EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
October 21, 2005 among Silverstar Holdings, Ltd., a Bermuda corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchasers' obligations to pay the Subscription Amount and (ii) the
Company's obligations to deliver the Securities have been satisfied or
waived.
"Closing Price" means on any particular date (a) the last
reported closing bid price per share of Common Stock on such date on
the Trading Market (as reported by
Bloomberg L.P. at 4:15 PM (New York time), or (b) if there is no such
price on such date, then the closing bid price on the Trading Market or
the OTC Bulletin Board on the date nearest preceding such date (as
reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
bid price for regular session trading on such day), or (c) if the
Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported, or (d) if the shares
of Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by a qualified independent
appraiser selected in good faith by the Purchasers of a majority in
interest of the then outstanding Debentures.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.01 per share, and any other class of securities into which
such securities may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxxxxxx Xxxxxxx LLP.
"Conversion Price" shall have the meaning ascribed to such
term in the Debentures.
"Debentures" means, the Variable Rate Secured Convertible
Debentures due, subject to the terms therein, three years from their
date of issuance, issued by the Company to the Purchasers hereunder, in
the form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan
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duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities
upon the exercise or exchange of or conversion of any Securities issued
hereunder and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of
any such securities, and (c) securities issued pursuant to acquisitions
or strategic transactions, provided any such issuance shall only be to
a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and
in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.13.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.
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"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures, ignoring any conversion or exercise limits
set forth therein, and assuming that the Conversion Price is at all
times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of
determination.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the Warrant
Shares and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated the
date hereof, among the Company and the Purchasers, in the form of
Exhibit F attached hereto.
"Security Documents" shall mean the Security Agreement, the
Subsidiary Guarantees and any other documents and filing required
thereunder in order to grant the Purchasers a first priority security
interest in the assets of the Company as provided in the Security
Agreement, including all UCC-1 filing receipts.
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"Shareholder Approval" means such approval as may be required
by the applicable rules and regulations of the Nasdaq SmallCap Market
(or any successor entity) from the shareholders of the Company with
respect to the transactions contemplated by the Transaction Documents,
including the issuance of all of the Underlying Shares and shares of
Common Stock issuable upon exercise of the Warrants in excess of 19.99%
of the issued and outstanding Common Stock on the Closing Date.
"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act.
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for Debentures and Warrants purchased
hereunder as specified below such Purchaser's name on the signature
page of this Agreement and next to the heading "Subscription Amount",
in United States Dollars and in immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1(a).
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated
the date hereof, among each of its Subsidiaries and the Purchasers, in
the form of Exhibit G attached hereto.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement, the Security Agreement
and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issued
and issuable upon conversion of the Debentures and upon exercise of the
Warrants.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then
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listed or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)
if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then quoted on the OTC Bulletin
Board, the volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if
the Common Stock is not then listed or quoted on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the "Pink
Sheets" published by the Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the
Purchasers and reasonably acceptable to the Company.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to 5
years.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to $5,000,000
principal amount of the Debentures. Each Purchaser shall deliver to the Company
via wire transfer or a certified check immediately available funds equal to
their Subscription Amount and the Company shall deliver to each Purchaser their
respective Debenture and Warrants as determined pursuant to Section 2.2(a) and
the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of FW, or such other location as the parties shall
mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to
be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form
of Exhibit D attached hereto;
(iii) a Debenture with a principal amount equal to
such Purchaser's
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Subscription Amount, registered in the name of such Purchaser;
(iv) a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 25% of such Purchaser's Subscription Amount divided
by $1.58, with an exercise price equal to $1.896, subject to
adjustment therein;
(v) the written voting agreement, in the form of
Exhibit E attached hereto, of all of the officers, directors
and shareholders holding more than 10% of the issued and
outstanding shares of Common Stock on the date hereof to vote
all Common Stock owned by each of such officers, directors and
shareholders as of the record date for the annual meeting of
shareholders of the Company in favor of Shareholder Approval;
(vi) the Security Agreement, duly executed by the
Company, along with all the Security Documents duly executed
by the parties thereto, including the Subsidiary Guarantee;
and
(vii) a Personal Guarantee, duly executed by Xxxxxx
Xxxxxxxxx in favor of the Purchasers, in the form of Exhibit H
attached hereto; and
(viii) the Registration Rights Agreement duly
executed by the Company.
