COVOL TECHNOLOGIES, INC.
DEBENTURE AGREEMENT AND SECURITY AGREEMENT
DECEMBER 20, 1996
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TABLE OF CONTENTS
Section Page
1. Purchase and Sale of Debenture.................................. 1
1.1 Issuance of Convertible Subordinated Debenture......... 1
1.2 Issuance of the Senior Debentures...................... 1
1.3 Closing................................................ 1
2. Representations, Warranties and Covenants of the Company........ 2
2.1 Corporate Existence; Compliance with Law............... 2
2.2 Corporate Power; Authorization; Enforceable Obligations. 2
2.3 Authorization and Valid Issuance of Debentures and Shares of
Common Stock............................................ 3
........................................................ 3
2.4 Disclosure.............................................. 3
2.5 Ownership of Property; Liens............................ 3
2.6 Patents, Trademarks, Copyrights and Licenses............ 3
2.7 No Material Adverse Effect.............................. 4
2.8 Environmental Laws...................................... 4
2.9 Use of Proceeds......................................... 4
3. Representations, Warranties and Covenants of the Investor........ 4
3.1 Purchase Entirely for Own Account....................... 4
3.2 Disclosure of Information............................... 4
3.3 Investment Experience................................... 5
3.4 Restricted Securities................................... 5
3.5 Legends................................................. 5
3.6 Accredited Investor..................................... 5
4. Security Agreement............................................... 5
4.1 Security Interest....................................... 6
4.2 Collateral.............................................. 6
4.3 Perfection and Priority................................. 6
4.4 Affirmative Covenants................................... 6
4.5 Negative Covenants...................................... 7
4.6 Insurance; Payment of Premiums.......................... 7
4.7 Remedies Upon Default................................... 8
5. Conditions Precedent............................................. 9
5.1 Execution and Delivery of Agreement..................... 9
5.2 Documents and Other Agreements.......................... 9
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5.3 Absence of Material Adverse Change......................10
5.4 Conditions to the Initial Closing.......................10
5.5 Conditions to Each Closing..............................10
6. Miscellaneous....................................................11
6.1 Survival of Warranties..................................11
6.2 Successors and Assigns..................................11
6.3 Governing Law...........................................11
6.4 Counterparts............................................11
6.5 Titles and Subtitles....................................11
6.6 Notices.................................................11
6.7 Expenses................................................11
6.8 Amendments and Waivers..................................11
6.9 Severability............................................12
6.10 Indemnity...............................................12
6.11 Waiver of Trial by Jury.................................12
6.12 Entire Agreement........................................12
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DEBENTURE AGREEMENT AND SECURITY AGREEMENT
THIS DEBENTURE AGREEMENT AND SECURITY AGREEMENT is made as of the 20th
day of December, 1996, by and among COVOL TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and AJG FINANCIAL SERVICES, INC., a Delaware
corporation ("Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Debenture.
1.1 Issuance of Convertible Subordinated Debenture. Subject to
the terms and conditions of this Agreement, Investor agrees to lend at
the Closing, and the Company agrees to borrow and issue to Investor at
the Closing, the Company's 6% Convertible Subordinated Debenture in the
form set forth in Exhibit A (the "Convertible Debenture") in the
principal amount of $1,100,000, such amount to be paid by wire transfer
or check payable to the order of Covol Technologies, Inc. within three
(3) business days of the Initial Closing.
1.2 Issuance of the Senior Debentures. Subject to the terms
and conditions of this Agreement, Investor agrees to lend and the
Company agrees to borrow and issue at each Subsequent Closing the
Company's Senior Debenture in the form set forth in Exhibit B (the
"Senior Debenture" and together with the "Convertible Debenture, the
"Debentures"), in the principal amount set forth in the Funding
Request, up to $2,900,000, such amount to be paid by wire transfer or
check payable to the order of Covol Technologies, Inc. at each
Subsequent Closing.
1.3 Closing.
(a) The issuance of the Convertible Debenture
hereunder shall be on December 20, 1996 (the "Initial
Closing"). Within three (3) business days of the Initial
Closing Investor shall pay by wire transfer or check the
principal amount of the Convertible Debenture.
(b) The issuance of the Senior Debentures shall occur
from time to time within 10 days of the delivery of request by
the Company ("Funding Request") setting forth the amount
requested and the proposed use of the proceeds of the amount
requested (each a "Subsequent Closing"). At each Subsequent
Closing, Investor shall pay to the Company the amount set
forth in the Funding Request, up to an aggregate of
$2,900,000, and the Company shall deliver to
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Investor a Senior Debenture in a principal amount equal to the
amount set forth in the Funding Request, up to an aggregate
principal amount of $2,900,000.
2. Representations, Warranties and Covenants of the Company. The
Company hereby represents, warrants and covenants to each Investor that:
2.1 Corporate Existence; Compliance with Law. The Company (i)
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (ii) is duly qualified as a
foreign corporation and in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification (iii) has the requisite
corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease, and to conduct its business as now,
heretofore and proposed to be conducted; (iv) has all material
licenses, permits, consents or approvals from or by, and has or will
have made all material filings with, and has or will have given all
material notices to, all governmental authorities having jurisdiction,
to the extent required for such ownership, operation and conduct; (v)
is in compliance with its certificate of incorporation and by-laws; and
(vi) is in compliance with all applicable provisions of law, including,
without limitation, the Employee Retirement Income Security Act of
1974, as amended, those regarding the collection, payment and deposit
of employees' income, unemployment and Social Security taxes, and those
relating to environmental matters where the failure to comply could
reasonably be expected to have a material adverse effect on the
business of the Company.
2.2 Corporate Power; Authorization; Enforceable Obligations.
The execution, delivery and performance by the Company of this
Agreement and the Debentures (i) are within the Company's corporate
power; (ii) have been duly authorized by all necessary or proper
corporate action; (iii) are not in contravention of any provision of
the Company's certificate of incorporation or by-laws; (iv) will not
violate any law or regulation, or any order or decree of any court or
governmental instrumentality; (v) will not conflict with or result in
the breach or termination of, constitute a default under, or accelerate
any performance required by, any indenture, mortgage, deed of trust,
lease, agreement or other instrument to which the Company is a party or
by which the Company or any of its property is bound (except such
conflict, breach, termination, default or acceleration as could not
reasonably be expected to have a material adverse effect on the
business of the Company); (vi) will not result in the creation or
imposition of any lien upon any of the property of the Company other
than those in favor of the Investor; and (vii) do not require the
consent or approval of any governmental body, agency, authority or any
other Person. At or prior to the Initial Closing, each of the documents
to be delivered at such time shall have been duly executed and
delivered for the benefit of or on behalf of the Company, and each
shall then constitute a legal, valid
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and binding obligation of the Company to the extent it is a party
thereto, enforceable against it in accordance with its terms, subject
to the effects of laws governing creditors rights generally and general
principles of equity.
2.3 Authorization and Valid Issuance of Debentures and Shares
of Common Stock. All corporate action on the part of the Company and
its officers, directors and stockholders necessary for the
authorization, issuance and delivery of the Debentures being issued
hereunder and the reservation for issuance of shares of Common Stock
issuable upon conversion of the Debentures has been taken or will be
taken prior to the Closing, and this Agreement and the Debentures, when
issued and paid for, shall then constitute valid and legally binding
obligations of the Company, each enforceable in accordance with its
terms. The Debentures which are being acquired by the Investor, when
issued and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued. The
Common Stock issuable upon conversion of the Convertible Debentures
purchased under this Agreement has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the
Company's Certificate of Incorporation, shall be duly and validly
issued, fully paid and nonassessable, and issued in compliance with all
applicable federal and state securities laws, as currently in effect.
2.4 Disclosure. The Company's (i) Registration Statement on
Form 10/A, Amendment No. 2, filed on approximately April 25, 1996, (ii)
Form 10-Q for the quarter ended Xxxxx 00, 0000, (xxx) Form 8-K dated
June 3, 1996, (iv) Form 10-Q for the quarter ended June 30, 1996, and
(v) all other written information furnished to Investor did not, as of
the date of such filings or information, contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein not misleading. The Company is currently
preparing its financial statements for the fiscal year ended September
30, 1996, subject to audit, and its annual report on Form 10-K for the
fiscal year ended September 30, 1996, which may show significant
changes from prior filings with the Securities and Exchange Commission.
2.5 Ownership of Property; Liens. The Company owns good and
merchantable title to, or valid leasehold interests in, all of its
properties and assets; and the Company has received all deeds,
assignments, waivers, consents, non-disturbance and recognition or
similar agreements, bills of sale and other documents, and duly
effected all recordings, filings and other actions necessary to
establish, protect and perfect the Company's right, title and interest
in and to all such property to the extent necessary to use such
property in its ordinary business operations.
2.6 Patents, Trademarks, Copyrights and Licenses. The Company
owns all material licenses, patents, patent applications, copyrights,
service marks, trademarks, trademark applications, and trade names
necessary to continue to conduct its business as
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heretofore conducted by it, now conducted by it and proposed to be
conducted by it, each of which is listed, together with Patent and
Trademark Office application or registration numbers, where applicable,
on Schedule 2.6 hereto. The Company conducts its businesses without
infringement or claim of infringement of any license, patent,
copyright, service xxxx, trademark, trade name, trade secret or other
intellectual property right of others. To the best knowledge of the
Company, there is no infringement or claim of infringement by others of
any material, license, patent, copyright, service xxxx, trademark,
trade name, trade secret or other intellectual property right of the
Company.
2.7 No Material Adverse Effect. Except as disclosed on
Schedule 2.7 hereto, no event has occurred since June 30, 1996, and is
continuing which has had or could reasonably be expected to have a
material adverse effect on the business, assets, properties,
operations, prospects or financial or other condition of the Company.
2.8 Environmental Laws. All premises and facilities owned,
leased, used or operated by the Company or, to the knowledge of any
executive officer of the Company after a reasonable investigation, any
predecessor in interest, have been, and continue to be, owned, leased,
used or operated in compliance in all material respects with all
applicable environmental laws.
2.9 Use of Proceeds. The proceeds of the issuance of the
Debentures shall be used to satisfy certain contractual obligations of
the Company, for working capital to fund operations, and to purchase
equipment to be used to construct coal briquetting facilities to be
managed and/or sold by the Company or affiliates of the Company.
3. Representations, Warranties and Covenants of the Investor.
Investor hereby represents and warrants that:
3.1 Purchase Entirely for Own Account. Investor hereby
confirms that the Debentures to be received by Investor hereunder and
the Common Stock issuable upon conversion of the Convertible Debenture
(collectively, the "Securities") will be acquired for Investor's own
account and not with a view to the resale or distribution of any part
thereof, and that Investor has no agreement or arrangement with regard
to or present intention of selling, granting any participation in, or
otherwise distributing the same; provided, however, notwithstanding the
foregoing, Investor may effect transactions in reliance on Rule 144A
promulgated under the Securities Act of 1933, as amended (the "Act").
3.2 Disclosure of Information. Investor has received all
the information it considers necessary or appropriate for deciding
whether to purchase the Debentures being issued hereunder. Investor
further represents that it has had an opportunity to ask
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questions and receive answers from the Company regarding the terms and
conditions of the sale of the Debentures.
3.3 Investment Experience. Investor acknowledges that it is
able to fend for itself, can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment
in the Debentures being issued hereunder.
3.4 Restricted Securities. Investor understands that the
Debenture and the shares of Common Stock issuable upon conversion of
the Convertible Debenture it is acquiring pursuant hereto are
characterized as "restricted securities" under the federal securities
laws inasmuch as each is being acquired from the Company in a
transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In
this connection, Investor represents that it is familiar with Rule 144
under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.5 Legends. It is understood that the Debentures being issued
hereunder (and the Common Stock issuable upon conversion thereof) will
bear a legend substantially similar to the following:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED OR
OTHERWISE QUALIFIED FOR SALE UNDER ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR SOLD OR OFFERED
FOR SALE OR OTHERWISE TRANSFERRED, PLEDGED, HYPOTHECATED OR
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT AND
REGISTERED OR OTHERWISE QUALIFIED FOR SALE UNDER SUCH STATE
SECURITIES LAWS OR AN EXCEPTION FROM REGISTRATION THEREUNDER
IS AVAILABLE."
3.6 Accredited Investor. Investor is an Accredited
Investor within the definition set forth in Rule 501(a) under the Act.
4. Security Agreement. Payment of the Senior Debenture shall be
secured to the extend described below:
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4.1 Security Interest. The Company hereby grants to Investor a
security interest in the property and its proceeds described in Section
4.2 herein to secure the Company's obligations under the Senior
Debenture (the "Security Interest").
4.2 Collateral. The property in which the Security Interest is
granted (the "Collateral") consists of a continuing interest in all
real and personal property purchased by the Company from the proceeds
of the issuance of the Senior Debentures, and all accessions to,
substitutions for and all replacements, products and proceeds thereof,
including, without limitation, proceeds of insurance policies insuring
the Collateral, and all books and records (including, without
limitation, computer programs, printouts and other computer materials
and records) of the Company pertaining to any of the foregoing. The
Company shall provide in each Funding Request an accounting to Investor
of the proposed use of any proceeds of the issuance of the Senior
Debentures. At the applicable Subsequent Closing or at the time the
Collateral is acquired, the Company shall execute and deliver to
Investor any documents, notices or instruments reasonably requested by
Investor to perfect, evidence, give effect to or give notice of
Investor's security interest, and shall pay all costs in connection
therewith.
4.3 Perfection and Priority. The Security Interest grant
herein shall be a first priority lien on the Collateral, subject to no
other liens, claims or rights of others.
