyer at
the Closing.
(b) Closing Date. The date and time of the Closing (the "CLOSING DATE")
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shall be 10:00 a.m., New York City Time, on the date following notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below (or such later date as is mutually agreed to by the Company and
each Buyer).
(c) Form of Payment. On the Closing Date and following satisfaction of
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the Closing conditions set forth in Section 7, each Buyer shall pay its Purchase
Price to the Company for the Notes and the Warrants being issued and sold to
such Buyer at the Closing by wire transfer of immediately available funds to an
account designate in writing by the Company. On the Closing Date and following
satisfaction of the Closing conditions set forth in Section 6, the Company shall
deliver to each Buyer (A) the Notes (in the principal amounts as such Buyer
shall have requested prior to the Closing) which such Buyer is then purchasing
and (B) the Warrants (in the amounts as such Buyer shall have requested prior to
the Closing) which such Buyer is purchasing, in each case duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Each Buyer represents and warrants with respect to only itself that:
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(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the
---------------------------------
Notes and the Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants will acquire the Conversion Shares issuable upon conversion of the
Notes and the Warrant Shares issuable upon exercise of the Warrants, for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempt from registration under the 1933 Act; provided, however, that by making
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the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from registration under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
Further, there are no contracts, arrangements, understandings or relationships
(legal or otherwise) among such Buyer and any other Person with respect to any
securities of the Company, including but not limited to transfer or voting of
any of the Securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies.
(b) Accredited Investor Status and Qualified Institutional Buyer
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Status. Such Buyer is an "accredited investor" as that term is defined in Rule
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501(a) under the 1933 Act. Such Buyer is not a registered broker-dealer under
Section 15 of the Securities Exchange Act of 1934, as amended (the "1934 ACT").
(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 United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify, amend or
affect such Buyer's right to rely on the Company's representations and
warranties contained herein. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
Specifically, such Buyer has been provided with access to all of the Company's
SEC Documents (as defined in Section 3(k)), including the following: (i) the
Company's annual report to stockholders for the fiscal year ended April 30,
2005, the definitive proxy statement filed in connection with that annual
report; (ii) the information contained in an annual report on Form 10-KSB under
the 1934 Act for the fiscal year ended April 30, 2005; and (iii) the information
contained in any reports or documents required to be filed by the Company under
Sections 13(a), 14(a), 14(c), and 15(d) of the 1934
3
Act since the distribution or filing of the reports specified above.
(e) No Governmental Review. Such Buyer understands that no United
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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
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in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, "RULE 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person (as defined in Section 3(s)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the
0000 Xxx) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the Securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. The Securities may be pledged in
connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Buyer effecting a pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document (as defined in Section
3(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other
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instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the "blue sky"
laws of any state and a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN] [THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
4
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, or issue to such holder by electronic delivery at the applicable
balance account at DTC (as defined below), unless otherwise required by state
securities laws, if: (i) such Securities are registered for resale under the
1933 Act, (ii) in connection with a sale, assignment or other transfer, such
holder provides the Company with an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable
requirements of the 1933 Act, or (iii) such holder provides the Company with
reasonable assurance that the Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. The Transaction Documents to which such
----------------------
Buyer is a party have been duly and validly authorized, executed and delivered
on behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such
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Buyer of the Transaction Documents to which such Buyer is a party and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such Buyer
or (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 such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified
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below its
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address on the Schedule of Buyers.
(k) Independent Investment Decision. Such Buyer has independently
---------------------------------
evaluated the merits of its decision to purchase the Securities pursuant to the
Transaction Documents, and such Buyer confirms that it has (i) not relied on the
advice of any other Buyer's business and/or legal counsel in making such
decision and (ii) not received or relied on any advice of the Company or its
business and/or legal counsel in making such decision. Such Buyer acknowledges
that it had the opportunity to review this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby with its own
legal counsel and investment and tax advisors, if any. Such Buyer is relying
solely on such counsel and advisors and not on any statements or representations
of the Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the transactions contemplated
by this Agreement and the other Transaction Documents.
(l) [Intentionally Omitted]
(m) [Intentionally Omitted]
(n) General Solicitation. Such Buyer is not purchasing the Securities
---------------------
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar.
(o) Organization; Authority. Such Buyer is an entity duly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership or other entity power
and authority to enter into and to consummate the transactions contemplated by
the applicable Transaction Documents to which it is a party (as defined below)
and otherwise to carry out its obligations thereunder.