(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in writing by the
Company; and
(iii) the Registration Rights Agreement duly executed
by such Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made
and on the Closing Date of the representations and warranties
of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set
forth in Section
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2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and warranties of the
Company contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing
Date shall have been performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect
with respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading
in the Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported
by Bloomberg Financial Markets shall not have been suspended
or limited, or minimum prices shall not have been established
on securities whose trades are reported by such service, or on
any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State
authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in
each case, in the reasonable judgment of each Purchaser, makes
it impracticable or inadvisable to purchase the Debentures at
the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe
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for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part
of the Company and no further action is required by the Company, its
board of directors or its stockholders in connection therewith other
than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become
9
a default) under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property
or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.6, (ii) the filing with the Commission
of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the
Debentures and Warrants and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby, (iv) the
filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws and (vi) Shareholder
Approval (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
set forth on Schedule 3.1(g). The Company has not issued any capital
stock since its most recently filed periodic report under the Exchange
Act, other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or
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commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable
for, or giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid
and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued
in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required
to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the "SEC Reports") on
a timely basis or has received a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto
and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects
the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required
to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and
(v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option
plans. The Company does not have pending before the Commission any
request for confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including
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without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a
Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
have or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To the
best knowledge of the Company, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
13
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other
than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx. The Company is in material compliance with
all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are applicable
to it as of the Closing Date. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company. The Company's certifying officers have
evaluated the effectiveness of the Company's controls and procedures as
of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation
Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the knowledge of the
Company, in other factors that could significantly affect the Company's
internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf
of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the
Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
14
(v) Registration Rights. Other than each of the Purchasers, no
Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company.
All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under
15
circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
Trading Market on which any of the securities of the Company are listed
or designated.
(aa) Solvency. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i)
the Company's fair saleable value of its assets exceeds the amount that
will be required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as
now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements
and capital availability thereof; and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on
or in respect of its debt when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that
it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) Form S-3 Eligibility. The Company is eligible to register
the resale of the Underlying Shares for resale by the Purchaser on Form
S-3 promulgated under the Securities Act.
(cc) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
16
(dd) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(ee) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(ff) Accountants. The Company's accountants are set forth on
Schedule 3.1(ff) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who expressed their opinion with respect to
the financial statements included in the Company's Annual Report on
Form 10-K for the year ended June 30, 2005 are a registered public
accounting firm as required by the Securities Act.
(gg) Seniority. As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
(hh) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(ii) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely
17
on the independent evaluation of the transactions contemplated hereby
by the Company and its representatives.
(jj) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.16 hereof), it is understood and
agreed by the Company (i) that none of the Purchasers have been asked
to agree, nor has any Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market
or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter parties in "derivative" transactions to which any such
Purchaser is a party, directly or indirectly, presently may have a
"short" position in the Common Stock, and (iv) that each Purchaser
shall not be deemed to have any affiliation with or control over any
arm's length counter-party in any "derivative" transaction. The Company
further understands and acknowledges that (a) one or more Purchasers
may engage in hedging activities at various times during the period
that the Securities are outstanding, including, without limitation,
during the periods that the value of the Underlying Shares deliverable
with respect to Securities are being determined and (b) such hedging
activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(kk) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Securities (other than for the placement
agent's placement of the Securities), or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution,
delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such
18
Purchaser. Each Transaction Document to which it is a party has been
duly executed by such Purchaser, and when delivered by such Purchaser
in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state
securities law and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
19
(f) Short Sales and Confidentiality Prior To The Date Hereof.
Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any
disposition, including Short Sales (but not including the location
and/or reservation of borrowable shares of Common Stock), in the
securities of the Company during the period commencing from the time
that such Purchaser first received a term sheet from the Company or any
other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("Discussion Time").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and
terms of this transaction).
The Company acknowledges and agrees that each Purchaser does
not make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE
20
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Debenture or
Warrant is converted or exercised (as applicable) at a time when there
is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise
21
required under applicable requirements of the Securities Act (including
judicial interpretations thereof) then such Underlying Shares shall be
issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day,
the "Legend Removal Date"), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section.