4.4 Affirmative Covenants. The Company covenants that it
shall:
(a) Keep and maintain all Collateral consisting of
equipment and machinery in good operating condition and
repair; make all necessary replacements thereof so that the
value and operating efficiency thereof shall at all times be
maintained and preserved; promptly inform Investor of any
additions to or deletions from such equipment and machinery;
and prevent any such equipment and machinery from becoming a
fixture to real estate or accession to other personal
property;
(b) Promptly discharge any liens, encumbrances
or other claims against the Collateral;
(c) Maintain such insurance as may be required by law
and such other insurance to such extent and against such
hazards and liabilities as is customarily maintained by
companies similarly situated, and include Investor as an
additional insured on all liability policies; and
(d) Comply strictly and in all respects with all
applicable environmental laws.
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4.5 Negative Covenants. The Company covenants that it
shall not, without Investor's prior written consent, which Investor may
or may not in its sole discretion give:
(a) Enter into any transaction which materially
and adversely affects the Collateral or the Company's ability
to repay the indebtedness under the Senior Debentures;
(b) Remove the Collateral from the locations set
forth in the Funding Request with respect to the purchase of
such Collateral or keep the Collateral at any other
location(s) unless (i) the Company gives Investor written
notice thereof and of the new location of the Collateral at
least thirty (30) days prior thereto, and (ii) the other
location is within the continental United States of America;
or
(c) Create or permit any lien on any of the
Collateral, other than liens created hereunder.
4.6 Insurance; Payment of Premiums. The Company shall, at its
sole cost and expense, keep and maintain the Collateral insured for its
full insurable value against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks ordinarily insured against
by other owners or users of such properties in similar businesses and
notify Investor promptly of any occurrence causing a material loss or
decline in value of the Collateral and the estimated (or actual, if
available) amount of such loss or decline. All policies of insurance on
the Collateral shall be in form and with insurers recognized as
adequate by prudent business persons and all such policies shall be in
such amounts as may be satisfactory to Investor. The Company shall
deliver to Investor a certificate of insurance and, upon request, the
original (or certified copy) of each policy of insurance, and evidence
of payment of all premiums therefor. Such policies of insurance shall
contain an endorsement, in form and substance acceptable to Investor,
showing loss payable to Investor, as its interests may appear. Such
endorsement, or an independent instrument furnished to Investor, shall
provide that the insurance companies will give Investor at least thirty
(30) days prior written notice before any such policy or policies of
insurance shall be altered or cancelled and that no act or default of
the Company or any other person shall affect the right of Investor to
recover under such policy or policies of insurance in case of loss or
damage. The Company hereby directs all insurers under such policies of
insurance to pay all proceeds payable thereunder directly to Investor,
as its interests may appear. The Company irrevocably makes, constitutes
and appoints Investor (and all officers, employees or agents designated
by Investor) as the Company's true and lawful attorney (and
agent-in-fact) for the purpose of making, settling and adjusting claims
under such policies of insurance, endorsing the name of the Company on
any check, draft, instrument or other items of payment for the proceeds
of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. In the event the
Company, at any time hereafter, shall fail to
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obtain or maintain any of the policies of insurance required above or
to pay any premium in whole or in part relating thereto, then Investor,
without waiving or releasing any obligations or default by the Company
hereunder, may at any time thereafter (but shall be under no obligation
to) obtain and maintain such policies of insurance and pay such premium
and take any other action with respect thereto which Investor deems
advisable. All sums so disbursed by Investor, including reasonable
attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable on demand by the Company to Investor and
shall be additional liabilities under the Senior Debentures secured by
the Collateral.
4.7 Remedies Upon Default. In the event of any Event of
Default under the Senior Debentures, Investor may do any one or more of
the following:
(a) Declare any indebtedness under the Senior
Debenture immediately due and payable;
(b) Enforce the security interest given in this
Agreement under the provisions of the Uniform Commercial Code
of the applicable state or any other equivalent law;
(c) Enter upon the premises of the Company, without
any obligation to pay rent to the Company, through self-help
and without judicial process, without first obtaining a final
judgment or giving the Company notice and opportunity for a
hearing on the validity of Investor's claim, or any other
place or places where the Collateral is located and kept, and
remove the Collateral therefrom to the premises of Investor or
any agent of Investor, for such time as Investor may desire,
in order to effectively collect or liquidate the Collateral,
or (ii) require the Company to assemble the Collateral and
make it available to Investor at a place to be designated by
Investor, in its sole discretion;
(d) Take possession of the Collateral or any
part of it and of the records pertaining to the Collateral;
(e) Sell or otherwise dispose of all or any
Collateral at public or private sale or sales, with such
notice as may be required by law, in lots or in bulk, for cash
or on credit, all as Investor, in its sole discretion, may
deem advisable; (ii) adjourn such sales from time to time with
or without notice; (iii) conduct such sales on the Company's
premises or elsewhere and use the Company's premises without
charge for such sales for such time or times as Investor may
see fit. Investor shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for
cash, credit or any combination thereof, and Investor may
purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment
of such purchase
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price, may setoff the amount of such price against the
indebtedness under the Senior Debentures. The proceeds
realized from the sale of any Collateral shall be applied
first to the reasonable costs, expenses and attorneys' fees
and expenses incurred by Investor for collection and for
acquisition, completion, protection, removal, storage, sale
and delivery of the Collateral; second to interest due upon
any of the indebtedness under the Senior Debentures; and third
to the principal of the indebtedness under the Senior
Debentures. If any deficiency shall arise, the Company shall
remain liable to Investor therefor; and
(f) Exercise any other rights and remedies of a
secured party under the Uniform Commercial Code of the
applicable state or other applicable law, all of which rights
and remedies shall be cumulative and non-exclusive, to the
extent permitted by law.
5. Conditions Precedent
This Agreement shall become effective upon the satisfaction of the
following conditions precedent:
5.1 Execution and Delivery of Agreement. This Agreement or counterparts
thereof shall have been duly executed by, and delivered to, the Company and the
Investor.
5.2 Documents and Other Agreements. The Investor shall have received
all of the following, each in form and substance satisfactory to the Investor:
(a) Convertible Debenture;
(b) Registration Rights Agreement between the Company and
the Investor (the "Registration Rights Agreement");
(c) A Certificate of the Secretary of the Company, together
with true and correct copies of the Certificate of Incorporation and
By-Laws of the Company, and all amendments thereto, true and correct
copies of the resolutions of the Board of Directors of the Company
authorizing or ratifying the execution, delivery and performance of
this Agreement, the Debentures and the Registration Rights Agreement,
and the names of the officer or officers of the Company authorized to
sign this Agreement, the Debentures and the Registration Rights
Agreement, together with a sample of the true signature of each such
officer;
(d) Certified copies of all documents evidencing any other
necessary corporate action, consents and governmental approvals (if
any) with respect to this Agreement, the Debentures and the
Registration Rights Agreement;
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(e) The favorable opinion of Ballard, Spahr, Xxxxxxx &
Ingersoll, counsel for the Company, addressed to the Investor with
respect to such matters as may be reasonably requested by the Investor;
(f) The Certificate of Incorporation of the Company
certified by the Secretary of State of Delaware;
(g) Good Standing Certificates for the Company from the
Secretaries of State of Delaware and Utah;
(h) UCC lien search reports of filings against the
Company for such jurisdictions as the Investor deems appropriate;
(i) UCC Financing Statements filed against the Company in
respect to such jurisdictions as the Investor deems appropriate; and
(j) Certificate of insurance, together with a properly
executed Lender's Loss Payable Clause.
5.3 Absence of Material Adverse Change. No material adverse change in
the business, operations or condition, financial or otherwise, of the Company
shall have occurred or be continuing.
5.4 Conditions to the Initial Closing. It shall be a condition to the
Initial Closing that the conditions contained in Sections 5.1, 5.2 and 5.3 shall
have been fulfilled.
5.5 Conditions to Each Closing. It shall be a further condition to the
Initial Closing and to each Subsequent Closing that the following statements
shall be true on the date of each such Closing:
(a) All of the representations and warranties of the Company
contained herein shall be correct in all material respects on and as of
the date of each such Closing as though made on and as of such date,
except (i) to the extent that any such representation or warranty
expressly relates to an earlier date, and (ii) for changes therein
permitted or contemplated by this Agreement.
(b) No event shall have occurred and be continuing which
constitutes or would constitute an Event of Default under the
Debentures.
The acceptance by the Company of the proceeds of the issuance
of any Debenture shall be deemed to constitute, as of the date of such
acceptance, (i) a representation and warranty by the Company that the
conditions in this Section 5.5 have been satisfied and
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(ii) a confirmation by the Company of the granting and continuance of
the Investor's lien on the Collateral.
6. Miscellaneous.
6.1 Survival of Warranties. The warranties, representations
and covenants of the Company and the Investor contained in or made
pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of
Investor or the Company.
6.2 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of
the parties (including transferees of any of the Debentures issued
hereunder or any Common Stock issued upon conversion thereof).
6.3 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of Utah without regard to
choice of law principles.
6.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be
notified or upon deposit with a reputable overnight courier or with the
United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days advance written
notice to the other parties.
6.7 Expenses. Each party shall bear its own expenses in
connection with the transactions contemplated by this Agreement.
6.8 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
only with the written consent of the Company and the Investor. Any
amendment or waiver effected in accordance with this Section shall be
binding upon each holder of any securities
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purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future
holder of all such securities, and the Company.
6.9 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall
be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so exuded and shall be
enforceable in accordance with its terms.
6.10 Indemnity. The Company hereby indemnifies the Investor,
and its directors, officers, employees, affiliates and agents
(collectively, "Indemnified Persons") against, and agrees to hold each
such Indemnified Person harmless from, any and all losses, claims,
damages and liabilities, including claims brought by any stockholder or
former stockholder of the Company, and related expenses, including
reasonable counsel fees and expenses, incurred by such Indemnified
Person arising out of any claim, litigation, investigation or
proceeding (whether or not such Indemnified Person is a party thereto)
relating to any transactions, services or matters that are the subject
of this Agreement; provided, however, that such indemnity shall not
apply to any such losses, claims, damages, or liabilities or related
expenses determined by a court of competent jurisdiction to have arisen
from the gross negligence or willful misconduct of such Indemnified
Person.
6.11 Waiver of Trial by Jury. THE COMPANY AND THE INVESTOR
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE DEBENTURES OR ANY ACT OR OMISSION
WHICH EITHER PARTY ASSERTS RESULTED IN ANY LIABILITY TO THE COMPANY,
THE INVESTOR OR THEIR RESPECTIVE OFFICERS, DIRECTORS, STOCKHOLDERS,
PARTNERS, EMPLOYEES OR AGENTS, TO THE FULL EXTENT PERMITTED BY LAW.
6.12 Entire Agreement. This Agreement, the Debentures,
and other documents delivered pursuant hereto constitute the full and
entire understanding and agreement between the parties with regard to
the subjects hereof and thereof.
THE DEBENTURES (AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE
DEBENTURE) ARE SUITABLE ONLY FOR SOPHISTICATED INVESTORS FOR WHOM AN INVESTMENT
IN THE DEBENTURES DOES NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM AND WHO
FULLY UNDERSTAND AND ARE WILLING TO ASSUME THE RISK INVOLVED IN PURCHASE OF THE
DEBENTURES. NO OFFER TO SELL (OR SOLICITATION OF AN OFFER TO BUY) IS BEING MADE
IN ANY JURISDICTION IN WHICH SUCH OFFER ORSOLICITATION WOULD BE UNLAWFUL. THERE
WILL BE NO PUBLIC OFFERING OF THE DEBENTURES.
JZM5843
12
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE DEBENTURES (AND THE COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF) HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY NOR HAS ANY SUCH FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR
ADEQUACY OF ANY INFORMATION PROVIDED HEREWITH. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Address: 0000 Xxxxx Xxxxxxxx Xxxx COVOL TECHNOLOGIES, INC.
Xxxx, Xxxx 00000
By: /s/ Xxxxx X. Xxxx
Name: Xxxxx X. Xxxx
Title: President
Address: The Xxxxxxxxx Centre AJG FINANCIAL SERVICES, INC.
Xxx Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000-0000
By: /s/ Xxxxx Xxxx
Name: Xxxxx Xxxx
Title: Vice President
JZM5843
13
Schedule 2.6
to
Debenture Agreement and Security Agreement
LICENSES, PATENTS, PATENT APPLICATIONS,
COPYRIGHTS, SERVICE MARKS, TRADEMARKS,
TRADEMARK APPLICATIONS AND TRADE NAMES
UNITED STATES PATENTS:
o No. 5,453,103, issued 26 September 1995
o No. 5,487,764, issued 30 January 0000
XXXXXX XXXXXX PATENT APPLICATIONS:
o Title: Reclaiming and Utilizing Discarded and Newly Formed Coke Breeze,
Coal Fines, and Blast Furnace Revert Materials, and Related Methods,
filed on 25 June 1995. Will issue 31 December 1996.