(p) Prohibited Transactions. During the last 30 days prior to the date
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hereof, neither such Buyer, nor any Affiliate of such Buyer, foreign or
domestic, which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Buyer's investments or trading or
information concerning such Buyer's investments, including in respect of the
Securities, and (z) is subject to such Buyer's review or input concerning such
Affiliate's investments or trading (collectively, "TRADING AFFILIATES") has,
directly or indirectly, effected or agreed to effect any short sale (as defined
in Rule 200 under Regulation SHO), whether or not against the box, established
any "put equivalent position" (as defined in Rule 16a-1(h) under the Exchange
Act) with respect to the Common Stock, borrowed or pre-borrowed any shares of
Common Stock, or granted any other right (including, without limitation, any put
or call option) with respect to the Common Stock or with respect to any security
that includes, relates to or derived any significant part of its value from the
Common Stock or otherwise sought to hedge its position in the Securities each, a
"PROHIBITED TRANSACTION"). Prior to the earliest to occur of (i) the
termination of this Agreement, (ii) the Effective Date or (iii) the
Effectiveness Deadline, such Buyer shall not, and shall cause its Trading
Affiliates not to, engage, directly or indirectly, in (a) a Prohibited
Transaction nor (b) any sale, assignment, pledge, hypothecation, put, call, or
other transfer of any of the shares of Common Stock, warrants or other
securities of the issuer acquired
6
hereunder. Notwithstanding the foregoing, if such Buyer or any Trading
Affiliate is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Buyer's or Trading Affiliate's assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Buyer's or
Trading Affiliate's assets, the representations set forth above shall only apply
with respect to the portion of the assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its "SUBSIDIARIES"
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(which for purposes of this Agreement means any joint venture or any entity in
which the Company, directly or indirectly, owns capital stock or holds an equity
or similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authority to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business 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, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries except as set forth on Schedule 3(a). The Company owns,
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directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any liens, except those liens and security
interests which may have been created or will be created in connection with the
Company's acquisition of each Subsidiary as detailed on Schedule 3(a) attached
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hereto (the "PERMITTED LIENS" hereinafter defined), and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b) Authorization; Enforcement; Validity. The Company has the
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requisite power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Warrants, the Registration Rights Agreement, the
Security Documents, the Irrevocable Transfer Agent Instructions (as defined in
Section 5(b)), and each of the other agreements entered into by the Company
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
this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes and the Warrants, the
reservation for issuance and the issuance of the Conversion Shares
7
issuable upon conversion of the Notes, the reservation for issuance and issuance
of Warrant Shares issuable upon exercise of the Warrants, and the granting of a
security interest in the Collateral (as defined in the Security Documents) have
been duly authorized by the Company's board of directors and (other than (i) the
filing of appropriate UCC financing statements with the appropriate states and
other authorities pursuant to the Security Agreement, (ii) the filing of a Form
D under Regulation D of the 1933 Act and (iii) the filing with the SEC of one or
more Registration Statements and any other filings as may be required by any
state securities agency in accordance with the requirements of the Registration
Rights Agreement) no further filing, consent, or authorization is required by
the Company, its board of directors or its stockholders. This Agreement and the
other Transaction Documents to which the Company and/or any Subsidiary is a
party have been duly executed and delivered by the Company and/or such
Subsidiary, as applicable, and constitute the legal, valid and binding
obligations of the Company and/or such Subsidiary, as applicable, enforceable
against the Company and/or such Subsidiary, as applicable, in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the Warrants
----------------------
are duly authorized and are free from all taxes, liens and charges with respect
to the issue thereof. As of the Closing, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals 175% of
the maximum number of shares Common Stock initially issuable upon conversion of
the Notes and upon exercise of the Warrants. Upon conversion in accordance with
the Notes or exercise in accordance with the Warrants, as the case may be, the
Conversion Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. The offer
and issuance by the Company of the Securities is exempt from registration under
the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of this
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Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Notes and the Warrants, the
granting of a security interest in the Collateral and the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares) will not
(i) result in a violation of the Articles of Incorporation (as defined in
Section 3(r)) of the Company or any of its Subsidiaries, any capital stock of
the Company or Bylaws (as defined in Section 3(r)) of the Company or any of its
Subsidiaries or (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, 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 Over-The-Counter
Bulletin Board (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.
8
(e) Consents. Other than as set forth on Schedule 3(e), the Company is
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not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence shall have been obtained
or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registrations, applications or
filings pursuant to the preceding sentence. The Company is not in violation of
the applicable listing requirements of the Principal Market and has no knowledge
of any facts which would reasonably lead to delisting or suspension of the
Common Stock in the foreseeable future. The issuance by the Company of the
Securities shall not have the effect of delisting or suspending the Common Stock
from the Principal Market.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The
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Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) to the knowledge of the Company, an "affiliate"
of the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a "beneficial owner" of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the 1934 Act). The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the
other Transaction Documents and the transactions contemplated hereby and
thereby, and any advice given by a Buyer or any of its representatives or agents
in connection with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
(g) No General Solicitation. Neither the Company, nor any of its
-------------------------
Subsidiaries or Affiliates, nor, to the Company's knowledge, any Person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. 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 (including any claim from
the Placement Agent (as defined below)). The Company acknowledges that it has
engaged Xxxx Xxxxx Financial as placement agent (the "PLACEMENT AGENT") in
connection with the sale of the Securities. Other than the Placement Agent, the
Company has not engaged any placement agent or other agent in connection with
the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any
----------------------
of their
9
Affiliates, or 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 require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 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. None of
the Company, its Subsidiaries, their Affiliates or any Person acting on its or
their behalf will take any action or steps referred to in the preceding sentence
that would require registration of any of the Securities under the 1933 Act or
cause the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
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number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrant is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. The Company
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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 Articles of Incorporation or the laws of the
jurisdiction of its formation which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in the
--------------------------------------
SEC Documents or on Schedule 3(k), during the two (2) years prior to the date
-------------
hereof, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
herein referred to as the "SEC DOCUMENTS"). The Company has delivered to the
Buyers or their respective representatives true, correct and complete copies of
the SEC Documents not available on the XXXXX system if such SEC Documents have
been requested in writing by Buyers. As of their respective filing dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and except as subsequently amended, none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, except as subsequently amended, the financial
10
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers in connection with the transactions contemplated hereby which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules,
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
thecircumstance under which they are or were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in the SEC
-----------------------------
Documents or on Schedule 3(l), since the date of the Company's most recent
--------------
audited financial statements contained in a Form 10-KSB, there has been no
material adverse change and no material adverse development in the business,
assets, properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company. Except as disclosed in the SEC
Documents or on Schedule 3(l), since the date of the Company's most recent
--------------
audited financial statements contained in a Form 10-KSB, neither the Company nor
any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, in excess of $100,000 outside of the
ordinary course of business or (iii) had capital expenditures, individually or
in the aggregate, in excess of $100,000. Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so. The
Company and its Subsidiaries, individually and on a consolidated basis, are not
as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), "INSOLVENT" means (i) the present fair saleable
value of the Company's assets is less than the amount required to pay the
Company's total Indebtedness (as defined in Section 3(s)), (ii) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) the Company
intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) the Company has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances.
------------------------------------------------------------------
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, 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 on a registration statement on Form SB-2 or any other
appropriate form filed with the SEC relating to an issuance and sale by the
Company of its Common Stock
11
and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor
-----------------------------------------
any of its Subsidiaries is in material violation of any term of or in default
under its Articles of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in material violation of any judgment, decree or
order or any law, statute, ordinance, rule or regulation applicable to the
Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries
is, or will conduct its business, in violation of any of the foregoing, except
for possible violations which would not, individually or in the aggregate, have
a Material Adverse Effect. Without limiting the generality of the foregoing,
the Company is not in violation of any of the rules, regulations or requirements
of the Principal Market and has no knowledge of any facts or circumstances which
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. During the two (2) years prior to
the date hereof, (i) the Common Stock has been designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
---------------------------
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all
-------------------
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth in the SEC
------------------------------
Documents filed at least ten days prior to the date hereof and other than the
grant of stock options disclosed on the SEC Documents or on Schedule 3(q), none
-------------
of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or directors), including any contract, agreement or other arrangement providing
for the furnishing
12
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 or any of its Subsidiaries, 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.