Certificates for Securities subject to legend removal hereunder shall
be transmitted by the transfer agent of the Company to the Purchasers
by crediting the account of the Purchaser's prime broker with the
Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the second Trading Day
after the Legend Removal Date until such certificate is delivered
without a legend. Nothing herein shall limit such Purchaser's right to
pursue actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents,
and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent
of the Purchasers holding a majority in principal amount outstanding of
the Debentures.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of
22
the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the second Trading Day following the date hereof, issue a
Current Report on Form 8-K, reasonably acceptable to Purchaser's counsel
disclosing the material terms of the transactions contemplated hereby, and shall
attach the Transaction Documents thereto. The Company and each Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with the registration
statement
23
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under subclause (i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder first for the acquisition of securities or assets of a business to be
identified by the Company and then for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Common Stock or Common Stock Equivalents or to settle any
outstanding litigation.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
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4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
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(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market. In addition, the
Company shall hold a special meeting of shareholders (which may also be
at the annual meeting of shareholders) at the earliest practical date
following the Closing Date, and in any event within 60 calendar days
following the Closing Date for the purpose of obtaining Shareholder
Approval, with the recommendation of the Company's Board of Directors
that such proposal be approved, and the Company shall solicit proxies
from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of
such proposal. If the Company does not obtain Shareholder Approval at
the first meeting, the Company shall call a meeting every four months
thereafter to seek Shareholder Approval until the earlier of the date
Shareholder Approval is obtained or the Debentures are no longer
outstanding.
4.13 Participation in Future Financing.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any financing by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to 30%
of the Subsequent Financing (the "Participation Maximum").
(b) At least 5 Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a
written notice of its intention to effect a Subsequent Financing
("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it wants
to review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing
Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing
to participate in the Subsequent Financing, the amount of the
Purchaser's participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the
26
Company receives no notice from a Purchaser as of such 5th Trading Day,
such Purchaser shall be deemed to have notified the Company that it
does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate)
is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the
Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice, the
Company receives responses to a Subsequent Financing Notice from
Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to
purchase the greater of (a) their Pro Rata Portion (as defined below)
of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all
other Purchasers. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.13.
(f) The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the
right of participation set forth above in this Section 4.13, if the
Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such
Subsequent Financing Notice within 60 Trading Days after the date of
the initial Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not
apply in respect of an Exempt Issuance.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, the 90 day
period set forth in this Section 4.14 shall be extended for the number
of Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by
the Purchasers for the resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds
any of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction". The term "Variable Rate
Transaction" shall mean a transaction in which the Company issues or
27
sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for the shares of Common Stock at
any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt
or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or
the market for the Common Stock or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price.
(c) Until Shareholder Approval has been obtained and deemed
effective, the Company shall not make any issuance whatsoever of Common
Stock or Common Stock Equivalents. Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages.