INTERNATIONAL PATENT COOPERATIVE TREATY
o Serial No. PCT/US94/03814, lodged on 7 April 1994
o Serial No. PCT/US94/01798, lodged on 8 February 1996
TRADEMARKS AND SERVICE MARKS
o Intent-to-use trademark application for briquettes identified by
"Covol". Serial No. 75/061,295, filed 22 February 1996, published for
opposition 5 November 1996.
o Licensing services identified by "Covol". Serial No. 75/067,086, filed
4 March 1996, published for opposition 26 November 1996.
JZM5843
Schedule 2.7
to
Debenture Agreement and Security Agreement
POTENTIALLY ADVERSE EVENTS
COVOL TECHNOLOGIES, INC. AGTC. AGTC is a coal broker located in the State of
Alabama, and organized as a partnership of three individuals: Xxxx Xxxxxx, Xxxx
Xxxxxxxx, and Xx Xxxxxx. Xx Xxxxxx is the owner of Port Hodder, the port in
Alabama where the Company is building its second full scale agglomeration
facility. The Company entered into an agreement with AGTC in March, 1996, to
assist the Company in developing coal agglomeration projects. The Company
terminated the agreement in July, 1996 because they were dissatisfied with
AGTC's performance. Subsequent to termination of the agreement, the Company
reached an agreement with Xx Xxxxxx to purchase his property as a site for the
Company's Alabama project. The Company offered payment of $35,000 in the form of
a check with a restrictive indorsement as a settlement of all outstanding
obligations. AGTC cashed the check and them immediately claimed the Company owed
them additional amounts. AGTC has threatened litigation, which the Company
believes has a very low likelihood of success. The agreement specifies Utah law,
and Utah has a strong accord and satisfaction provision. Assuming AGTC files and
the case is decided against the Company, the maximum liability by the Company
would be "8% of the gross sales or monetized price" of the Alabama project.
JZM5843
EXHIBIT A
THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR REGISTERED OR OTHERWISE QUALIFIED FOR SALE
UNDER THE SECURITIES LAWS OF ANY STATE. THIS DEBENTURE MAY NOT
BE TRANSFERRED OR SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND SUCH LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER HAS BEEN DELIVERED TO THE ISSUER TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED.
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE DECEMBER 20, 0000
Xxxx Xxxx Xxxx, Xxxx
December 20, 1996
$1,100,000
COVOL TECHNOLOGIES, INC., a Delaware corporation whose headquarters are
located at 0000 Xxxxx Xxxxxxxx Xxxx, Xxxx, Xxxx 00000 (the "Company"), promises
to pay to the order of AJG FINANCIAL SERVICES, INC., or its successors and
assigns (the "Holder"), the aggregate principal sum of One Million, One Hundred
Thousand Dollars ($1,100,000) (the "Principal Amount"), in lawful money of the
United States of America, together with interest thereon from the date hereof on
the unpaid Principal Amount, on the terms and conditions as hereinafter
specified, until the Principal Amount is repaid in full.
1. Identification of Debenture. This Debenture is the "Convertible
Debenture" defined in that certain Debenture Agreement and Security Agreement of
even date herewith between the Company and the Holder (the "Purchase Agreement")
and the Holder is entitled to all of the benefits that arise under the Purchase
Agreement from being the "Investor" and the holder of the "Convertible
Debenture" thereunder.
2. Payment of Principal and Interest.
(a) The Principal Amount shall be payable, unless converted
pursuant to Section 4 below, on December 20, 1999 ("Principal Repayment
Date", also herein referred to as the "Maturity Date"). At the Maturity
Date, any required prepayment pursuant to Section 3 below, any
acceleration of the Principal Amount pursuant to Section 8 below, or
upon the effective date of any conversion of the total unpaid
JZM5841
Principal Amount of this Debenture pursuant to Section 4 below, any
unpaid Principal Amount of this Debenture, all interest accrued thereon
and other sums payable hereunder shall be due and payable in full,
notwithstanding any other provision hereof.
(b) From and after the date hereof, interest on the unpaid
balance of the Principal Amount shall accrue and be due and payable at
the per annum rate of six percent (6%). Interest on the outstanding
unpaid Principal Amount shall be payable upon the Maturity Date, any
Prepayment and any acceleration of the Principal Amount pursuant to
Section 8 below. Interest shall be calculated on the basis of a 365-day
year and the actual number of days elapsed. In the event that all or
any portion of the Principal Amount is not paid on any regularly
scheduled payment date of this Debenture or upon acceleration
(regardless of the reason therefor) and whether or not such payment is
deferred because of the subordination provisions of this Debenture, the
portion of the Principal Amount not paid when due shall bear interest
until paid at the "Default Rate" (as defined in Section 8 below).
(c) All portions of the Principal Amount, all interest thereon
and all other sums due hereunder, shall be payable, without set-off or
deduction, at the offices of the Holder set forth above or at such
other place as Holder, from time to time may designate to the Company
in writing, in cash, certified check or check of the Company that the
Holder has agreed in writing in advance to accept or a wire transfer to
such account as Holder may have previously designated to the Company in
writing.
(d) The Company shall not have the right to prepay any
portion of the Principal Amount or any installment thereof.
3. Required Prepayment. If a Change in Control (as hereinafter defined)
occurs, the Holder may, by notice to the Company given not later than the date
10 days after the date the Company has notified the Holder of such Change in
Control, require the prepayment of the entire unpaid Principal Amount of this
Debenture and all accrued but unpaid interest thereon; whereupon the Company
shall, on the date 10 days after the date such notice is given by the Holder,
prepay this Debenture. The Company shall give the Holder notice of the
occurrence of any Change in Control not later than 10 days after such Change in
Control occurred.
As used herein, "Change in Control" of the Company means:
(a) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company
JZM5841
17
representing 30% or more of the combined voting power of the Company's
then outstanding securities;
(b) during any period of two consecutive years (not including
any period prior to the date of this Debenture), individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
paragraph (a), (c) or (d) of this Section) whose election by the Board
of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (I)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation or (II) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the
combined voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
4. Conversion of Debentures.
(a) Conversion into Company's Common Stock.
(i) Conversion by Holder. On any day on which the
Company is open for business from and after the date hereof
and prior to 5:00 p.m. Salt Lake City time on the Maturity
Date, subject to and upon compliance with the provisions of
this Section 4, at the option of the Holder, any portion of
the then outstanding Principal Amount which is $50,000 or
greater and an integral multiple of $1,000 or the remaining
balance due, may, so long as this Debenture or any part
thereof remains outstanding, be converted into the number of
duly authorized, validly issued, fully-paid and nonassessable
shares of the Company's Common Stock equal to the then unpaid
Principal Amount being converted,
JZM5841
18
*** Missing informaiton mya be available upon request to the Company
divided by the Conversion Price then in effect. For purposes
of this Debenture, the "Conversion Price" shall be ***
subject to adjustment as provided herein. Holder shall
exercise its conversion right by surrendering this Debenture
to the Company, at any time after 8:00 a.m. and prior to 5:00
p.m. Salt Lake City time at the Company's offices, set forth
above, or at such other place in Salt Lake City, Utah as the
Company from time to time may designate to the Holder in
writing, accompanied by a written notice of election to
convert in the form attached hereto as Exhibit A.
(ii) Conversion by Company. Provided the Company is
not then in default of any of its obligations under this
Debenture or the Purchase Agreement, and further provided no
Event of Default or any event with the passage of time would
be an Event of Default has occurred and is continuing at any
time from and after six (6) months from the date hereof and
prior to 5:00 p.m. Salt Lake City time on the Maturity Date,
the Company may, at its option, cause the then outstanding
entire Principal Amount of this Debenture to be converted into
shares of the Company's Common Stock, so long as this
Debenture or any part thereof remains outstanding, such rights
to be exercisable with not less than 15 days and not more than
30 days written notice in the form attached hereto as Exhibit
B (the "Notice") to the Holder, which Notice shall be
irrevocable without the written consent of the Holder. The
Notice shall designate the date upon which such conversion
shall occur (the "Conversion Date"); provided, however, the
Conversion Date shall not be a date subsequent to the Maturity
Date. Within 10 days of the Holder's receipt of the Notice,
the Holder shall have the right to designate whether Holder
shall receive on the Conversion Date shares of the Company's
Common Stock or cash in an amount equal to the then
outstanding Principal Amount of this Debenture and any accrued
and unpaid interest thereon; provided, however, that in the
event the Conversion Date is the Maturity Date, the Holder
shall have no right to receive cash. The then unpaid Principal
Amount of the Debenture shall be converted into the number of
duly authorized, validly issued, fully-paid and nonassessable
shares of the Company's Common Stock equal to the then unpaid
Principal Amount divided by the Conversion Price in effect on
the Conversion Date. On or before the Conversion Date, the
Holder shall surrender the Debenture to the Company at the
address in Salt Lake City, Utah designated in the Notice from
the Company.
(b) Adjustment for Interest. In the event that all or
any portion of this Debenture shall be converted into Common
Stock pursuant to the terms of this Debenture, any accrued but
unpaid interest relating to the Principal Amount converted
shall be paid and, at the option of the Company, may be paid
in either cash or shares of Common Stock. If such interest is
paid in shares of Common Stock pursuant to a conversion under
Section 4(a)(i) hereof the Holder shall receive number of duly
authorized, validly issued, fully-paid and nonassessable
JZM5841
19
shares of the Company's Common Stock equal to the then accrued
but unpaid interest divided by the Conversion Price in effect
on the date on which the Debenture shall have been surrendered
for conversion with proper notice of the amount to be
converted. If such interest is paid in shares of Common Stock
pursuant to a conversion under Section 4(a)(ii) hereof the
Holder shall receive number of duly authorized, validly
issued, fully-paid and nonassessable shares of the Company's
Common Stock equal to the then accrued but unpaid interest
divided by the Conversion Price in effect on the Conversion
Date. If such interest is paid in cash pursuant to a
conversion under Section 4(a)(i) hereof the Company shall pay
such interest in cash to the Holder within five (5) days of
the date on which the Debenture shall have been surrendered
for conversion with proper notice of the amount to be
converted. If such interest is paid in cash pursuant to a
conversion under Section 4(a)(ii) hereof the Company shall pay
such interest in cash to the Holder on the Conversion Date.
(c) Issuance of Shares of Common Stock upon Conversion.
(i) As promptly as practicable after the surrender,
as herein provided, of the Debenture or any portion thereof
for conversion, the Company shall deliver or cause to be
delivered to the Holder a certificate or certificates
representing the appropriate number of duly authorized,
validly issued, fully-paid and non-assessable shares of the
Company's Common Stock. If conversion is effected pursuant to
Section 4(a)(i) hereof, the conversion shall be deemed to have
been made at the time that the Debenture shall have been
surrendered for conversion with proper notice of the amount to
be converted. If conversion is affected under Section 4(a)(i)
hereof, upon surrender to the Company for conversion, this
Debenture or such portion as is being converted shall be
cancelled by the Company and the rights of the Holder as to
the portion converted shall cease at such time (or such
earlier time as shall be specified in Section 4(d), and the
person or persons entitled to receive the shares of Common
Stock upon conversion of such Debenture or Debentures shall be
treated for all purposes as having become the record holder or
holders of such shares of Common Stock at the time the
Debenture is surrendered for conversion as provided herein. If
conversion is effected pursuant to Section 4(a)(ii) hereof,
the conversion shall be deemed to have been made on the
Conversion Date. If conversion is effected under Section
4(a)(ii) hereof, on the Conversion Date this Debenture or such
portion as is being converted shall be cancelled by the
Company and the rights of the Holder as to the portion
converted shall cease at such time (or such earlier time as
shall be specified in Section 4(d), and the person or persons
entitled to receive the shares of Common Stock upon conversion
of such Debenture or Debentures shall be treated for all
purposes as having become the record holder or holders of such
shares of Common Stock on the Conversion Date. If the
Debenture is converted
JZM5841
20
in part only, upon such conversion, the Company shall execute
and deliver to the Holder a new Debenture in a Principal
Amount equal to the unconverted portion.
(ii) Each Common Stock certificate issued upon
conversion of all or any portion of this Debenture, shall be
stamped or otherwise imprinted with a legend substantially in
the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED OR
OTHERWISE QUALIFIED FOR SALE UNDER ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR SOLD OR OFFERED
FOR SALE OR OTHERWISE TRANSFERRED, PLEDGED, HYPOTHECATED OR
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT AND
REGISTERED OR OTHERWISE QUALIFIED FOR SALE UNDER SUCH STATE
SECURITIES LAWS OR AN EXCEPTION FROM REGISTRATION THEREUNDER
IS AVAILABLE."
(d) Tender. From and after tender to the Holder of the unpaid
Principal Amount and all accrued but unpaid interest thereon on or
after the Maturity Date, this Debenture shall not, for the purposes of
this Debenture, or any other purpose, be deemed to be outstanding, and
the rights of the Holder under this Debenture (except to receive the
consideration tendered) shall cease, regardless of whether this
Debenture has been surrendered.
(e) Fractional Interests. No fractional shares of Common Stock
shall be delivered upon conversion of Debentures. If more than one
Debenture shall be surrendered for exchange at one time by the same
Holder, the number of full shares which shall be delivered upon such
exchange shall be computed on the basis of the aggregate Principal
Amounts of the Debentures (or specified portions thereof) so
surrendered. In lieu of any fractional shares which otherwise would be
deliverable upon exchange of any Debenture (or specified portions
thereof), the number of shares issuable upon such conversion will be
rounded down to the next lower whole share and the Holder shall be paid
an amount in cash equal to the Conversion price times the fraction of a
share of Common Stock the Holder would otherwise be entitled to.
(f) Taxes, Etc. The Company shall pay all documentary stamp or
other transactional taxes attributable to the issuance or delivery of
Common Stock upon conversion of the Debenture, provided, however, that
the Company shall not be required to pay any taxes which may be payable
in respect to any transfer involved in the issuance or
JZM5841
21
delivery of any certificate for Common Stock in a name other than that
of the Holder of the Debenture in respect of which such Common Stock is
issued.
(g) Reservation of Stock. The Company shall at all times
reserve and keep available, out of its treasury stock or authorized and
unissued stock, or both, solely for the purpose of effecting the
conversion of the Debenture, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of the
Debenture.