(r) Equity Capitalization. As of the date hereof, the authorized
----------------------
capital stock of the Company consists of (i) 300,000,000 shares of Common Stock,
of which as of the date hereof, 32,225,129 are issued and outstanding, up to
8,000,000 shares will be reserved for issuance pursuant to the Company's stock
option and purchase plans and 22,500,000 shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred stock, par value $0.001 per share, of which as of the date
hereof, 1,000,000 shares of Series A Preferred Stock are issued and outstanding,
500,000 shares of Series C Preferred Stock are issued and outstanding, and 1,300
shares of Series D Preferred Stock are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed on Schedule 3(r): (i) none of
----
the Company's capital stock is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
or in the SEC Documents, 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, or exercisable or
exchangeable for, any 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 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, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit or loan
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness (as defined below) 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 financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement); (vi) 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 purchase, repurchase, retire or redeem a security of
the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) 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 businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyers true, correct and
13
complete copies of the Company's Articles of Incorporation, as amended and as in
effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's
Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"). The
terms of all securities convertible into, or exercisable or exchangeable for,
shares of Common Stock and the material rights of the holders thereof in respect
thereto are disclosed in the SEC Documents or on Schedule 3(r).
----
(s) Indebtedness and Other Contracts. Except as disclosed on
-----------------------------------
Schedule3(s), or any of the other Schedules attached hereto, neither the Company
------------
nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined
below), (ii) is a party to any contract, agreement or instrument, the violation
of which, or default under which, by the other party(ies) to such contract,
agreement or instrument would result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company's officers, has or is expected to have a Material Adverse Effect. The
Company's SEC Documents and Schedule 3(s) provide a detailed description of the
-------------
material terms of any such outstanding Indebtedness. For purposes of this
Agreement: (x) "INDEBTEDNESS" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services including
(without limitation) "Capital Leases" in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "CONTINGENT OBLIGATION" means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization
14
and a government or any department or agency thereof.
(t) Absence of Litigation. There is no action, suit, proceeding,
-----------------------
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or its Subsidiaries' officers or directors, which is in the
aggregate material to the Company, except as set forth in the SEC Documents or
on Schedule 3(t).
----
(u) Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations.
-------------------
(i) Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the 0000 Xxx) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer's employment with the Company or any such
Subsidiary. To the knowledge of the Company, no executive officer of the
Company or any of its Subsidiaries, is, or is now expected to be, in violation
of any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.
(ii) The Company and its Subsidiaries are in material compliance
with all federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable
-----
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except for Permitted Liens and except such as do not materially affect
the value of such property and do not interfere with the use made and proposed
15
to be made of such property by the Company and any of its Subsidiaries. Any
real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and facilities by the Company and its
Subsidiaries.
(x) Intellectual Property Rights. Except as set forth in the SEC
------------------------------
Documents or on Schedule3(x), the Company and its Subsidiaries own or possess
------------
adequate rights or licenses to use all trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to
conduct their respective businesses as now conducted. Except as set forth in
the SEC Documents or on Schedule 3(x), none of the Company's Intellectual
----
Property Rights have expired or terminated, or are expected to expire or
terminate, within three years from the date of this Agreement. Except as set
forth in the SEC Documents or on Schedule 3(x), the Company does not have any
-------------
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property Rights of others. There is no claim, action or proceeding being made
or brought, or to the knowledge of the Company, being threatened, against the
Company or any of its Subsidiaries regarding its Intellectual Property Rights.
The Company is unaware of any facts or circumstances which might give rise to
any of the foregoing infringements or claims, actions or proceedings. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
Rights.
(y) Environmental Laws. To the Company's knowledge, the Company and
-------------------
its Subsidiaries (i) are in material compliance with any and all Environmental
Laws (as hereinafter defined), (ii) have received all material permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in material compliance with
all terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "ENVIRONMENTAL LAWS" means all federal, state, local
or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in the SEC Documents or on
------------------
Schedule 3(z), the Company and its Subsidiaries have the unrestricted right to
-------------
vote, and (subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital securities of its Subsidiaries as
owned by the Company or such Subsidiary.
16
(aa) Investment Company. The Company is not, and is not an affiliate
-------------------
of, an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(bb) Tax Status. Except as disclosed in the SEC Documents or on
-----------
Schedule 3(bb), the Company and each of its Subsidiaries (i) has made or filed
---------------
all foreign, 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 that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
Except as disclosed in the SEC Documents or on Schedule 3(bb), there are no
--------------
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. Except as disclosed in the SEC Documents or on Schedule 3(bb), no liens
--------------
have been filed and no claims are being asserted by or against the Company or
any of its Subsidiaries with respect to any taxes (other than liens for taxes
not yet due and payable). Except as disclosed in the SEC Documents or on
Schedule 3(bb), neither the Company nor it Subsidiaries has received notice of
---------------
assessment or proposed assessment of any taxes claimed to be owed by it or any
other Person on its behalf. Except as disclosed in the SEC Documents or on
Schedule 3(bb), neither the Company nor any Subsidiary is a party to any tax
---------------
sharing or tax indemnity agreement or any other agreement of a similar nature
that remains in effect. Except as disclosed in the SEC Documents or on Schedule
--------
3(bb), each of the Company and its Subsidiaries has complied in all material
-----
respects with all applicable legal requirements relating to the payment and
withholding of taxes and, within the time and in the manner prescribed by law,
has withheld from wages, fees and other payments and paid over to the proper
governmental or regulatory authorities all amounts required.
(cc) Internal Accounting and Disclosure Controls. The Company and each
-------------------------------------------
of its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference (the
"INTERNAL ACCOUNTING CONTROLS"). To the best of its knowledge, the Company
maintains disclosure controls and procedures (as such term is defined in Rule
13a-14 under the 0000 Xxx) that are reasonably effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the 1934 Act is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms of the SEC, including,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company's management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.
17
(dd) Off Balance Sheet Arrangements. There is no transaction,
---------------------------------
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in the SEC Documents and is not so
disclosed or that otherwise would be reasonably likely to have a Material
Adverse Effect.