(d) Notwithstanding the foregoing, this Section 4.14 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
4.16 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after the
Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
28
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Each Purchaser agrees, severally and not jointly with any other
Purchasers, that it or any Person acting at the request or direction of
Purchaser, will not enter into any Net Short Sales (as hereinafter defined) from
the period commencing on the Closing Date and ending on the date that such
Purchaser no longer holds any Debentures. For purposes of this Section 4.16, a
"Net Short Sale" by any Purchaser shall mean a sale of Common Stock by such
Purchaser that is marked as a short sale and that is made at a time when there
is no equivalent offsetting long position in Common Stock held by such
Purchaser. For purposes of determining whether there is an equivalent offsetting
long position in Common Stock held by the Purchaser, the Underlying Shares and
the Warrant Shares that have not yet been converted or exercised pursuant to the
Debentures and Warrants shall be deemed to be held long by the Purchaser, and
the amount of shares of Common Stock held in a long position shall be all
Shares, Underlying Shares and Warrant Shares (ignoring any exercise limitations
included therein) held by such Purchaser on such date, plus any shares of Common
Stock otherwise then held by such Purchaser. Notwithstanding the foregoing, in
the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the covenant set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before October 30, 2005; provided, however, that no such termination will affect
the right of any party to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to
reimburse DKR SoundShore Oasis Holding Fund Ltd. ("DKR") a non-accountable sum
of $25,000, for its actual, reasonable, out-of-pocket legal fees and expenses,
$10,000 of which shall have been paid prior to the Closing plus 3.1% of the
aggregate Subscription Amounts of DKR as a non-accountable expense allowance for
DKR. Accordingly, in lieu of the foregoing payments, the aggregate amount that
DKR is to pay for the Securities at the Closing shall be reduced by an amount
equal to $15,000 plus 3.1% of such aggregate Subscription Amounts in lieu
thereof. The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all
29
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of,
30
nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
31
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction
32
Documents for payments in the nature of interest shall not exceed the maximum
lawful rate authorized under applicable law (the "Maximum Rate"), and, without
limiting the foregoing, in no event shall any rate of interest or default
interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Transaction Documents is
increased or decreased by statute or any official governmental action subsequent
to the date hereof, the new maximum contract rate of interest allowed by law
will be the Maximum Rate applicable to the Transaction Documents from the
effective date forward, unless such application is precluded by applicable law.
If under any circumstances whatsoever, interest in excess of the Maximum Rate is
paid by the Company to any Purchaser with respect to indebtedness evidenced by
the Transaction Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only DKR. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
33
(Signature Pages Follow)
34
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
SILVERSTAR HOLDINGS, LTD. Address for Notice:
-------------------
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
35
[PURCHASER SIGNATURE PAGES TO SSTR SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: DKR SOUNDSHORE OASIS HOLDING FUND LTD
Signature of Authorized Signatory of Purchaser: /s/ Xxxx Xxxxxxx
--------------------------------
Name of Authorized Signatory: XXXX XXXXXXX
--------------------------------------------------
Title of Authorized Signatory: DIRECTOR
-------------------------------------------------
Email Address of Purchaser: XXXXXXX@XXXXXXXXXX.XXX
----------------------------------------------------
Address for Notice of Purchaser:
Mailing Address Legal Address
0000 Xxxx Xxxx Xxxxxx, 18 Church Street
3rd Floor Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000 Xxxxxxxx XX00 Xxxxxxx
Address for Delivery of Securities for Purchaser (if not same as above):
Mailing Address
0000 Xxxx Xxxx Xxxxxx,
0xx Xxxxx
Xxxxxxxx, XX 00000
Subscription Amount: $5 million
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
36
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $5,000,000 of Debentures and
Warrants from Silverstar Holdings, Ltd. (the "Company"). All funds will be wired
into a trust account maintained by ____________, counsel to the Company. All
funds will be disbursed in accordance with this Closing Statement.
DISBURSEMENT DATE: [________ ___, 2005
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
$
$
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
37
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: OCTOBER __, 2005
Original Conversion Price (subject to adjustment herein): $1.738
$
---------------
VARIABLE RATE SECURED CONVERTIBLE DEBENTURE
DUE OCTOBER __, 2008
THIS VARIABLE RATE SECURED DEBENTURE is one of a series of duly
authorized and issued Secured Convertible Debentures of Silverstar Holdings,
Ltd., a Bermuda corporation, having a principal place of business at
_____________________________ (the "Company"), designated as its Variable Rate
Secured Convertible Debenture, due October ___, 2008 (this debenture, the
"Debenture" and collectively with the other such series of debentures, the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
October __, 2008, or such earlier date as this Debenture is required or
permitted to be repaid as provided hereunder (the "Maturity Date"), and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
1
"Alternate Consideration" shall have the meaning set forth in
Section 5(d).
"Base Conversion Price" shall have the meaning set forth in
Section 5(b).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or a
day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the
date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 50% of the voting securities
of the Company, or (ii) the Company merges into or consolidates with
any other Person, or any Person merges into or consolidates with the
Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66%
of the aggregate voting power of the Company or the successor entity of
such transaction, or (iii) the Company sells or transfers its assets,
as an entirety or substantially as an entirety, to another Person and
the stockholders of the Company immediately prior to such transaction
own less than 66% of the aggregate voting power of the acquiring entity
immediately after the transaction, (iv) a replacement at one time or
within a three year period of more than one-half of the members of the
Company's board of directors which is not approved by a majority of
those individuals who are members of the board of directors on the date
hereof (or by those individuals who are serving as members of the board
of directors on any date whose nomination to the board of directors was
approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i) through (iv).