(h) Listing. In the event that the outstanding Common Stock
shall be listed on one or more national securities exchanges or The
NASDAQ Stock Market at any time after the date hereof, the Company
shall use its best efforts to obtain the listing of the Common Stock
issuable upon conversion of the Debenture, upon official notice of such
issuance at the same time the outstanding Common Stock shall become
listed such national securities exchange or The Nasdaq Stock Market.
5. Subordination.
(a) This Debenture and any instrument issued in exchange,
renewal or substitution of any such Debenture, including any amendment
thereto or modifications of any of the foregoing, are referred to in
this Section 5 collectively as the "Debenture." The Holder hereby
agrees, by accepting this Debenture, for Holder and any transferee,
assignee or subsequent holder (each a "Subordinated Creditor"), that
the indebtedness of the Company evidenced by the Debenture is
subordinated and junior in right of payment to all unpaid "Senior
Indebtedness." For purposes of the Debenture, "Senior Indebtedness"
shall mean all of the unpaid principal and accrued interest on
(including, without limitation, any interest which accrues after the
commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Company) all other
indebtedness of the Company for borrowed money which is not expressly
pari passu with, or subordinated to, this Debenture.
(b) As used in this Debenture, the term "subordinated and
junior in right of payment" shall mean that no part of this Debenture
shall have any claim to the assets of the Company on a parity with or
prior to the claims of the Senior Indebtedness. Subject to the
provisions of this Section 5, until and unless the Senior Indebtedness
shall have been fully paid and satisfied, the Subordinated Creditor
shall not be entitled to receive any payment on the whole or any part
of the Principal Amount or of any interest on this Debenture. Prior to
such time as either (i) a petition or case under any bankruptcy,
insolvency, reorganization or other similar law has been filed by or
against the Company or the Company has made an assignment for the
benefit of creditors or admitted in writing its inability to pay its
debts as they come due or there occurs any other event set forth in
Sections 8(c) or 8(d) of this Debenture, or (ii) the holder of any of
the Senior
JZM5841
22
Indebtedness (or any person or entity acting on behalf of such holder)
has declared an event of default under any note or other instrument
relating to any of the Senior Indebtedness and has notified the Company
and the Subordinated Creditor thereof, the Company may make, and the
Subordinated Creditor may accept payment of principal and interest due
under this Debenture. Each of the events referred to in clauses (i) and
(ii) of this Section 5(b) is hereafter referred to as a "Specified
Event".
(c) Upon the occurrence of any Specified Event:
(i) the holders of Senior Indebtedness shall be
entitled to receive payment in full in cash (or in such other
medium as such holders shall agree) of the principal of,
premium, if any, and interest and other amounts payable with
respect to, the Senior Indebtedness to the date of payment on
the Senior Indebtedness before Holder shall be entitled to
receive any payment on the Debenture; and
(ii) until the Senior Indebtedness is paid in full in
cash (or in such other medium as such holders shall agree),
any distribution to which Holder would be entitled but for
this Section 5 shall be made to the holders of the Senior
Indebtedness.
Upon any distribution of assets (in cash, securities or other
property) of the Company to Holder in violation of this Section 5,
Holder shall hold the distribution in trust for the benefit of, and
shall forthwith pay over and deliver such distribution to, the holders
of the Senior Indebtedness.
(d) If, while any Senior Indebtedness is outstanding, a
Specified Event occurs:
(i) an "Event of Default" shall have occurred under
this Debenture and the holders of the Senior Indebtedness are
hereby irrevocably authorized and empowered (in their own
names or in the name of Holder or otherwise), but shall have
no obligation, to demand, xxx for, collect and receive every
payment or distribution in respect of this Debenture and give
acquittance therefor and to file claims and proofs of claim
and take such other action (including, without limitation,
voting the indebtedness evidenced by this Debenture) as such
holders may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of such holders;
and
(ii) the Subordinated Creditor shall duly and
promptly take such action as the holders of such Senior
Indebtedness may request (A) to collect this Debenture for the
account of the holders of the Senior Indebtedness and to file
appropriate claims or proofs of claim in respect of this
Debenture, (B) to execute and deliver to the holders of the
Senior Indebtedness such powers of attorney,
JZM5841
23
assignments, or other instruments as such holders may request
in order to enable them to enforce any and all claims with
respect to this Debenture, and (C) to collect and receive any
and all payments of distributions which may be payable or
deliverable upon or with respect to this Debenture.
Notwithstanding anything to the contrary contained in this
Debenture or any agreement or instrument relating to the indebtedness
evidenced hereby, the Subordinated Creditor shall not initiate any
action to seek or enforce collection of the Debenture, including
initiating a filing of a case or petition for relief under the Federal
Bankruptcy Code during any period with respect to which payment may not
be made on the Debenture under this Section 5 unless judicial
proceedings have been initiated by the holders of the Senior
Indebtedness to collect the Senior Indebtedness and are continuing;
provided, however, that if the Company fails to pay any interest or
principal with respect to this Debenture (for these purposes, the
"Defaulted Payment") and such Event of Default continues for a period
of thirty (30) days ("Default Period") from the date such interest or
principal was due, then the Subordinated Creditor shall have the right
to institute proceedings against the Company to recover the Defaulted
Payment; provided, further, that (A) prior to instituting proceedings
against the Company to recover the Defaulted Payment, the Subordinated
Creditor shall give the holders of the Senior Indebtedness at least
twenty (20) days notice of Company's failure to pay such interest or
principal during which time the holders of the Senior Indebtedness
shall have the right, but not the obligation, to pay or cause to be
paid the Defaulted Payment (such notice not to extend the Default
Period in any manner); (B) the Subordinated Creditor shall not have the
right to institute proceedings to recover any amounts other than the
Defaulted Payment; and (C) the Subordinated Creditor shall have no
right to file any petition in bankruptcy against the Company or take
advantage of any insolvency law in connection with the recovery of the
Defaulted Payment. Notwithstanding anything herein to the contrary, the
Subordinated Creditor may enforce the rights to collect the unpaid
balance hereof on and after the Maturity Date.
(e) Except as specifically provided herein, the rights under
these subordination provisions of the holders of the Senior
Indebtedness as against the Subordinated Creditor shall remain in full
force and effect without regard to, and shall not be impaired or
affected by:
(i) any act or failure to act on the part of the
Company under the terms of this Debenture;
(ii) any extension or indulgence in respect of any
payment or prepayment of any Senior Indebtedness or any part
thereof or in respect of any other amount payable to any
holder of the Senior Indebtedness;
JZM5841
24
(iii) any amendment, modification or waiver of, or
addition or supplement to, or deletion from, or compromise'
release, consent or other action in respect of, any of the
terms of any Senior Indebtedness, any agreement which may be
made relating to any Senior Indebtedness or any instrument
evidencing the Senior Indebtedness; or
(iv) any exercise or nonexercise by any holder of the
Senior Indebtedness of any right or remedy under or in respect
of any Senior Indebtedness or these subordination provisions
or any waiver of any such right or remedy or of any default in
respect of the Senior Indebtedness or these subordination
provisions, or any receipt by any holder of the Senior
Indebtedness of any security, or any failure by any holder of
the Senior Indebtedness to perfect a security interest in, or
any release by any holder of the Senior Indebtedness, any
security or guaranty for the payment of the Senior
Indebtedness.
(f) The obligations of the Subordinated Creditor hereunder
shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Indebtedness, or
any other payment to any holder of any Senior Indebtedness, is
rescinded or must otherwise be restored or returned by the holders of
such Senior Indebtedness upon the occurrence of any event described in
Section 5(b) hereof, all as though such payment had not been made.
(g) The provisions of this Section 5 shall continue in full
force and effect, notwithstanding the commencement of a case under
Title 11 of the United States Code, as amended, by or against the
Company or any of its property. In furtherance of the foregoing, if
Holder receives, directly or indirectly, by set-off, redemption,
purchase or in any other manner, any property of, or payments from, the
Company after the commencement of such a case on account of a claim
which is subordinated by the terms of this Section 5 (whether as
"adequate protection" payments or otherwise), Holder shall immediately
turn such property or payments over to the holders of the Senior
Indebtedness in accordance with the applicable provisions of this
Section 5.
(h) Notwithstanding the other provisions in this Section 5,
this Debenture may be converted into shares of the Company's Common
Stock on the terms set forth in this Debenture or on such other terms
as may be agreed to by the Company and the Holder at any time, subject
to Section 4(a) above.
(i) Subject to the prior payment in full of the Senior
Indebtedness, the Subordinated Creditor shall be subrogated to the
rights of the holders of the Senior Indebtedness to receive payments,
including interest, penalties and fees, or distributions of assets of
the Company made on the Senior Indebtedness until the Principal Amount
of and interest on this Debenture shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any
JZM5841
25
cash, property or securities to which the Subordinated Creditor would
be entitled except for these provisions shall, as between the Company
and its creditors (other than the holders of the Senior Indebtedness),
be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
(j) The foregoing provisions of Section 5 are solely for the
purpose of defining the relative rights of the holders of the Senior
Indebtedness on the one hand and the Subordinated Creditor on the other
hand, and nothing in those provisions shall impair, as between the
Company and the Subordinated Creditor, the obligation of the Company,
which is unconditional and absolute, to pay to the Subordinated
Creditor the Principal Amount of and interest on this Debenture or
prevent the Subordinated Creditor from exercising all remedies
permitted by law upon default under this Debenture, subject to the
rights set forth above of the holders of the Senior Indebtedness to
receive cash, property or securities otherwise payable or deliverable
to the Subordinated Creditor and to prevent the Subordinated Creditor
from exercising such remedies upon default under this Debenture until
the Senior Indebtedness has been paid in full.
6. Ranking of Obligations. The obligations of the Company
hereunder do rank and will rank at least pari passu in priority of payment with
all other indebtedness of the Company except for Senior Indebtedness.
7. Covenants. Until satisfaction in full of all obligations of the
Company under this Debenture, the Company shall at all times comply with all of
the covenants of the Company set forth herein or in the Purchase Agreement,
which are hereby incorporated by reference herein as if each such covenant was
set forth in full in this Debenture, together with any necessary defined terms
from the Purchase Agreement.
8. Events of Default. The following events are hereby defined
for all purposes of this Debenture as Events of Default:
(a) Failure of the Company to pay any installment of principal
or interest hereunder when and as the same shall become due and
payable, which failure shall have continued for a period of 5 days.
(b) The breach by the Company of any of the other covenants
set forth in this Debenture or in the Purchase Agreement if such breach
is not cured within 30 days after written notice thereof is given by
the Holder.
(c) The institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking relief under
Title 11 of the United States Code, as now constituted or hereafter in
effect, or
JZM5841
26
any other applicable Federal or State bankruptcy, insolvency or other
similar law, or the consent by it to the institution of proceedings
thereunder or the filing of any such petition or to the appointment of
a receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of the Company or of any substantial part of
its property, or the making by the Company of an assignment for the
benefit of creditors, or the admission by the Company in writing of its
inability to pay its debts generally as they become due;
(d) The entry of a decree or order by a court having
jurisdiction for relief in respect of the Company, or adjudging the
Company a bankrupt or insolvent, or approving as properly filed
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under Title 11 of the United States
Code, as now constituted or hereafter in effect, or any other
applicable Federal or State bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, assignee, trustee (or other
similar official) of the Company or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(e) A default shall occur under any other agreement, document
or instrument to which the Company is a party and such default is not
cured within any applicable grace period or waived in writing, and such
default (i) involves the failure to make any payment when due in
respect of any indebtedness (other than the Principal Amount and
interest thereon) of the Company in excess of Five Hundred Thousand
Dollars ($500,000) in the aggregate, or (ii) causes such indebtedness
or a portion thereof in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment, or (iii) permits
any holder of such indebtedness or a trustee to cause such indebtedness
or a portion thereof in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate to become due prior to its stated maturity
or prior to the regularly scheduled dates of payment and such default
is not cured or waived within 30 days after the occurrence thereof.
If one or more Events of Default shall happen and be continuing, then,
and in each and every such case, the Holder, at its option, by notice in writing
to the Company, may declare the entire Principal Amount and all interest accrued
thereon and any other sums due hereunder, if not already due and payable, to be
immediately due and payable. If there shall occur an Event of Default described
in Sections 8(c) or 8(d), the entire unpaid balance of the Principal Amount with
interest accrued thereon and all other sums due under this Debenture shall be
immediately due and payable without notice to the Company. If the entire unpaid
balance with interest accrued thereon shall, as a result of either of the
preceding two sentences, be immediately due and payable, the unpaid balance of
the Principal Amount shall accrue interest at the per annum rate of six percent
(6%) compounded annually to the date of default and thereafter at a rate
JZM5841
27
which shall be equal to a per annum rate of eight percent (8%) compounded
annually (the "Default Rate") and all other sums due by the Company hereunder
shall also be immediately due and payable; and payment thereof may be enforced
and recovered in whole or in part at any time by one or more of the remedies
provided to the Holder in this Debenture or under applicable law. In such case,
the Holder may also recover all costs of suit and other expenses in connection
therewith, together with reasonable attorney's fees for collection, together
with the interest on any judgment obtained by the Holder at the Default Rate,
including interest at that rate from and after the date of any execution,
judicial or foreclosure sale until actual payment is made to the Holder of the
full amount due the Holder.
9. Payment on Default. In the event that an Event of Default shall
occur, then the Company shall pay to the Holder the whole amount which then
shall have become due on this Debenture for principal and interest, and in
addition thereto, such additional amount as shall be sufficient to cover the
costs and expenses of collection.