(ee) Ranking of Notes. Except as set forth on Schedule (ee), no
------------------ -------------
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
(ff) Form SB-2 Eligibility. The Company is eligible to register the
-----------------------
Conversion Shares and the Warrant Shares for resale by the Buyers using Form
SB-2 promulgated under the 1933 Act.
(gg) Transfer Taxes. On the Closing Date, all stock transfer or other
---------------
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to each Buyer
hereunder will be, or will have been, fully paid or provided for by the Company,
and all material laws imposing such taxes will be or will have been complied
with.
(hh) Manipulation of Price. The Company and its Subsidiaries have not,
---------------------
and to the Company's knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result or that could
reasonably be expected to cause or result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) other than the Placement Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) other than the Placement Agent, paid or agreed to pay to
any person any compensation for soliciting another to purchase any other
securities of the Company.
(ii) U.S. Real Property Holding Corporation. The Company is not, nor
----------------------------------------
has ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer's request.
(jj) Disclosure. The Company confirms that neither it nor any other
----------
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than the existence of the
transactions contemplated by this Agreement or the other Transaction Documents.
The Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in the Securities. To the
best knowledge of the Company, all disclosure provided to the Buyers regarding
the Company, its business and the transactions contemplated by this Agreement
and the other Transaction Documents, including the Schedules and Exhibits hereto
and thereto, furnished by or on behalf of the Company is true and correct and
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made herein or herein,
in the light of the
18
circumstances under which they were made, not misleading. Each press release
issued by the Company or its Subsidiaries during the twelve (12) months
preceding the date of this Agreement, which was not subsequently corrected, did
not contain any untrue statement of a material fact or omit 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. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
assets, liabilities, properties, prospects, operations or financial conditions
(financial or otherwise), which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
(kk) Lien Searches. Within six (6) Business Days prior to the Closing
--------------
Date, the Company shall have delivered or caused to be delivered to each Buyer
certified copies of UCC financing statement search results listing any and all
effective financing statements filed within five years prior to such date in any
applicable jurisdiction that name the Company or any of their Subsidiaries as a
debtor to perfect an interest in any of the assets thereof, together with copies
of such financing statements. In addition, attached hereto as Schedule 3(kk) is
--------------
a list of all proposed liens that will be created in connection with financings
relating to the acquisition of any future Subsidiary, which proposed liens and
the liens disclosed by the lien search to be provided within six Business Days
after the Closing Date are herein defined as the "Permitted Liens." Except as
provided in the Permitted Liens, no financing statements, except for any
financing statements filed with respect to the Senior Indebtedness and as
otherwise agreed to in writing by the Buyers as provided herein, shall cover any
of the "Collateral" (as defined in the Security Documents), and the results of
searches for any effective tax liens and judgment liens filed against any such
Person or its property in any applicable jurisdiction, which results, except as
otherwise agreed to in writing by the Buyers, shall not show any such effective
tax liens and judgment liens.
(ll) Waiver of Rights Offering. Each of Gottbetter Capital Master,
----------------------------
Ltd., Xxxxxx Diversified Strategy Master Fund LLC, Castlerigg Master Investments
Ltd. and UBS X'Xxxxxx LLC (F/B/O X'Xxxxxx Pipes Corporate Strategies Master
Ltd.) have received that certain Offer Notice dated July 19, 2006 (the "OFFER
NOTICE") delivered by the Company pursuant to Section 4(q) of that certain
Securities Purchase Agreement dated May 19, 2006 (the "SERIES D PURCHASE
AGREEMENT") and (b) each has waived its right to participate in the offering of
the securities by the Company referenced in the Offer Notice as Buyers under the
Series D Purchase Agreement (such written waivers, the "SERIES D WAIVERS").
4. COVENANTS.
----------
(a) Best Efforts. Each party shall use its best efforts timely to
-------------
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 a Form D with
-----------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary 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
19
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 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.
(c) Reporting Status. Until the date on which the Investors (as
-----------------
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and Warrant Shares and none of the Notes or Warrants is outstanding (the
"REPORTING PERIOD"), the Company shall file all reports required to be filed
with the SEC pursuant to 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 otherwise permit such
termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
-----------------
of the Securities substantially as set forth in Schedule 4(d).
--------------
(e) Financial Information. The Company agrees to send the following to
---------------------
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through XXXXX
and are available to the public through the XXXXX system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K or 10-KSB, any interim reports or any consolidated balance sheets,
income statements, stockholders' equity statements and/or cash flow statements
for any period other than annual, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein "Business Day"
means any other day other than a Saturday, Sunday, or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
(f) Listing. Pursuant to the Registration Rights Agreement, the
-------
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is
then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market. Neither the Company nor
any of its Subsidiaries shall take any action which would be reasonably expected
to result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall (i) pay Gottbetter & Partners, LLP ("G&P")
----
$40,000 in legal fees plus reasonable expenses and (ii) shall reimburse
Gottbetter Capital Finance, LLC (a Buyer) ("GCF") or its designee(s) up to
$15,000 for due diligence and all reasonable expenses incurred in connection
with the transactions contemplated by the Transaction Documents
20
(including all reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which amounts
shall be withheld by such Buyer from its Purchase Price at the Closing. The
Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons engaged
by any Buyer) relating to or arising out of the transactions contemplated by the
Transaction Documents including, without limitation, any fees or commissions
payable to the Placement Agent. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim against a Buyer relating to any such payment. Except as
otherwise set forth in the Transaction Documents, each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the
--------------------
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.
(i) Disclosure of Transactions and Other Material Information. On or
-----------------------------------------------------------
before 8:30 a.m., New York Time, on the fourth Business Day following the date
of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement, the form
of Note, the form of Warrant, the Registration Rights Agreement and the Security
Agreement) as exhibits to such filing (collectively, the "8-K FILING"). From
and after the filing of the 8-K Filing with the SEC, the Company shall have
disclosed any material, nonpublic information delivered to the Buyers by the
Company, any of its Subsidiaries or any of their respective officers, directors,
employees, stockholders, representatives or agents. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express
written consent of such Buyer. In the event of a breach of the foregoing
covenant by the Company, its Subsidiaries, or any of its respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of their respective officers, directors,
employees or agents. No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents for any such
21
disclosure. Subject to the foregoing, none of the Company, its Subsidiaries or
any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and substantially
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) the Required Holders (as
defined in the Notes) shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release).