"Common Stock" means the common stock, par value $0.01 per
share, of the Company and stock of any other class of securities into
which such securities may hereafter have been reclassified or changed
into.
"Conversion Date" shall have the meaning set forth in Section
4(a).
"Conversion Price" shall have the meaning set forth in Section
4(b).
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of this Debenture.
"Debenture Register" shall have the meaning set forth in
Section 2(c).
2
"Dilutive Issuance" shall have the meaning set forth in
Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in
Section 5(b).
"Effectiveness Period" shall have the meaning given to such
term in the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question,
(i) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notice of
Conversions of the Holder, if any, (ii) all liquidated damages and
other amounts owing to the Holder in respect of this Debenture shall
have been paid, (iii) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that
such effectiveness will continue uninterrupted for the foreseeable
future), (iv) the Common Stock is trading on the Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed
for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is then existing no
Event of Default or event which, with the passage of time or the giving
of notice, would constitute an Event of Default, (vii) the issuance of
the shares in question (or, in the case of a redemption, the shares
issuable upon conversion in full of the redemption amount) to the
Holder would not violate the limitations set forth in Section 4(c)(i)
and Section 4(c)(ii) and (viii) no public announcement of a pending or
proposed Fundamental Transaction, Change of Control Transaction or
acquisition transaction has occurred that has not been consummated.
"Event of Default" shall have the meaning set forth in Section
8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Fundamental Transaction" shall have the meaning set forth in
Section 5(d).
"Interest Period" means, initially, the period beginning on
and including the Original Issue Date and ending on and including
[October 31, 2005] and on the last calendar day of each month
thereafter.
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" shall equal the sum of (i) the
greater of: (A) 115% of the principal amount of this Debenture to be
prepaid, plus all accrued and unpaid interest thereon, or (B) the
principal amount of this Debenture to be prepaid, plus all
3
other accrued and unpaid interest hereon, divided by the Conversion
Price on (x) the date the Mandatory Default Amount is demanded or
otherwise due or (y) the date the Mandatory Default Amount is paid in
full, whichever is less, multiplied by the VWAP on (x) the date the
Mandatory Default Amount is demanded or otherwise due or (y) the date
the Mandatory Default Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of this Debenture.
"Monthly Conversion Period" shall have the meaning set forth
in Section 6(a) hereof.
"Monthly Conversion Price" shall have the meaning set forth in
Section 6(a) hereof.
"Monthly Redemption" shall mean the redemption of this
Debenture pursuant to Section 6(b) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly
Redemption, $___(1).
"Monthly Redemption Date" means the 1st of each month,
commencing July 1, 2006 and ending upon the full redemption of this
Debenture.
"Monthly Redemption Notice" shall have the meaning set forth
in Section 6(b) hereof.
"Monthly Redemption Period" shall have the meaning set forth
in Section 6(b) hereof.
"Monthly Redemption Share Amount" shall have the meaning set
forth in Section 6(b) hereof.
"New York Courts" shall have the meaning set forth in Section
9(d).
"Notice of Conversion" shall have the meaning set forth in
Section 4(a).
"Optional Redemption" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Amount" shall mean the sum of (i) 115% of
the principal amount of the Debenture then outstanding, (ii) accrued
but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of the Debenture.
"Optional Redemption Date" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice" shall have the meaning set forth
in Section 6(a).
----------
(1) 1/27th of the original principal balance.
4
"Optional Redemption Notice Date" shall have the meaning set
forth in Section 6(a).
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"Permitted Indebtedness" shall mean (a) the Indebtedness
existing on the Original Issue Date and set forth on Schedule 3.1(gg)
attached to the Purchase Agreement, (b) lease obligations and purchase
money Indebtedness of up to $500,000, in the aggregate, incurred in
connection with the acquisition of capital assets and lease obligations
with respect to newly acquired or leased assets and (c) Indebtedness
incurred after the Original Issue Date pursuant to which the holders
thereof shall have entered into a written subordination agreement,
which Indebtedness shall have a maturity date after the Maturity Date
hereof and shall otherwise be junior in all respects (including right
of payment) to the Debentures.