No delay or omission of the Holder to exercise any rights or powers
accruing upon any default which shall not have been remedied shall impair any
such right or power, or shall be construed to be a waiver of any such default or
acquiescence therein; and every power and remedy given by this to the Holder may
be exercised from time to time and as often as may be deemed expedient by the
Holder.
10. Exchange of Debenture. At the option of the Holder, this Debenture
may be exchanged for other Debentures in denominations of $1,000 and any
integral multiple thereof and of a like aggregate principal amount and tenor.
Upon surrender of this Debenture to the Company for exchange, the Company shall
execute and deliver to the Holder the Debentures which the Holder is entitled to
receive in exchange.
11. Immunity of Incorporators, Stockholders, Officers, Directors and
Employees. No recourse shall be had for the payment of the principal or interest
on this Debenture or for any claim based thereon or otherwise in any manner in
respect thereof, to or against any subsidiary, incorporator, stockholder,
officer, director or employee, as such, past, present or future, of the Company
or any respective subsidiary, incorporator, stockholder, officer, director or
employees, as such, past, present or future, of any predecessor or successor
corporation, either directly or through the Company or such predecessor or
successor corporation, whether by virtue of any constitutional provision or
statute or rule of law, or by the enforcement of any assessment or penalty, or
in any other manner, all such liability being expressly waived and released by
the acceptance of this Debenture and as part of the consideration for the issue
thereof.
JZM5841
28
12. Adjustment for Certain Events. In the event of any (i) stock split,
stock dividend or other distribution on or reclassification of the Common Stock
of the Company payable in securities of the Company, (ii) issuance by the
Company of rights or warrants to all holders of Common Stock at a price per
share less than the Adjusted Fair Market Value (as defined herein) of the Common
Stock on the date of such issuance, (iii) distribution to all holders of Common
Stock of evidences of the Company's indebtedness or assets, or (iv) any event as
to which the other provisions of this section are not strictly applicable but
the failure to make any adjustment would not fairly protect the conversion
rights of Holder as provided in this Debenture in accordance with the essential
intent and principles hereof, the Conversion Price shall be equitably adjusted,
if necessary, so that the Holder shall receive, in exchange for the Conversion
Price, such securities of other property which the Holder might have received
had the Holder converted the Debenture immediately prior to such event.
As used herein "Fair Market Value" means:
(a) If the Common Stock of the Company is traded on a national
securities exchange or listed on the Nasdaq national market quotation
system, the Fair Market Value of the Common Stock shall be the average
closing price for the Common Stock for the five consecutive trading
days prior to the date on which the Fair Market Value is determined; or
(b) if the Common Stock is not so traded on a national securities
exchange or listed on the Nasdaq national market quotation system, the
Fair Market Value shall be as agreed to by the Holder and the Company
and if the Holder and the Company do not agree, then the Fair Market
Value shall be determined by binding arbitration in accordance with the
rules of the American Arbitration Association.
As used herein "Adjusted Fair Market Value" means: Ninety-five percent
(95%) of Fair Market Value.
If at any time the Company shall issue any rights to subscribe for or
to purchase, or any options for the purchase of, Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock, whether or
not such options, rights, securities convertible into or exchangeable for Common
Stock are immediately exercisable, and the price per share for which such Common
Stock is issuable is less than the Conversion Price or the Adjusted Fair Market
Value on the date of such issuance, the Conversion Price shall be reduced to
whichever of the following two Conversion Prices (calculated to the nearest
cent) shall be lower:
(1) the Conversion Price determined by dividing (A) an amount
equal to the sum of (x) the product derived by multiplying the
Conversion Price in effect immediately prior to such issue or sale
times the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (y) the consideration, if
any,
JZM5841
29
received by the Corporation upon such issue or sale, by (B) the number
of shares of Common Stock Deemed Outstanding immediately after such
issue or sale; or
(2) the Conversion Price determined by multiplying the
Conversion Price in effect immediately prior to such issue or sale by a
fraction, the numerator of which shall be the sum of (x) the number of
shares of Common Stock Deemed Outstanding immediately prior to such
issue or sale multiplied by the Adjusted Fair Market Value of the
Common Stock determined as of the time of such issue or sale plus (y)
the consideration, if any, received by the Corporation upon such issue
or sale, and the denominator of which shall be the product derived by
multiplying the Adjusted Fair Market Value of the Common Stock
determined as of the time of such issue or sale times the number of
shares of Common Stock Deemed Outstanding immediately after such issue
or sale.
For purposes hereof, "Common Stock Deemed Outstanding" as of any date
shall mean all shares of Common Stock issued and outstanding on such date and
all shares of Common Stock issuable upon exercise or conversion, as applicable,
of the option or convertible security then being issued.
The parties acknowledge and agree that, notwithstanding the foregoing,
no adjustment to the Conversion Price shall be made as a result of (i) the
issuance of up to 800,000 shares of Common Stock pursuant to certain outstanding
warrants of the Company which are "out of the money" as of the date of this
Debenture, (ii) the issuance of up to 1,500,000 shares of Common Stock pursuant
to certain outstanding options, warrants or other securities of the Company
convertible into Common Stock which are "in the money" as of the date of this
Debenture, (iii) the issuance of or granting of rights to acquire up to 790,000
shares of Common Stock to PacifiCorp Financial Services, Inc. or any of its
affiliates ("PacifiCorp"), or their respective assigns, pursuant to a
Convertible Loan and Security Agreement to be entered into between the Company
and PacifiCorp, (iv) the issuance of or granting of rights to acquire up to
515,000 shares of Common Stock to be sold by the Company pursuant to a Private
Placement Memorandum, (v) the issuance of or granting of rights to acquire up to
100,000 shares of Common Stock to LKD Partnership or its assigns pursuant to a
Convertible Debenture in the principal amount of approximately $1,000,000 issued
in November, 1996, (vi) the issuance of or granting of rights to acquire up to
2,000,000 shares of Common Stock to officers, directors, consultants or
employees of the Company, which rights vest over the next 9 to 10 years, and
(vii) the issuance of or granting of rights to acquire up to 400,000 additional
shares of Common Stock to any third parties in transactions other than those
contemplated in this paragraph.
13. Consolidations or Mergers. In case of any consolidation or merger
of the Company with or into another person, or any sale or transfer of all or
substantially all of the assets of the Company or any compulsory share exchange
pursuant to which share exchange the Common Stock of the Company is converted
into other securities, cash or property, the Company, or such successor or
purchasing corporation, as the case may be, shall, prior to such con-
JZM5841
30
solidation, merger, sale, transfer or share exchange, execute and deliver to the
Holder an agreement, in form and substance satisfactory to Holder, providing
that the Holder shall have the right thereafter to convert this Debenture into
the kind and amount of shares of stock or other securities, cash or other
property receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock of the Company into
which this Debenture could have been converted immediately prior to such
consolidation, merger, sale, transfer or share exchange. Such agreement shall
also provide that the provisions of Sections 12 and 13 hereof shall be amended
without further action of the Company or any successor to apply to the shares of
stock or other securities of the successor issued to the stockholders of the
Company in any such consolidation, merger, sale, transfer or share exchange. The
Holder of the Debenture shall have the right thereafter to convert this
Debenture only into the kind and amount of shares of stock and other securities
and property receivable upon or deemed to be held following such consolidation,
merger, sale, transfer or share exchange by a holder of a number of shares of
the Common Stock of the Company into which the Debenture could have been
converted immediately prior to such consolidation, merger, sale, transfer or
share exchange. This provision shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
14. Notice of Adjustment Event. The Company shall provide written
notice to the Holder of the Debenture at least at least 30 days prior to (i) the
occurrence of a stock split, stock dividend or other distribution on or
reclassification of the Common Stock of the Company payable in securities of the
Company, (ii) the issuance by the Company of rights or warrants to all holders
of Common Stock at a price per share less than the Adjusted Fair Market Value
(as defined herein) of the Common Stock on the date of such issuance, (iii) a
distribution to all holders of Common Stock of evidences of the Company's
indebtedness or assets, (iv) any consolidation or merger of the Company with or
into another person, or any sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant to which share
exchange the Common Stock of the Company is converted into other securities,
cash or property, (v) the record date for a dividend (other than a dividend
payable in Common Stock or other securities of the Company) upon Common Stock
payable otherwise than out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles consistently applied)
(a "Liquidating Dividend"); or (vi) the occurrence of an event as to which the
other provisions of this section are not strictly applicable but the failure to
make any adjustment would not fairly protect the conversion rights of Holder as
provided in this Debenture in accordance with the essential intent and
principles hereof. The Company shall provide notice to the Holder at least ten
(10) days prior to the record date for any dividend other than a Liquidating
Dividend or a dividend payable in Common Stock or other securities of the
Company. Such notice shall include an adjustment to the Conversion Price
including such information showing the calculation of any proposed adjustment or
stating that no such adjustment is necessary. The adjustment determined by the
Company shall be conclusive unless the Holder shall provide the Company with a
written notice objecting to such adjustment within 30 days of Holder's receipt
of written notice of such adjustment.
JZM5841
31
15. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with a reputable overnight courier or with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party in the Purchase
Agreement, or at such other address as such party may designate by ten (10) days
advance written notice to the other party.
16. Miscellaneous.
(a) The Company hereby waives presentment, demand, protest,
notice of demand, notice of nonpayment or dishonor, notice of protest
and all other notices of any kind in connection with the delivery,
acceptance, performance default or enforcement of the payment of this
Debenture. No failure to exercise, and no delay in exercising any
rights hereunder on the part of the Holder hereof shall operate as a
waiver of such rights.
(b) The Holder and the Company may from time to time enter
into written agreements amending or changing any provisions of this
Debenture or the Purchase Agreement or the rights of the Holder or the
Company hereunder or thereunder, or may grant written waivers or
consents to a departure from the due performance of the obligations of
the Company hereunder or thereunder.
(c) The Company agrees that its liability under this Debenture
shall be unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence,
extension of time, renewal, waiver or modification granted or consented
to by the Holder. No course of dealing and no delay or failure of the
Holder in exercising any right, power, remedy or privilege under this
Debenture or the Purchase Agreement shall affect any other or future
exercise thereof or operate as a waiver thereof; nor shall any single
or partial exercise thereof or any abandonment or discontinuance of
steps to enforce such a right, power, remedy of privilege preclude any
further exercise thereof or of any other right, power, remedy or
privilege. The rights and remedies of the Holder under this Debenture
and the Purchase Agreement are cumulative and not exclusive of any
rights or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of the Holder
of any breach or default under this Debenture or any such waiver of any
provision or condition of this Debenture must be in writing and shall
be effective only to the extent specifically set forth in such writing.
(d) Whenever any payment or action to be made or taken
hereunder shall be stated to be due on a day which is not a business
day, such payment or action shall be made or taken on the next
following business day, and such extension of time shall be included in
computing interest or fees, if any, in connection with such payment or
action.
JZM5841
32
(e) All notices, requests, demands, directions and other
communications (collectively, "notices") given to or made upon any
party hereto under the provisions of the Debenture shall be in writing
and shall be effective if given in accordance with the provisions of
the Purchase Agreement.
(f) The provisions of this Debenture are intended to be
severable. If any provision of this Debenture shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the
remaining provisions hereof in any jurisdiction.
(g) This Debenture and the Purchase Agreement and other
documents delivered in connection herewith and therewith supersede all
prior understandings and agreements, whether written or oral, between
the parties hereto and thereto relating to the transactions provided
for herein and therein. Any Holder of this Debenture acknowledges that
such Holder is bound by the applicable provisions of the Purchase
Agreement and by the acceptance of this Debenture such Holder agrees to
the terms thereof.
(h) All representations and warranties of the Company
contained herein or made in connection herewith shall survive and shall
not be waived by the execution and delivery of this Debenture or by any
investigation by the Holder, but shall terminate upon Company's full
satisfaction and payment of all outstanding amounts in the Principal
Amount of or interest on this Debenture.
(i) This Debenture shall be binding upon and shall inure to
the benefit of the Holder, the Company and their respective successors
and assigns, except that the Company may not assign or transfer any of
its rights and obligations hereunder or any interest herein.
(j) Whenever the Holder's consent is required to be obtained
under this Debenture or the Purchase Agreement as a condition to any
action, inaction, condition or event, the Holder shall be authorized to
give or withhold such consent in its sole and absolute discretion and
to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
(k) The representations, warranties and covenants contained
herein shall be independent of each other and no exception to any
representation, warranty or covenant shall be deemed to be an exception
to any other representation, warranty or covenant contained herein
unless expressly provided, nor shall any such exceptions be deemed to
permit any action or omission that would be in contravention of
applicable law.
JZM5841
33
(l) This Debenture shall be governed by, and construed in
accordance with, the laws of the State of Utah, excluding, however, the
rules relating to conflicts of law.
(m) In no event shall the rate of interest payable under this
Debenture exceed the maximum rate of interest permitted to be charged
by applicable law (including the choice of law rules) and any interest
paid in excess of the permitted rate shall be refunded to the Company.
Such refund shall be made by application of the excessive amount of
interest paid against any sums outstanding and shall be applied in such
order as the Holder may determine. If the excessive amount of interest
paid exceeds the sums outstanding, the portion exceeding the said sums
outstanding shall be refunded in cash by the Holder. Any such crediting
or refund shall not cure or waive any default by the Company hereunder.
The Company agrees, however, that in determining whether or not any
interest payable under this Debenture exceeds the highest rate
permitted by law, any non-principal payment, other than interest
payments, including, without limitation, fees and late charges, shall
be deemed, to the extent permitted by law, to be an expense, fee,
premium or liquidated damages, rather than interest.