(j) Restriction on Redemption and Cash Dividends. So long as any Notes
--------------------------------------------
are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend, except for the Series D Preferred Stock, or
distribution on the Common Stock or preferred stock without the prior express
written consent of the Required Holders.
(k) Additional Notes; Variable Securities; Dilutive Issuances. Except
----------------------------------------------------------
as may be permitted with respect to the purchase of any of its Subsidiaries as
disclosed on Schedule 4(k) attached hereto, so long as any Buyer beneficially
--------------
owns any Notes, the Company will not issue any Notes (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. For long as any Notes or
Warrants remain outstanding, the Company shall not, in any manner, issue or sell
any rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security cannot be less
than the then applicable Conversion Price (as defined in the Notes) with respect
to the Common Stock into which any Note is convertible or the then applicable
Exercise Price (as defined in the Warrants) with respect to the Common Stock
into which any Warrant is exercisable. Except as may be permitted with respect
to the purchase of any of its Subsidiaries and as disclosed in the SEC
Documents, or so long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, enter into or affect any Dilutive Issuance (as defined
in the Notes) if the effect of such Dilutive Issuance is to cause the Company to
be required to issue upon conversion of any Note or exercise of any Warrant any
shares of Common Stock in excess of that number of shares of Common Stock which
the Company has authorized and reserved for purposes of such conversions or
exercises or which the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company's obligations under the
rules or regulations of the Principal Market.
(l) Corporate Existence. So long as any Buyer beneficially owns any
-------------------
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.
(m) Reservation of Shares. So long as any Buyer owns any Securities,
-----------------------
the Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 175% of the number of shares
of Common Stock issuable upon conversion
22
of all of the Notes and issuable upon exercise of the Warrants then outstanding
(without taking into account any limitations on the conversion of the Notes or
exercise of the Warrants set forth in the Notes and Warrants, respectively).
(n) Conduct of Business. The business of the Company and its
---------------------
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any government, or any department or agency thereof or
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(o) Additional Issuances of Securities.
-------------------------------------
(i) For purposes of this Section 4(o), the following definitions
shall apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) convertible into or exercisable or
exchangeable for shares of Common Stock.
(2) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible
Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options
and Convertible Securities.
(ii) Except as may be required in connection with the Company's
acquisition of any of its future Subsidiaries as disclosed on Schedule
--------
4(k) attached hereto, or other obligations as disclosed in the SEC
----
Documents, from the date hereof until the date that is 30 Trading Days (as
defined in the Notes) following the Effective Date (the "TRIGGER DATE"),
the Company will not, directly or indirectly, offer, sell, grant any option
to purchase, or otherwise dispose of (or announce any offer, sale, grant or
any option to purchase or other disposition of) any of its or its
Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that
is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common
Stock Equivalents (any such offer, sale, grant, disposition or announcement
being referred to as a "SUBSEQUENT PLACEMENT").
(iii) Except as may be required in connection with the Company's
acquisition of any of its Subsidiaries, or other obligations as
disclosed in the SEC Documents, from the Trigger Date until the date on
which none of the Notes is outstanding, the Company will not, directly or
indirectly, effect any Subsequent Placement unless the Company shall have
first complied with this Section 4(o)(iii).
(1) The Company shall deliver to each Buyer who still holds
Notes a written notice (the "OFFER NOTICE") of any proposed or
intended issuance or sale or exchange (the "OFFER") of the securities
being offered (the "OFFERED SECURITIES") in a Subsequent Placement,
which Offer Notice shall (w) identify
23
and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and
the number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued, sold or
exchanged and (z) offer to issue and sell to or exchange with such
Buyers all of the Offered Securities, allocated among such Buyers (a)
based on such Buyer's pro rata portion of the aggregate principal
amount of Notes purchased hereunder (the "BASIC AMOUNT"), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic
Amounts of other Buyers as such Buyer shall indicate it will purchase
or acquire should the other Buyers subscribe for less than their Basic
Amounts (the "UNDERSUBSCRIPTION AMOUNT").
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the
tenth (10th ) Business Day after such Buyer's receipt of the Offer
Notice (the "OFFER PERIOD"), setting forth the portion of such Buyer's
Basic Amount that such Buyer elects to purchase and, if such Buyer
shall elect to purchase all of its Basic Amount, the Undersubscription
Amount, if any, that such Buyer elects to purchase (in either case,
the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by
all Buyers are less than the total of all of the Basic Amounts, then
each Buyer who has set forth an Undersubscription Amount in its Notice
of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts
-------- --------
subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the Basic Amount
of such Buyer bears to the total Basic Amounts of all Buyers that have
subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent it deems reasonably necessary.
(3) Following the expiration of the Offer Period, the Company
shall as promptly as reasonably practicable offer, issue, sell or
exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Buyers (the "REFUSED
SECURITIES"), but only to the offerees described in the Offer Notice
(if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and
on the terms specified in Section 4(o)(iii)(3) above), then each Buyer
may, at its sole option and in its sole discretion, reduce the number
or amount of the Offered Securities specified
24
in its Notice of Acceptance to an amount that shall be not less
than the number or amount of the Offered Securities that such Buyer
elected to purchase pursuant to Section 4(o)(iii)(2) above multiplied
by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue,
sell or exchange (including Offered Securities to be issued or sold to
Buyers pursuant to Section 4(o)(iii)(3) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the
Offered Securities. In the event that any Buyer so elects to reduce
the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Buyers in accordance
with Section 4(o)(iii)(1) above.
(5) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Buyers shall
acquire from the Company, and the Company shall issue to the Buyers,
the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above if the
Buyers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Buyers of any Offered Securities is subject
in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Buyers
and their respective counsel and to the Company and its counsel.
(6) Any Offered Securities not acquired by the Buyers or
other persons in accordance with Section 4(o)(iii)(3) above may
not be issued, sold or exchanged until they are again offered to the
Buyers under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of
this Section 4(o) shall not apply in connection with the issuance of
any Excluded Securities (as defined in the Notes).
(p) Additional Registration Statements. Until the Effective Date, the
-----------------------------------
Company will not file a registration statement under the 1933 Act relating to
securities that are not the Securities.
(q) No Short Position. Each of the Buyers and any of its Trading
-------------------
Affiliates do not have an open short position in the Common Stock.