"Permitted Lien" shall mean the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes,
assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Company) have been
established in accordance with GAAP, (b) Liens imposed by law which
were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and
other similar Liens arising in the ordinary course of business, and (x)
which do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien and (c) Liens incurred in connection with Permitted
Indebtedness under clause (b) and (c) thereunder, provided that with
respect to (b), such Liens are not secured by assets of the Company or
its Subsidiaries other than the assets so acquired or leased.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Pre-Redemption Conversion Shares" shall have the meaning set
forth in Section 6(a) hereof.
"Prime Rate" means, for each Interest Period means, (i) the
Prime Rate as shown on such Trading Day immediately prior to the
beginning of such Interest Period in The Wall Street Journal (Eastern
Edition) under the caption "Money Rates - Prime Rate"; or (ii) if The
Wall Street Journal does not publish such rate, the rate of interest
publicly
5
announced by Citibank N.A. as its prime rate, on the Trading Day
immediately prior to the beginning of such Interest Period.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of October 21, 2005 to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholder Approval" shall have the meaning given to such
term in the Purchase Agreement.
"Subsidiary" shall have the meaning given to such term in the
Purchase Agreement.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the
6
Common Stock are then reported in the "Pink Sheets" published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
Section 2. Interest.
a) Payment of Interest. The Company shall pay interest to the
Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate per annum equal to the Prime Rate
for the applicable Interest Period plus 1.5%, or such lesser rate as
shall be the highest rate permitted by applicable law, payable monthly
on the first day of each month, beginning on the first such date after
the Original Issue Date, on each Monthly Redemption Date (as to that
principal amount then being redeemed), on each Conversion Date (as to
that principal amount then being converted), on each Optional
Redemption Date (as to that principal amount then being redeemed) and
on the Maturity Date (except that, if any such date is not a Business
Day, then such payment shall be due on the next succeeding Business
Day), in cash via wire transfer. At any time following the Effective
Date, the interest rate for any Interest Period shall be decreased by
2% to the extent the average of the five VWAPs immediately prior to
such Interest Period (the "Trigger Price") exceeds the then applicable
Conversion Price by 25% (and shall be decreased by an additional 2% for
every successive 25% that the Trigger Price exceeds the then applicable
Conversion Price but in no event shall the interest rate be less than
0%). By way of an example, if the interest rate for an Interest Period
as determined pursuant to the first sentence of this section would be
5% and the Trigger Price immediately prior to such period is $5.00 and
the then applicable Conversion Price is $4.00, the interest rate for
such Interest Period would be 3%. Any such decrease shall be applicable
only as to the then applicable Interest Period and shall not be
applicable to successive Interest Periods which shall be calculated
independently of any preceding Interest Periods. Accordingly, in the
example above, if the Trigger Price as to the next Interest Period is
less than $4.00, no reduction shall be made as to the interest rate for
such period.
b) Interest Calculations. Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which
may become due hereunder, has been made. Interest shall cease to accrue
with respect to any principal amount converted, provided that the
Company in fact delivers the Conversion Shares within the time period
required by Section 4(d)(ii). Interest hereunder will be paid to the
Person in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of this Debenture (the
"Debenture Register").
c) Late Fee. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 18% per annum (or
such lower maximum amount
7
of interest permitted to be charged under applicable law) ("Late Fees")
which will accrue daily, from the date such interest is due hereunder
through and including the date of payment.
d) Prepayment. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the
Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for
an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the
same. No service charge will be made for such registration of transfer
or exchange.
b) Investment Representations. This Debenture has been issued
subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged
only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to
the Company for transfer of this Debenture, the Company and any agent
of the Company may treat the Person in whose name this Debenture is
duly registered on the Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue
Date until this Debenture is no longer outstanding, this Debenture
shall be convertible into shares of Common Stock at the option of the
Holder, in whole or in part at any time and from time to time (subject
to the limitations on conversion set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company the form
of Notice of Conversion attached hereto as Annex A (a "Notice of
Conversion"), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion is to be effected
(a "Conversion Date"). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. To effect conversions hereunder,
the Holder shall not be required to physically surrender this Debenture
to the Company unless the entire principal amount of this Debenture has
been so converted and all accrued but unpaid interest thereon has been
paid. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to
the applicable conversion. The Holder and the Company shall maintain
records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice of
Conversion within 1 Business Day of receipt of such notice.