(n) THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATED TO THIS DEBENTURE OR THE PURCHASE
AGREEMENT OR ANY ACT OR OMISSION WHICH EITHER PARTY ASSERTS RESULTED IN
ANY LIABILITY TO THE COMPANY, THE HOLDER OR THEIR RESPECTIVE OFFICERS,
DIRECTORS, STOCKHOLDERS, PARTNERS, EMPLOYEES OR AGENTS, TO THE FULL
EXTENT PERMITTED BY LAW.
JZM5841
34
IN WITNESS WHEREOF, the Company, intending to be legally bound hereby,
has caused this Debenture to be duly executed by its respective authorized
officers on the day and year first above written.
COVOL TECHNOLOGIES, INC.
By:
Name:
Title:
[Corporate Seal]
ATTEST:
_______________, Secretary
Accepted and Agreed to as of the first
day referred to above
AJG FINANCIAL SERVICES, INC.
By:
Name:
Title:
JZM5841
35
EXHIBIT A
[FORM OF HOLDER'S ELECTION TO CONVERT]
The undersigned owner of this Debenture hereby irrevocably exercises
the option to convert this Debenture or portion below designated, which shall be
$50,000 or greater and in an integral multiple of $1,000, into shares of Common
Stock of Covol Technologies, Inc., in accordance with the terms of this
Debenture, and directs that the shares issuable and deliverable upon conversion,
be issued in the name of and delivered to the undersigned.
Dated:
Signature (signature guarantee required if
shares are to be issued other than to owner)
If shares are to be issued otherwise than to owner:
Please print name and address
(including zip code number)
Social Security or other
Tax Identification Number:
Portion of Debenture to be converted
(no less than $50,000 and in an
integral multiple of $1,000, if less
than all): $
JZM5841
A-1
EXHIBIT B
[FORM OF COMPANY'S ELECTION TO CONVERT]
The undersigned, Covol Technologies, Inc., hereby irrevocably exercises
its option to convert the entire outstanding Principal Amount of this Debenture
into shares of Common Stock of the Covol Technologies, Inc., in accordance with
the terms of this Debenture on _____________________, the Conversion Date.
Dated:
Signature
JZM5841
B-1
EXHIBIT B
THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR REGISTERED OR OTHERWISE QUALIFIED FOR SALE
UNDER THE SECURITIES LAWS OF ANY STATE. THIS DEBENTURE MAY NOT
BE TRANSFERRED OR SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND SUCH LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER HAS BEEN DELIVERED TO THE ISSUER TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED.
SENIOR DEBENTURE DUE DECEMBER 20, 0000
Xxxx Xxxx Xxxx, Xxxx
[$2,900,000] December __, 1996
COVOL TECHNOLOGIES, INC., a Delaware corporation whose headquarters are
located at 0000 Xxxxx Xxxxxxxx Xxxx, Xxxx, Xxxx 00000 (the "Company"), promises
to pay to the order of AJG FINANCIAL SERVICES, INC., or its successors and
assigns (the "Holder"), the aggregate principal sum of [Two Million, Nine
Hundred Thousand Dollars ($2,900,000.00)] (the "Principal Amount"), in lawful
money of the United States of America, together with interest thereon from the
date hereof on the unpaid Principal Amount, on the terms and conditions as
hereinafter specified, until the Principal Amount is repaid in full.
1. Identification of Debenture. This Debenture is the "Senior
Debenture" defined in that certain Debenture Agreement and Security Agreement of
even date herewith between the Company and the Holder (the "Purchase Agreement")
and the Holder is entitled to all of the benefits that arise under the Purchase
Agreement from being the "Investor" and the holder of the "Senior Debenture"
thereunder.
2. Payment of Principal and Interest.
(a) The Principal Amount shall be payable on December 20, 1999
("Principal Repayment Date", also herein referred to as the "Maturity Date"). At
the Maturity Date, any final Prepayment (as defined in Section 3 below), any
acceleration of the Principal Amount
JZM5844
pursuant to Section 8 below, any unpaid Principal Amount of this Debenture, all
interest accrued thereon and other sums payable hereunder shall be due and
payable in full, notwithstanding any other provision hereof.
(b) From and after the date hereof, interest on the unpaid balance of
the Principal Amount shall accrue and be due and payable at the per annum rate
equal to the prime interest rate publicly announced from time to time by Key
Bank of Utah (the "Bank"), plus two percent (2%) (the "Interest Rate"). Fifty
percent (50%) of the interest on the outstanding Principal Amount shall accrue
and be due and payable upon the Maturity Date, and fifty percent (50%) of the
interest on the outstanding Principal Amount shall be due and payable on each
December 20, commencing December 20, 1997, and upon the Maturity Date, provided
that upon any Prepayment and any acceleration of the Principal Amount pursuant
to Section 8 below, all accrued and unpaid interest on the principal amount of
the Prepayment or on the accelerated Principal Amount shall be immediately due
and payable. Interest shall be calculated on the basis of a 365-day year and the
actual number of days elapsed. In the event that all or any portion of the
Principal Amount is not paid on any regularly scheduled payment date of this
Debenture or upon acceleration (regardless of the reason therefor), the portion
of the Principal Amount not paid when due shall bear interest until paid at the
"Default Rate" (as defined in Section 8 below).
(c) All portions of the Principal Amount, all interest thereon and all
other sums due hereunder, shall be payable, without set-off or deduction, at the
offices of the Holder set forth above or at such other place as Holder, from
time to time may designate to the Company in writing, in cash, certified check
or check of the Company that the Holder has agreed in writing in advance to
accept or a wire transfer to such account as Holder may have previously
designated to the Company in writing.
3. Prepayment. The Company may prepay any portion of the Principal
Amount or any installment thereof, without penalty or premium, upon five (5)
days' written notice to Holder (a "Prepayment"). Any Prepayments shall be
applied first to any overdue payments of principal or interest that bear
interest at the "Default Rate", next to any other accrued but unpaid interest in
the inverse order of maturity and then to reduction of installments of principal
of the Principal Amount in the inverse order in which such installments are due.
Any prepayments shall not postpone the due date of or change the amount of any
subsequent installment of principal due hereunder.
If a Change in Control (as hereinafter defined) occurs, the Holder may,
by notice to the Company given not later than the date 10 days after the date
the Company has notified the Holder of such Change in Control, require the
prepayment of the entire unpaid Principal Amount of this Debenture and all
accrued but unpaid interest thereon; whereupon the Company shall, on the date 10
days after the date such notice is given by the Holder, prepay this Debenture.
The Company shall give the Holder notice of the occurrence of any Change in
Control not later than 10 days after such Change in Control occurred.
JZM5844
B-3
As used herein, "Change in Control" of the Company means:
(a) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years (not including
any period prior to the date of this Debenture), individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
paragraph (a), (c) or (d) of this Section) whose election by the Board
of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (I)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation or (II) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the
combined voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
4. Adjustment of Interest Rate. The Interest Rate shall be
adjustable from time and each time the Bank announces a change in its prime
interest rate. The change in the Interest Rate shall be effective on the date
specified by the Bank as the effective date of the change.
5. Exchange of Debenture. At the option of the Holder, this
Debenture may be exchanged for other Debentures in denominations of $1,000 and
any integral multiple thereof and of a like aggregate principal amount and
tenor. Upon surrender of this Debenture to the
JZM5844
B-4
Company for exchange, the Company shall execute and deliver to the Holder the
Debentures which the Holder is entitled to receive in exchange.
6. Ranking of Obligations. The obligations of the Company
hereunder do rank and will rank at least pari passu in priority of payment with
all other indebtedness of the Company.
7. Covenants. Until satisfaction in full of all obligations of the
Company under this Debenture, the Company shall at all times comply with all of
the covenants of the Company set forth herein or in the Purchase Agreement,
which are hereby incorporated by reference herein as if each such covenant was
set forth in full in this Debenture, together with any necessary defined terms
from the Purchase Agreement.
8. Events of Default. The following events are hereby defined
for all purposes of this Debenture as Events of Default:
(a) Failure of the Company to pay any installment of principal
or interest hereunder when and as the same shall become due and
payable, which failure shall have continued for a period of 5 days
after receiving written notice of such late payment.
(b) The breach by the Company of any of the other covenants
set forth in this Debenture or in the Purchase Agreement if such breach
is not cured within 30 days after written notice thereof is given by
the Holder.
(c) The institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking relief under
Title 11 of the United States Code, as now constituted or hereafter in
effect, or any other applicable Federal or State bankruptcy, insolvency
or other similar law, or the consent by it to the institution of
proceedings thereunder or the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by the Company of an
assignment for the benefit of creditors, or the admission by the
Company in writing of its inability to pay its debts generally as they
become due;
(d) The entry of a decree or order by a court having
jurisdiction for relief in respect of the Company, or adjudging the
Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under Title 11 of the United States
Code, as now constituted or hereafter in effect, or any other
applicable Federal or State bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, assignee, trustee (or other
similar official) of the Company or of any substantial part of
JZM5844
B-5
its property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days; or
(e) A default shall occur under any other agreement, document
or instrument to which the Company is a party and such default is not
cured within any applicable grace period or waived in writing, and such
default (i) involves the failure to make any payment when due in
respect of any indebtedness (other than the Principal Amount and
interest thereon) of the Company in excess of Five Hundred Thousand
Dollars ($500,000) in the aggregate, or (ii) causes such indebtedness
or a portion thereof in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment, or (iii) permits
any holder of such indebtedness or a trustee to cause such indebtedness
or a portion thereof in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate to become due prior to its stated maturity
or prior to the regularly scheduled dates of payment and such default
is not cured or waived within 30 days after the occurrence thereof.
If one or more Events of Default shall happen and be continuing, then,
and in each and every such case, the Holder, at its option, by notice in writing
to the Company, may declare the entire Principal Amount and all interest accrued
thereon and any other sums due hereunder, if not already due and payable, to be
immediately due and payable. If there shall occur an Event of Default described
in Sections 8(c) or 8(d), the entire unpaid balance of the Principal Amount with
interest accrued thereon and all other sums due under this Debenture shall be
immediately due and payable without notice to the Company. If the entire unpaid
balance with interest accrued thereon shall, as a result of either of the
preceding two sentences, be immediately due and payable, the unpaid balance of
the Principal Amount shall accrue interest at the Interest Rate compounded
annually to the date of default and thereafter at a rate which shall be equal to
the Interest Rate plus two percent (2%) (the "Default Rate") and all other sums
due by the Company hereunder shall also be immediately due and payable; and
payment thereof may be enforced and recovered in whole or in part at any time by
one or more of the remedies provided to the Holder in this Debenture or under
applicable law. In such case, the Holder may also recover all costs of suit and
other expenses in connection therewith, together with reasonable attorney's fees
for collection, together with the interest on any judgment obtained by the
Holder at the Default Rate, including interest at that rate from and after the
date of any execution, judicial or foreclosure sale until actual payment is made
to the Holder of the full amount due the Holder.
9. Payment on Default. In the event that an Event of Default shall
occur, then the Company shall pay to the Holder the whole amount which then
shall have become due on the Debenture for principal and interest, and in
addition thereto, such additional amount as shall be sufficient to cover the
costs and expenses of collection.
JZM5844
B-6
No delay or omission of the Holder to exercise any rights or powers
accruing upon any default which shall not have been remedied shall impair any
such right or power, or shall be construed to be a waiver of any such default or
acquiescence therein; and every power and remedy given by this to the Holder may
be exercised from time to time and as often as may be deemed expedient by the
Holder.
10. Immunity of Incorporators, Stockholders, Officers, Directors and
Employees. No recourse shall be had for the payment of the principal or interest
on this Debenture or for any claim based thereon or otherwise in any manner in
respect thereof, to or against any subsidiary, incorporator, stockholder,
officer, director or employee, as such, past, present or future, of the Company
or any respective subsidiary, incorporator, stockholder, officer, director or
employees, as such, past, present or future, of any predecessor or successor
corporation, either directly or through the Company or such predecessor or
successor corporation, whether by virtue of any constitutional provision or
statute or rule of law, or by the enforcement of any assessment or penalty, or
in any other manner, all such liability being expressly waived and released by
the acceptance of this Debenture and as part of the consideration for the issue
thereof.
11. Notices. Unless otherwise provided, any notice required or
permitted under this Debenture shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with a reputable overnight courier or with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party in the Purchase
Agreement, or at such other address as such party may designate by ten (10) days
advance written notice to the other party.
12. Miscellaneous.
(a) The Company hereby waives presentment, demand, protest, notice of
demand, notice of nonpayment or dishonor, notice of protest and all other
notices of any kind in connection with the delivery, acceptance, performance
default or enforcement of the payment of this Debenture. No failure to exercise,
and no delay in exercising any rights hereunder on the part of the Holder hereof
shall operate as a waiver of such rights.
(b) The Holder and the Company may from time to time enter into written
agreements amending or changing any provisions of this Debenture or the Purchase
Agreement or the rights of the Holder or the Company hereunder or thereunder, or
may grant written waivers or consents to a departure from the due performance of
the obligations of the Company hereunder or thereunder.
(c) The Company agrees that its liability under this Debenture shall be
unconditional, without regard to the liability of any other party, and shall not
be affected in any manner by any indulgence, extension of time, renewal, waiver
or modification granted or consented to by the
JZM5844
B-7
Holder. No course of dealing and no delay or failure of the Holder in exercising
any right, power, remedy or privilege under this Debenture or the Purchase
Agreement shall affect any other or future exercise thereof or operate as a
waiver thereof; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy of
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Holder under this Debenture
and the Purchase Agreement are cumulative and not exclusive of any rights or
remedies which they would otherwise have. Any waiver, permit, consent or
approval of any kind or character on the part of the Holder of any breach or
default under this Debenture or any such waiver of any provision or condition of
this Debenture must be in writing and shall be effective only to the extent
specifically set forth in such writing.