(r) Account Control Agreements. The Company shall deliver to the
----------------------------
Buyer(s) within ten (10) Business Days following the Closing Date, a deposit
account control agreement, in form and substance satisfactory to the Buyer(s),
duly executed by the Company, the Buyer(s) and the Company's bank (the
"DEPOSITORY BANK") with respect to the accounts of the Company and, if
applicable, the accounts of its Subsidiaries maintained at the Depository Bank.
25
(s) Transactions With Affiliates. Except as may be required in
------------------------------
connection with the Company's future acquisition of any of its Subsidiaries as
disclosed on Schedule 4(k) attached hereto, or other obligations as disclosed in
-------------
the SEC Documents, so long as any Note or Warrant is outstanding, the Company
shall not, and shall cause each of its Subsidiaries not to, enter into, amend,
modify or supplement, or permit any Subsidiary to enter into, amend, modify or
supplement any agreement, transaction, commitment, or arrangement with any of
its or any Subsidiary's officers, directors, person who were officers or
directors at any time during the previous two (2) years, stockholders who
beneficially own five percent (5%) or more of the Common Stock, or Affiliates
(as defined below) or with any individual related by blood, marriage, or
adoption to any such individual or with any entity in which any such entity or
individual owns a five percent (5%) or more beneficial interest (each a "RELATED
PARTY"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any agreement, transaction, commitment, or arrangement
on an arms-length basis on terms no less favorable than terms which would have
been obtainable from a person other than such Related Party, or (c) any
agreement transaction, commitment, or arrangement which is approved by a
majority of the disinterested directors of the Company, for purposes hereof, any
director who is also an officer of the Company or any subsidiary of the Company
shall not be a disinterested director with respect to any such agreement,
transaction, commitment, or arrangement. "Affiliate" for purposes hereof means,
with respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a ten percent (10%) or more equity interest in that person
or entity, (ii) has ten percent (10%) or more common ownership with that person
or entity, (iii) controls that person or entity, or (iv) shares common control
with that person or entity. "Control" or "controls" for purposes hereof means
that a person or entity has the power, direct or indirect, to conduct or govern
the policies of another person or entity.
(t) Restriction on Issuance of the Capital Stock. Except as may be
------------------------------------------------
required in connection with the Company's future acquisition of any of its
Subsidiaries as disclosed on Schedule 4(k) attached hereto, or other obligations
-------------
as disclosed in the SEC Documents, and except for Excluded Securities (as
defined in the Notes), the Company shall not, without the prior written consent
of the Buyers, (i) issue or sell shares of Common Stock or preferred stock
without consideration or for a consideration per share less than the greater of
the Closing Bid Price of the Common Stock determined immediately prior to its
issuance or $0.01, if the Common Stock is not traded or quoted on the Principal
Market or any national exchange, (ii) issue any warrant, option, right,
contract, call, or other security instrument granting the holder thereof, the
right to acquire Common Stock without consideration or for a consideration less
than the greater of such Common Stock's Closing Bid Price value determined
immediately prior to its issuance or $0.01, if the Common Stock is not traded on
the Principal Market or any national exchange, (iii) enter into any security
instrument granting the holder a security interest in any assets of the Company
or its Subsidiaries, or (iv) file any registration statement on Form S-8,
provided that (x) such shares are not issued without consideration or for a
consideration less than the greater of the Common Stock's Closing Bid Price on
the date of issuance or $0.01, if the Common Stock is not traded or quoted on
the Principal Market or any national exchange, and (y) such Form S-8
registration statement is not filed prior to 90 days following the effectiveness
of the registration statement. "Closing Bid Price" on any day shall be the
closing bid price for a share of Common Stock on such date on the Principal
Market (or such other exchange, market, or other system that the Common Stock is
then traded on), as reported on Bloomberg, L.P. (or similar organization or
agency succeeding to its functions of reporting prices).
26
(u) Removal of Legend. In addition to the Buyer's other available
-------------------
remedies, the Company shall pay to the Buyer, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares and/or
Conversion Shares (based on the closing price of the Common Stock on the date
such Warrant Shares and/or Conversion Shares are submitted to the Company's
transfer agent), $5 per trading day (increasing to $10 per Trading Day five
Trading Days after such damages have begun to accrue) for each trading day after
the third trading day following delivery by a Buyer to the Company or the
Company's transfer agent of a certificate representing Warrant Shares and/or
Conversion Shares issued with a restrictive legend, until such certificate is
delivered to the Buyer with such legend removed. Nothing herein shall limit the
Buyer's right to pursue actual damages for the failure of the Company and its
transfer agent to deliver certificates representing any securities as required
hereby or by the Irrevocable Transfer Agent Instructions, and the Buyer shall
have the right to pursue all remedies available to it at law or in equity,
including, without limitation, a decree of specific performance and/or
injunctive relief.
(v) Conduct of Business. Neither the Company nor its Subsidiaries will
-------------------
conduct its business in violation of any term of or in default under its
Certificate or Articles of Incorporation or Bylaws. Neither the Company nor any
of its Subsidiaries will conduct its business in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation applicable to the
Company or its Subsidiaries, except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect.
(w) Collateral Agent.
------------------
(i) Each Buyer hereby (a) appoints GCF, as the collateral
agent hereunder and under the other Security Documents (in such capacity, the
"COLLATERAL AGENT"), and (b) authorizes the Collateral Agent (and its officers,
directors, employees and agents) to take such action on such Buyer's behalf in
accordance with the terms hereof and thereof. The Collateral Agent shall not
have, by reason hereof or any of the other Security Documents, a fiduciary
relationship in respect of any Buyer. Neither the Collateral Agent nor any of
its officers, directors, employees and agents shall have any liability to any
Buyer for any action taken or omitted to be taken in connection hereof or any
other Security Document except to the extent caused by its own gross negligence
or willful misconduct, and each Buyer agrees to defend, protect, indemnify and
hold harmless the Collateral Agent and all of its officers, directors, employees
and agents (collectively, the "COLLATERAL AGENT INDEMNITEES") from and against
any losses, damages, liabilities, obligations, penalties, actions, judgments,
suits, fees, costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Collateral Agent
Indemnitee, whether direct, indirect or consequential, arising from or in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.
(ii) The Collateral Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the other
27
Transaction Documents and its duties hereunder or thereunder, upon advice of
counsel selected by it.