(d) Whenever any payment or action to be made or taken hereunder shall
be stated to be due on a day which is not a business day, such payment or action
shall be made or taken on the next following business day, and such extension of
time shall be included in computing interest or fees, if any, in connection with
such payment or action.
(e) All notices, requests, demands, directions and other communications
(collectively, "notices") given to or made upon any party hereto under the
provisions of this Debenture shall be in writing and shall be effective if given
in accordance with the provisions of the Purchase Agreement.
(f) The provisions of this Debenture are intended to be severable. If
any provision of this Debenture shall be held invalid or unenforceable in whole
or in part in any jurisdiction such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
(g) This Debenture and the Purchase Agreement and other documents
delivered in connection herewith and therewith supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein.
Any Holder of this Debenture acknowledges that such Holder is bound by the
applicable provisions of the Purchase Agreement and by the acceptance of this
Debenture such Holder agrees to the terms thereof.
(h) All representations and warranties of the Company contained herein
or made in connection herewith shall survive and shall not be waived by the
execution and delivery of this Debenture or by any investigation by the Holder,
but shall terminate upon Company's full satisfaction and payment of all
outstanding amounts in the Principal Amount of or interest on this Debenture.
JZM5844
B-8
(i) This Debenture shall be binding upon and shall inure to the benefit
of the Holder, the Company and their respective successors and assigns, except
that the Company may not assign or transfer any of its rights and obligations
hereunder or any interest herein.
(j) Whenever the Holder's consent is required to be obtained under this
Debenture or the Purchase Agreement as a condition to any action, inaction,
condition or event, the Holder shall be authorized to give or withhold such
consent in its sole and absolute discretion and to condition its consent upon
the giving of additional collateral, the payment of money or any other matter.
(k) The representations, warranties and covenants contained herein
shall be independent of each other and no exception to any representation,
warranty or covenant shall be deemed to be an exception to any other
representation, warranty or covenant contained herein unless expressly provided,
nor shall any such exceptions be deemed to permit any action or omission that
would be in contravention of applicable law.
(l) This Debenture shall be governed by, and construed in accordance
with, the laws of the State of Utah, excluding, however, the rules relating to
conflicts of law.
(m) In no event shall the rate of interest payable under this Debenture
exceed the maximum rate of interest permitted to be charged by applicable law
(including the choice of law rules) and any interest paid in excess of the
permitted rate shall be refunded to the Company. Such refund shall be made by
application of the excessive amount of interest paid against any sums
outstanding and shall be applied in such order as the Holder may determine. If
the excessive amount of interest paid exceeds the sums outstanding, the portion
exceeding the said sums outstanding shall be refunded in cash by the Holder. Any
such crediting or refund shall not cure or waive any default by the Company
hereunder. The Company agrees, however, that in determining whether or not any
interest payable under this Debenture exceeds the highest rate permitted by law,
any non-principal payment, other than interest payments, including, without
limitation, fees and late charges, shall be deemed, to the extent permitted by
law, to be an expense, fee, premium or liquidated damages, rather than interest.
(n) THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATED TO THIS DEBENTURE OR THE PURCHASE AGREEMENT OR ANY ACT
OR OMISSION WHICH EITHER PARTY ASSERTS RESULTED IN ANY LIABILITY TO THE COMPANY,
THE HOLDER OR THEIR RESPECTIVE OFFICERS, DIRECTORS, STOCKHOLDERS, PARTNERS,
EMPLOYEES OR AGENTS, TO THE FULL EXTENT PERMITTED BY LAW.
JZM5844
B-9
IN WITNESS WHEREOF, the Company, intending to be legally bound hereby,
has caused this Debenture to be duly executed by its respective authorized
officers on the day and year first above written.
COVOL TECHNOLOGIES, INC.
By:
Name:
Title:
[Corporate Seal]
Attest:
, Secretary
Accepted and Agreed to as of
the first day referred to above
AJG FINANCIAL SERVICES, INC.
By:
Name:
Title:
JZM5844
B-10
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 20th day of
December, 1996, by and among COVOL TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and AJG FINANCIAL SERVICES, INC. and its successors, assigns
and transferees (herein referred to collectively as the "Holders" and
individually as a "Holder").
W I T N E S S E T H:
WHEREAS, on the date hereof, Holder is the holder of that certain 6%
Convertible Subordinated Debenture due December 20, 1999, in the principal
amount of $1,100,000 (the "Debenture");
WHEREAS, pursuant to the terms of the Debenture, Holder and the Company
have the right to convert all or any portion of the outstanding principal amount
of the Debenture and any accrued and unpaid interest thereon into shares of
Common Stock of the Company; and
WHEREAS, the Company has agreed to provide the Holders with certain
registration rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Company Common Stock" shall mean the shares of common stock, $.01 par
value per share, of the Company.
"Debenture" shall have the meaning set forth in the preamble.
"Effective Date" shall mean the date of this Agreement.
JZM5800
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Holder" or "Holders" shall have the meaning set forth in the preamble.
"Person" shall mean an individual, partnership, corporation, trust, or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, and any such prospectus as amended or supplemented by any prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and by all other
amendments and supplements to such prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Sale" shall mean a public sale or distribution of Registrable
Securities, including a sale pursuant to Rule 144 (or any similar provision then
in effect) under the Securities Act.
"Registrable Securities" shall mean the Shares, excluding (i) Shares
for which a Registration Statement relating to the sale thereof by the Holder
shall have become effective under the Securities Act and which have been
disposed of by the Holder under such Registration Statement, and (ii) Shares
sold or otherwise distributed pursuant to Rule 144 under the Securities Act.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without limitation:
(i) all SEC or National Association of Securities Dealers, Inc. ("NASD")
registration and filing fees, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualification of
any of the Registrable Securities and the preparation of a Blue Sky Memorandum)
and compliance with the rules of the NASD, (iii) all expenses of any Persons
engaged by the Company in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
certificates and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Securities on any securities exchange
or exchanges pursuant to Section 3(a)(vii) hereof, and (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters, if any, required by or incident to such performance and
compliance. Registration Expenses shall specifically exclude the fees and
disbursements of counsel representing a selling Holder and underwriting
discounts and commissions, and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a selling Holder, all of which shall be
borne by such Holder in all cases.
JZM5800
B-12
"Registration Statement" shall mean a registration statement of the
Company and any other entity required to be a registrant with respect to such
registration statement pursuant to the requirements of the Securities Act which
covers the Registrable Securities requested by Holders to be covered by such
registration statement, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all materials
incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Selling Holder" shall mean each Holder who elects to participate in an
underwritten public offering of Company Common Stock.
"Shares" shall mean Company Common Stock that is issued upon conversion
of all or any portion of the outstanding principal amount of the Debenture and
any accrued but unpaid interest thereon.
2. Registration Under the Securities Act.
(a) Filing of Registration Statement. As promptly as
practicable after the date hereof, the Company intends, but is not obligated, to
cause to be filed a Registration Statement providing for the issuance of the
Shares to the Holder to the extent allowed by applicable regulations and the
resale by the Holder of Registrable Securities then held by the Holder and
intends to use its best efforts to cause such Registration Statement if filed to
be declared effective by the SEC as soon as reasonably practicable. The Company
agrees to use its best efforts to keep such Registration Statement continuously
effective under the Securities Act for a period expiring on the date two (2)
years from the date of the last issuance of any Shares and further agrees to
supplement or amend the Registration Statement, if and as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Registration Statement or by the Securities Act or by any other
rules and regulations thereunder for such Registration Statement.
(b) Demand Registration. In the event the Company has not
caused to be filed a Registration Statement as provided in Section 2(a) within
six (6) months from the date hereof, Holder shall have the right, at any time
and from time to time after such six (6) month period, to demand that the
Company cause to be filed a Registration Statement or an amendment to a
Registration Statement providing for the registration under the Securities Act
of the Shares to be issued to Holder to the extent allowed by applicable
regulations and the resale by the Holder of all Registrable Securities, or, in
the event the Company has filed a Registration Statement as provided in Section
2(a) within six (6) months from the date hereof, but such
JZM5800
B-13
Registration Statement has not been declared effective by the SEC, Holder shall
have the right at any time and from time to time after January 1, 1998, to
demand that the Company cause to be filed a Registration Statement or an
amendment to a Registration Statement providing for the registration under the
Securities Act of the Shares to be issued to Holder and the resale by the Holder
of all Registrable Securities; provided, however, if at the time of such demand,
the Shares have been issued, such Registration Statement shall only relate to
sales by Holder. The Company agrees to use its best efforts to keep such
Registration Statement continuously effective under the Securities Act for a
period expiring on the date two (2) years from the date of the last issuance of
any Shares and further agrees to supplement or amend the Registration Statement,
if and as required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Registration Statement or by the
Securities Act or by any other rules and regulations thereunder for such
Registration Statement.
(c) Cut-Back Registration. In the event that the Holder has
requested the inclusion of Registrable Securities in a registration statement
pursuant to Section 3(a) or Section 3(b) and all or a portion of the Registrable
Securities with respect to which the Holder has requested registration are not
registered by virtue of the provisions of said sections, Holder shall thereupon
have the right to require the registration under the Securities Act of such
Registrable Securities pursuant to the provisions of Section 2(b), irrespective
of whether the date upon which Registration is requested is within six months of
the date of this Agreement.
(d) Expenses. The Company shall pay all Registration
Expenses in connection with any Registration Statement filed pursuant to this
Section 2.
(e) Inclusion in Registration Statement. The Company may
require each Holder of Registrable Securities to furnish to the Company in
writing such information regarding the proposed offer or sale by such Holder of
such Registrable Securities as the Company may from time to time reasonably
request in writing. Any Holder who does not provide the information reasonably
requested by the Company in connection with the Registration Statement as
promptly as practicable after receipt of such request, but in no event later
than ten (10) days thereafter, shall not be entitled to have its Registrable
Securities included in the Registration Statement.
(f) Underwritten Demand by Holder. If at the demand of Holder,
the Company proposes to file a Registration Statement relating to an
underwritten public offering of any Registerable Securities and the investment
banking firm selected by Holder to act as lead underwriter in connection with
such public offering of securities by Holder advises in writing that, in such
firm's opinion, a registration of other securities of the Company at that time
would materially and adversely affect the offering by Holder, no person
(including the Company) shall have a right to have shares of common stock or
other securities included in such Registration Statement; provided, however,
that if an offering of some but not all of the shares requested to
JZM5800
B-14
be registered by Holder would not adversely affect the offering by Holder, the
aggregate number of shares requested to be included in such offering by the
Company and each other person shall be reduced pro rata according to the total
number of securities proposed to be sold by the Company and other Person taken
as a whole; provided, in no event shall the shares requested by Holder to be
included in the Registration Statement shall be reduced.
(g) Rights to Subsequent Investors. The Company shall not
grant any rights to any other person which shall diminish in any way the rights
granted to the Holders hereunder. The Company may grant subsequent investors
rights of registration (such as those provided in Section 2 hereof); provided,
however, that (i) such rights are limited to shares of Common Stock (including,
in the case of any underwritten offering, shares issuable upon the conversion of
convertible securities or upon the exercise of warrants if such conversion or
exercise is effected by the sellers or the underwriters prior to sale to the
public in such offering), (ii) such rights are not inconsistent with the
provisions hereof; (iii) the instrument granting such rights specifically
confirms the rights of the Holders of Registrable Shares hereunder; (iv) the
rights of the Holder hereunder shall be the same as the rights of registration
granted to the subsequent investors.
3. Incidental Registration.
(a) If the Company proposes to register any shares of Company
Common Stock ("Other Securities") for public sale by the Company pursuant to an
underwritten offering under the Securities Act it will give prompt written
notice to Holders of its intention to do so, and upon the written request of
Holders delivered to the Company within fifteen (15) Business Days after the
giving of any such notice which request shall specify the number of Registrable
Securities intended to be disposed of by Holders and the Company shall include
such Registrable Securities in such Registration Statement. The Company will not
be required to effect any registration pursuant to this Section 3(a) if the
Company shall have been advised in writing (with a copy to the Selling Holders)
by a nationally recognized independent investment banking firm selected by the
Company to act as lead underwriter in connection with the public offering of
securities by the Company that, in such firm's opinion, a registration at that
time by other holders would materially and adversely affect the Company's own
scheduled offering, provided, however, that if an offering of some but not all
of the shares requested to be registered by Holder and other holders would not
adversely affect the Company's offering, the aggregate number of shares
requested to be included in such offering by each selling holder shall be
reduced pro rata according to the total number of securities proposed to be sold
by the selling holders taken as a whole.
(b) If at the demand of any other Person but the Holder
("Other Person"), the Company proposes to register Other Securities for public
sale pursuant to an underwritten offering under the Securities Act it will give
prompt written notice to Holder of its intention to do so, and upon the written
request of Holders delivered to the Company within fifteen (15) Business Days
after the giving of any such notice which request shall specify the number of
Registrable Securities intended to be disposed of by Holder and the Company
shall include such
JZM5800
B-15
Registrable Securities in such Registration Statement. If the Other Person shall
have been advised in writing (with a copy to the Selling Holders) by a
nationally recognized independent investment banking firm acting as lead
underwriter in connection with the public offering of securities by the Other
Person that, in such firm's opinion, a registration by the Holders at that time
would materially and adversely affect the offering by the Other Person, the
Registrable Securities of the Holder shall not be included in such Registration,
provided, the number of shares requested to be included in such offering by the
Holders and all other Persons shall be reduced pro rata according to the total
number of securities proposed to be sold by the Holder and other selling holders
taken as a whole; provided, however, notwithstanding the foregoing paragraph,
the shares requested by the Other Person demanding registration to be included
in the Registration Statement shall not be reduced if required by an agreement
between such Other Person and the Company.