(iii) The Collateral Agent (i) may resign from the
performance of all its functions and duties hereunder and under the Notes and
the Security Documents at any time by giving at least ten (10) Business Days
prior written notice to the Company and each holder of the Notes and (ii) the
Collateral Agent shall immediately resign if Gottbetter Capital Finance, LLC, or
one of its affiliates, is no longer a holder of the Notes. Such resignation
shall take effect upon the acceptance by a successor Collateral Agent of
appointment as provided below. Upon any such notice of resignation, the holders
of a majority of the outstanding principal under the Notes shall appoint a
successor Collateral Agent. Upon the acceptance of the appointment as
Collateral Agent, such successor Collateral Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from its
duties and obligations under this Agreement, the Notes and the other Security
Documents. After any Collateral Agent's resignation hereunder, the provisions
of this Section 4(w) shall inure to its benefit. If a successor Collateral
Agent shall not have been so appointed within said ten (10) Business Day period,
the retiring Collateral Agent shall then appoint a successor Collateral Agent
who shall serve until such time, if any, as the holders of a majority of the
outstanding principal under the Notes appoint a successor Collateral Agent as
provided above.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
----------------------------------------
(a) Register. The Company shall maintain at its principal executive
--------
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes and the Warrants
in which the Company shall record the name and address of the Person in whose
name the Notes and the Warrants have been issued (including the name and address
of each transferee), the principal amount of Notes held by such Person, the
number of Conversion Shares issuable upon conversion of the Notes and the number
of Warrant Shares issuable upon exercise of the Warrants held by such Person.
The Company shall keep the register open and available at all times during
business hours for inspection by any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
-----------------------------
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares issued
at the Closing or upon conversion of the Notes or exercise of the Warrants in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit E
---------
attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent
28
to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
-----------------------------------------------------
The obligation of the Company hereunder to issue and sell the Notes and the
related Warrants to each 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 each Buyer with prior
written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the
Company.
(ii) Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price (less, in the case of GCF, the amounts
withheld pursuant to Section 4(g)) for the Notes and the related Warrants
being purchased by such Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by
the Company.
(iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by such Buyer at or prior to the
Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------------
The obligation of each Buyer hereunder to purchase the Notes and the
related Warrants 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:
29
(i) The Company shall have executed and delivered (or, in the case
of any Transaction Document to which a Subsidiary is a party, caused
such Subsidiary to execute and deliver) to such Buyer (A) each of the
Transaction Documents to which it or any Subsidiary is a party, (B) the
Notes (in such principal amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement, and (C)
the Warrants (in such amounts as such Buyer shall request) being purchased
by such Buyer at the Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Glast, Xxxxxxxx
& Xxxxxx, P.C., the Company's outside counsel, dated as of the Closing
Date, in substantially the form of Exhibit F attached hereto and a letter
---------
stating that the Company is good standing with its attorneys.
(iii) The Company shall have delivered to such Buyer a true copy
of the Irrevocable Transfer Agent Instructions, which instructions
shall have been delivered to and acknowledged in writing by the Company's
transfer agent.
(iv) The Company shall have delivered to such Buyer a true copy of
a certificate evidencing the formation and good standing of the
Company and each of its Subsidiaries in such entity's jurisdiction of
formation issued by the Secretary of State (or comparable office) of such
jurisdiction, as of a date within ten (10) days of the Closing Date.
(v) The Company shall have delivered to such Buyer a true copy of
a certificate evidencing the Company's and each Subsidiary's
qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company or such Subsidiary conducts business, as of a date within ten (10)
days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a certified
copy of the Articles of Incorporation as certified by the Secretary of
State of the State of Delaware within ten (10) days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a
certificate, executed by the Chief Executive Officer of the Company
and dated as of the Closing Date, as to (i) the resolutions consistent with
Section 3(b) as adopted by the Company's Board of Directors in a form
reasonably acceptable to such Buyer, (ii) the Articles of Incorporation and
(iii) the Bylaws, each as in effect at the Closing, in the form attached
hereto as Exhibit G.
----------
(viii) The representations and warranties of the Company shall be
true and correct in all material respects (other than representations
and warranties that are already qualified by materiality or Material
Adverse Effect which shall be true and correct in all respects) 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) and the Company shall have performed, satisfied and complied in all
respects with the covenants,
30
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 and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit H.
---------
(ix) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within two (2) days of the Closing Date.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended,
as of the Closing Date, by the SEC or the Principal Market from trading on
the Principal Market nor shall suspension by the SEC or the Principal
Market have been threatened, as of the Closing Date, either (A) in writing
by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.
(xi) The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale
of the Securities and the grant of the security interest in the assets of
the Company and its Subsidiaries, including the consent of any existing
lender or landlord of the Company or any Subsidiary, as applicable.
(xii) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's
certified public accountant as to its ability to provide all consents
required in order to file a registration statement in connection with this
transaction and that the Company is in good standing with its auditors.
(xiii) Within six (6) Business Days prior to the Closing Date, the
Company shall have delivered or caused to be delivered to each Buyer
(A) true copies of UCC search results setting forth the Permitted Liens,
and the results of searches for any tax lien and judgment lien filed
against such Person or its property, which results, except as otherwise
agreed to in writing by the Buyers shall not show any such Liens (as
defined in the Security Documents); and (B) a perfection opinion in form
and substance satisfactory to the Buyers.
(xiv) The Company shall have delivered to the Buyers the Series D
Waiver signed by all of the Buyers in the Series D Purchase Agreement.
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
-----------
respect to a
31
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 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party without liability
to any other party; provided, however, that if this Agreement is terminated
-------- -------
pursuant to this Section 8, the Company shall remain obligated to reimburse the
non-breaching Buyers for the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
-------------
(a) Governing Law; Jurisdiction; 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 cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the 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. 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 WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
32
(e) Entire Agreement; Amendments. This Agreement and the other
------------------------------
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their Affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Required Holders, and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities, as applicable. No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the applicable Securities 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, holders of Notes or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
(f) 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 (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier 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:
Charys Holding Company, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx X000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxx, Xx.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Copy to (for informational purposes only):
Glast, Xxxxxxxx & Xxxxxx, P.C.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
33
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Transfer Agent:
Fidelity Transfer Company
0000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, with a copy (for informational purposes only) to:
Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
or to 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 an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) 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 Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders (unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth in
the Notes and the Warrants). A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee shall
be deemed to be a Buyer hereunder with respect to such assigned rights; provided
that such assignee agrees in writing to be bound by all of the provisions
contained herein.
(h) No Third Party Beneficiaries. This Agreement is intended for the
------------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and, except as set forth in Section 9(k) below, is not for the benefit
of, nor may any provision hereof be enforced by, any
34
other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
--------
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) 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
any 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.
(k) Indemnification. In consideration of each Buyer's execution and
---------------
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, managers, 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 (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company or any Subsidiary in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company or any Subsidiary contained in
the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) 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, (iii) any disclosure made by such Buyer pursuant to Section
4(i), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.
35
(l) 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.
(m) 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 specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, 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.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
---------------------------------
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that the Company makes a payment
------------------
or payments to the Buyers 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, foreign, 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.
(p) Independent Nature of Buyers' Obligations and Rights. The
----------------------------------------------------------
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents and the Company
acknowledges that to its knowledge the Buyers are not acting in concert or as a
36
group, and the Company will not assert any such claim, with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Buyer confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
37
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
CHARYS HOLDING COMPANY, INC.
By
------------------------------------
Name: Xxxxx X. Xxx, Xx.
Title: Chief Executive Officer
BUYERS:
GOTTBETTER CAPITAL FINANCE, LLC
By:
------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President
FORT XXXXX MASTER, LP
By:
------------------------------------
Name: Xxx German
Title: Managing Member, Fort Xxxxx
Capital, LLC
FORT XXXXX PARTNERS, LP
By:
------------------------------------
Name: Xxx German
Title: Managing Member, Fort Xxxxx
Capital, LLC
UBS X'XXXXXX LLC, FBO X'XXXXXX PIPES
CORPORATE STRATEGIES MASTER LIMITED
By:
------------------------------------
Name: Xxxx Xxxxxxxx
Title:
38
FORT XXXXX CAPITAL, LLC
By:
------------------------------------
Name: Xxx German
Title: Managing Member
GCA STRATEGIC INVESTMENT FUND LIMITED
By:
------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Director
PCM II, LLC
By: Prentice Capital Management, LP, as
Manager
By:
------------------------------------
Name: Xxxxxxx Xxxxx
Its: Chief Financial Officer
39
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6)
AGGREGATE
NUMBER OF LEGAL REPRESENTATIVE'S
ADDRESS AND AGGREGATE NOTE WARRANT ADDRESS AND
BUYER FACSIMILE NUMBER PRINCIPAL SHARES FACSIMILE NUMBER PURCHASE PRICE
------------------- ----------------------------- ---------------- ---------- ---------------------------- ----------------
Gottbetter Capital 000 Xxxxxxx Xxxxxx $ 1,052,632 254,084 Xxxxx X. Xxxxxxx, Esq. $ 1,000,000
Finance, LLC 00xx Xxxxx Xxxxxxxxxx & Xxxxxxxx, XXX
Xxx Xxxx, XX 00000 000 Xxxxxxx Xxxxxx
Facsimile: 12th Floor
212.400.6999 Xxx Xxxx, XX 00000
Facsimile: 212.400.6901
PCM II, LLC 000 Xxxxx Xxxxxx, 00xx $ 10,526,315 2,540,835 Xxxxxxx Xxxxx $ 10,000,000
Fl. Prentice Capital
Xxx Xxxx, XX 00000 Management, LP
Facsimile: (212) 756- 000 Xxxxx Xxxxxx, 00xx Xx.
1480 Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Fort Xxxxx Master, Four Embarcadero $ 7,413,946.95 1,789,573 Xxxxxxxx Xxxxxx $ 7,043,249.60
LP Center, Xxxxx 0000 Xxxx Xxxxx Xxxxxxx, XXX
Xxx Xxxxxxxxx, XX Four Embarcadero Center,
94111 Suite 2050
Facsimile: Xxx Xxxxxxxxx, XX 00000
000.000.0000 Facsimile: 000 000-0000
Fort Xxxxx Four Embarcadero $ 480,789.47 116,053 Xxxxxxxx Xxxxxx $ 456,749.99
Partners, LP Center, Suite 2050 Fort Xxxxx Capital, LLC
San Francisco, CA Four Embarcadero Center,
94111 Suite 2050
Facsimile: Xxx Xxxxxxxxx, XX 00000
000.000.0000 Facsimile: 000 000-0000
UBS X'Xxxxxx One North Xxxxxx $ 526,316 127,042 Xxxxx Xxxxxx, Esq. $ 000,000
XXX, Xxxxx, 00xx Xxxxx UBS X'Xxxxxx
FBO X'Xxxxxx Xxxxxxx, XX 00000 1 North Xxxxxx
PIPES Corporate Facsimile: 312-525- Xxxxxxx, XX 00000
Strategies Master 6271 Facsimile: 000-000-0000
Limited
GCA Strategic c/o Prime Management Limited $ 1,052,632 254,084 Xxxxx X. Xxxxxx $ 1,000,000
Investment Fund Mechanics Building GCA Strategic Investment
Limited 00 Xxxxxx Xxxxxx Xxxx Xxxxxxx
Xxxxxxxx XX XX, Xxxxxxx c/o Prime Management
Limited
Mechanics Xxxxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxxx XX XX, Xxxxxxx
Xxxxxxxxx: 441-295-3926
--------------------------------------------------------------------------------------------------------------------------------
40
EXHIBITS
Exhibit A Form of Notes
Exhibit B Form of Warrants
Exhibit C Registration Rights Agreement
Exhibit D Form of Security Agreement
Exhibit E Irrevocable Transfer Agent Instructions
Exhibit F Form of Opinion Letter
Exhibit G Form of Resolutions, Articles of Incorporation and By-Laws
Exhibit H Form of Officer's Certificate
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(k) SEC Documents; Financial Statements
Schedule 3(l) Absence of Certain Changes
Schedule 3(q) Transactions with Affiliates
Schedule 3(r) Exceptions to Equity Capital
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(x) Intellectual Property Rights
Schedule 3(z) Subsidiary Rights
Schedule 3(bb) Tax Status
Schedule 3(ee) Ranking of Notes
Schedule 3(kk) Permitted Liens
Schedule 4(d) Use of Proceeds
41