(c) With respect to any proposed sale or sale by the Holder of
Registrable Securities pursuant to this Section 3 the Company shall pay all
Registration Expenses.
(d) No registration of Registrable Securities effected under
this Section 3 shall relieve the Company of its obligation (if any) to effect
registrations of Registrable Securities pursuant to Section 2.
4. Registration Procedures.
(a) Obligations of the Company. In connection with any
Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall:
(i) cause the Registration Statement to be available for the sale of the
Registrable Securities by Holders in one or more transactions, in negotiated
transactions, through the writing of options of the Registrable Securities, or a
combination of such methods of sale, and to comply as to form in all material
respects with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith and in the event the
Company is listed on the NASDAQ National Market System ("NMS") in one or more
transactions on NMS or otherwise in special offerings, exchange distributions or
secondary distribution pursuant to and in accordance with the rules of the NMS,
in the over-the-counter market;
(ii) (A) prepare and file with the SEC such amendments and post-effective
amendments to any Registration Statement as may be necessary to keep each such
Registration Statement effective for the applicable period; (B) cause the
Prospectus included in each such Registration Statement to be supplemented by
any required
JZM5800
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prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
or any similar rule that may be adopted under the Securities Act; (C) respond
promptly to any comments received from the SEC with respect to each Registration
Statement, or any amendment, post-effective amendment or supplement relating
thereto; and (D) comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by each Registration Statement;
(iii) furnish to each Holder of Registrable Securities, without charge, as
many copies of each Prospectus, and any amendment or supplement thereto and such
other documents as they may reasonably request, in order to facilitate the
public sale or other disposition of the Registrable Securities; the Company
consents to the use of the Prospectus, by each such Holder of Registrable
Securities, in connection with the offering and sale of the Registrable
Securities covered by the Prospectus;
(iv) notify promptly each Holder of Registrable Securities and confirm such
advice in writing (A) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (B) if the
Company receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose, and (C) of the happening of any
event during the period a Registration Statement is effective as a result of
which such Registration Statement or the related Prospectus contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made (in the case of the Prospectus), not
misleading;
(v) use its best effort to obtain the withdrawal of any order suspending
the effectiveness of a Registration Statement at the earliest possible moment;
(vi) use its best efforts to register or qualify the Registrable Securities
by the time the applicable Registration Statement is declared effective by the
SEC under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement shall reasonably
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request in writing, keep each such registration or qualification effective
during the period such Registration Statement is required to be kept effective
or during the period offers or sales are being made by a Holder that has
delivered a Registration Notice to the Company, whichever is shorter, and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder; provided, however, that the
Company shall not be required to (A) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify but for this Section 4(a)(vi), (B)
subject itself to taxation in any such jurisdiction, or (C) submit to the
general service of process in any such jurisdiction;
(vii) upon the occurrence of any event contemplated by Section 4(a)(iv)(C)
hereof, use its best efforts promptly to prepare and file a supplement or
prepare, file and obtain effectiveness of a post- effective amendment to a
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such Prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
(viii) use its best efforts to cause all Registrable Securities to be
listed on any securities exchange on which similar securities issued by the
Company are then listed;
(ix) provide a CUSIP number for all Registrable Securities, not later than
the effective date of the Registration Statement or amendment thereto relating
to such Registrable Securities;
(x) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make available to its security holders, as soon as
reasonably practicable, an earning statement covering at least twelve (12)
months which shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder; and
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(xi) use its best efforts to cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holders to consummate the
disposition of such Registrable Securities.
(b) Obligations of Holders. In connection with and as a
condition to the Company's obligations with respect to a Registration Statement
pursuant to Section 2 hereof and this Section 4, each Holder agrees that (i) it
will not offer or sell its Registrable Securities under the Registration
Statement until it has received copies of the supplemental or amended Prospectus
contemplated by Section 4(a)(ii) hereof and receives notice that any
post-effective amendment has become effective; and (ii) upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(a)(iv)(C) hereof, such Holder will forthwith discontinue disposition
of Registrable Securities pursuant to a Registration Statement until such Holder
receives copies of the supplemented or amended Prospectus contemplated by
Section 4(a)(vii) hereof and receives notice that any post-effective amendment
has become effective, and, if so directed by the Company, such Holder will
deliver to the Company (at the expense of the Company) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
(c) Lockup. In the event the Company proposes to effect the
distribution of its securities by the Company through an underwritten public
offering, each Holder who then beneficially owns in excess of 100,000 shares
agrees for a period of time, beginning seven (7) days prior to the effective
date of the underwriting agreement pertaining to such offering and ending thirty
(30) days after such effective date that such Holder will forthwith cease any
sale or other disposition of any of the Registrable Securities or sale or other
disposition of any of its Registrable Securities during such period of time, if
requested in writing by the representatives of the underwriters for any such
underwritten public offering; provided, however, that Holders shall not be
subject to more than one Lockup Period during any twelve (12) month period.
5. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder, each officer and director of such
Holder, and each Person, if any, who controls any Holder within the meaning of
Section 15 of the Securities Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred,
arising out of any untrue statement or
alleged untrue statement of a material fact
contained in any Registration Statement (or
any amendment thereto) pursuant to
JZM5800
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which Registrable Securities were registered
under the Securities Act, including all
documents incorporated therein by reference,
or the omission or alleged omission
therefrom of a material fact necessary in
order to make the statements therein, in the
light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred,
to the extent of the aggregate amount paid
in settlement of any litigation, or
investigation or proceeding by any
governmental agency or body, commenced or
threatened, or of any claim whatsoever based
upon any such untrue statement or omission,
or any such alleged untrue statement or
omission, if such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including reasonable fees and
disbursements of counsel), reasonably
incurred in investigating, preparing or
defending against any litigation, or
investigation or proceeding by any
governmental agency or body, commenced or
threatened, in each case whether or not a
party, or any claim whatsoever based upon
any such untrue statement or omission, or
any such alleged untrue statement or
omission, to the extent that any such
expense is not paid under subparagraph (i)
or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 4(a)
does not apply to any Holder with respect to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in a Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto).
(b) Indemnification by the Holders. Each Holder severally
agrees to indemnify and hold harmless the Company and the other selling Holders,
and each of their respective directors and officers (including each director and
officer of the Company who signed the Registration Statement), and each Person,
if any, who controls the Company or any other selling Holder within the meaning
of Section 15 of the Securities Act, to the same extent as the indemnity
contained in Section 5(a) hereof (except that any settlement described in
Section 4(a)(ii) shall be effected only with the written consent of such
Holder), but only insofar as such loss, liability, claim, damage or expense
arises out of or is based upon (i) any untrue statement or omission, or alleged
untrue statements or omissions, made in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company
JZM5800
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by such selling Holder expressly for use in such Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto),
or (ii) such Holder's failure to deliver a Prospectus to any purchaser of
Registrable Securities where such a delivery obligation was applicable to such
Holder's sale of Registrable Securities and such Holder had been provided with
sufficient copies of such Prospectus for the relevant deliveries thereof. In no
event shall the liability of any Holder under this Section 4(b) be greater in
amount than the dollar amount of the proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Each indemnified
party shall give reasonably prompt notice to each indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party (i) shall not
relieve it from any liability which it may have under the indemnity agreement
provided in Section 4(a) or (b) above, unless and to the extent it did not
otherwise learn of such action and the lack of notice by the indemnified party
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) shall not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided under Section 4(a) or (b) above. If the indemnifying party
so elects within a reasonable time after receipt of such notice, the
indemnifying party may assume the defense of such action or proceeding at such
indemnifying party's own expense with counsel chosen by the indemnifying party
and approved by the indemnified parties defendant in such action or proceeding,
which approval shall not be unreasonably withheld; provided, however, that, if
such indemnified party or parties reasonably determine that a conflict of
interest exists where it is advisable for such indemnified party or parties to
be represented by separate counsel or that, upon advice of counsel, there may be
legal defenses available to them which are different from or in addition to
those available to the indemnifying party, then the indemnifying party shall not
be entitled to assume such defense and the indemnified party or parties shall be
entitled to one separate counsel at the indemnifying party's expense. If an
indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, such
indemnifying party's counsel shall be entitled to conduct the defense of such
indemnified party or parties, it being understood that both such counsel will
cooperate with each other to conduct the defense of such action or proceeding as
efficiently as possible. If an indemnifying party is not so entitled to assume
the defense of such action or does not assume such defense, after having
received the notice referred to in the first sentence of this paragraph, the
indemnifying party or parties will pay the reasonable fees and expenses of
counsel for the indemnified party or parties. In such event, however, no
indemnifying party will be liable for any settlement effected without the
written consent of such indemnifying party. If an indemnifying party is entitled
to assume, and assumes, the defense of such action or proceeding in accordance
with this paragraph, such indemnifying party shall not be liable for any fees
and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action or proceeding. The indemnification obligations
provided pursuant to Sections 4(a) and (b) hereof survive, with respect to a
Holder, the transfer of Registrable
JZM5800
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Securities by such Holder, and with respect to a Holder or the Company, shall
remain in full force and effect regardless of any investigation made by or on
behalf of any indemnified party.
(d) Contribution.
(i) In order to provide for just and equitable contribution in circumstances in
which the indemnity agreement provided for in this Section 4 is for any
reason held to be unenforceable although applicable in accordance with its
terms, the Company and the selling Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the
selling Holders, in such proportion as is appropriate to reflect the
relative fault of and benefits to the Company on the one hand and the
selling Holders on the other (in such proportions that the selling Holders
are severally, not jointly, responsible for the balance), in connection
with the statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits to the indemnifying party and
indemnified parties shall be determined by reference to, among other
things, the total proceeds received by the indemnified party and
indemnified parties in connection with the offering to which such losses,
claims, damages, liabilities or expenses relate. The relative fault of the
indemnifying party and indemnified parties shall be determined by reference
to, among other things, whether the action in question, including any
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or the indemnified
parties, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such action.
(ii) The Company and the Holders agree that it would not be just or equitable if
contribution pursuant to this Section 4(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 4(d), no selling
Holder shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities of such
selling Holder were offered to the public exceeds the amount of any damages
which such selling Holder would otherwise have been required to pay by
reason of such untrue statement or omission.
JZM5800
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(iii)Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 4(d),
each Person, if any, who controls a Holder within the meaning of Section 15
of the Securities Act and directors and officers of a Holder shall have the
same rights to contribution as such Holder, and each director of the
Company, each officer of the Company who signed the Registration Statement
and each Person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act shall have the same rights to contribution
as the Company.
(iv) The contribution provided for in this Section 4(d) shall survive, with
respect to a Holder, the transfer of Registrable Securities by such Holder,
and with respect to a Holder or the Company, shall remain in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party.
6. Rule 144 Sales.
(a) Reports. The Company covenants that it will file the
reports required to be filed by the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended, and will take such further action
as any Holder of Registrable Securities may reasonably request, all to the
extent required to enable such Holder to sell Registrable Securities pursuant to
Rule 144 under the Securities Act.
(b) Certificates. In connection with any sale, transfer or
other disposition by any Holder of any Registrable Securities pursuant to Rule
144 under the Securities Act, the Company shall cooperate with such Holder to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any Securities Act legend, and
enable certificates for such Registrable Securities to be for such number of
shares and registered in such names as the selling Holders may reasonably
request at least two (2) business days prior to any sale of Registrable
Securities.
7. Miscellaneous.
(a) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers
JZM5800
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or consents to departures from the provisions hereof may not be given without
the written consent of the Company and the Holders of a majority in amount of
the outstanding Registrable Securities; provided, however, that no amendment,
modification or supplement or waiver or consent to the departure with respect to
the provisions of Sections 2, 3, 4, 5, 6 or 7 hereof shall be effective as
against any Holder of Registrable Securities unless consented to in writing by
such Holder of Registrable Securities, as the case may be. Notice of any
amendment, modification or supplement to this Agreement adopted in accordance
with this Section 6(a) shall be provided by the Company to each Holder of
Registrable Securities at least thirty (30) days prior to the effective date of
such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier, or any courier guaranteeing overnight delivery, (i) if
to a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 6(b),
which address initially is, with respect to each Holder, the address set forth
next to such Holder's name on the books and records of the Company, or (ii) if
to the Company, at: COVOL Technologies, Inc., 0000 X. Xxxxxxxx Xxxx, Xxxx, Xxxx
00000; Facsimile: (000) 000-0000; Attn: General Counsel.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
(5) business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; or
at the time delivered if delivered by an air courier guaranteeing overnight
delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the Company and the Holders, including without limitation and without the
need for an express assignment, subsequent Holders. If any successor, assignee
or transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities, as the
case may be, shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be entitled to
receive the benefits hereof and shall be conclusively deemed to have agreed to
be bound by all of the terms and provisions hereof.
(d) Headings. The headings in this Agreement are for the
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
JZM5800
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(f) Specific Performance. The Company and the Holders hereto
acknowledge that there would be no adequate remedy at law if any party fails to
perform any of its obligations hereunder, and accordingly agree that each party,
in addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of the obligations of any other
party under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(g) Entire Agreement. This Agreement is intended by the
Company as a final expression of its agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the Company in respect
of the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings of the Company with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
COVOL TECHNOLOGIES, INC.
By:
Name:
Title:
AJG FINANCIAL SERVICES, INC.
By:
Name:
Title:
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