8
In the event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the
unpaid and unconverted principal amount of this Debenture may be less
than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any
Conversion Date shall be equal to $1.738 (subject to adjustment
herein)(the "Conversion Price").
c) Conversion Limitations.
i. Trading Market Limitations. Notwithstanding
anything herein to the contrary, if the Company has not
obtained Shareholder Approval (as defined below), then the
Company may not issue upon conversion of this Debenture, a
number of shares of Common Stock which, when aggregated with
any shares of Common Stock issued prior to such Conversion
Date (A) pursuant to any Debentures issued pursuant to the
Purchase Agreement and (B) pursuant to any Warrants issued
pursuant to the Purchase Agreement, would exceed 19.999% of
the number of shares of Common Stock outstanding on the
Trading Day immediately preceding the Original Issue Date
(such number of shares, the "Issuable Maximum"). Each Holder
shall be entitled to a portion of the Issuable Maximum equal
to the quotient obtained by dividing (x) the aggregate
principal amount of the Debenture(s) issued and sold to such
Holder on the Original Issue Date by (y) the aggregate
principal amount of all Debentures issued and sold by the
Company on the Original Issue Date. If any Holder shall no
longer hold the Debenture(s), then such Holder's remaining
portion of the Issuable Maximum shall be allocated pro-rata
among the remaining Holders. If on any Conversion Date: (1)
the applicable Conversion Price then in effect is such that
the shares issuable under this Debenture on any Conversion
Date together with the aggregate number of shares of Common
Stock that would then be issuable upon conversion in full of
all then outstanding Debentures would exceed the Issuable
Maximum, and (2) the Company's shareholders shall not have
previously approved the transactions contemplated by the
Transaction Documents, if any (the "Shareholder Approval"),
then the Company shall issue to the Holder requesting a
conversion a number of shares of Common Stock equal to such
Holder's pro-rata portion (which shall be calculated pursuant
to the terms hereof) of the Issuable Maximum and, with respect
to the remainder of the aggregate principal amount of the
Debentures then held by such Holder for which a conversion in
accordance with the applicable conversion price would result
in an issuance of shares of Common Stock in excess of such
Holder's pro-rata portion (which shall be calculated pursuant
to the terms hereof) of the Issuable Maximum (the "Excess
Principal"), the Company shall be prohibited from converting
such Excess Principal, and shall notify the Holder of the
reason therefor. This Debenture shall thereafter be
unconvertible to such extent until and unless Shareholder
Approval
9
is subsequently obtained, but this Debenture shall otherwise
remain in full force and effect.
ii. Holder's Restriction on Conversion. The Company
shall not effect any conversion of this Debenture, and the
Holder shall not have the right to convert any portion of this
Debenture, pursuant to Section 4(a) or otherwise, to the
extent that after giving effect to such conversion, the Holder
(together with the Holder's Affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in
excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and
its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect
to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would
be issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or
any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other
Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(c)(ii), beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. To
the extent that the limitation contained in this section
applies, the determination of whether this Debenture is
convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To
ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a
Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the
accuracy of such determination. In addition, a determination
as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. For
purposes of this Section 4(c)(ii), in determining the number
of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the
Company's Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of
the Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of
the Company, including this Debenture, by the Holder or its
Affiliates since the date as of which such number of
outstanding shares of
10
Common Stock was reported. The provisions of this Section 4(c)
may be waived by the Holder, at the election of the Holder,
upon not less than 61 days' prior notice to the Company, and
the provisions of this Section 4(c) shall continue to apply
until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver). The
provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this
Section 4(c) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended 4.99%
beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give
effect to such 4.99% limitation. The limitations contained in
this paragraph shall apply to a successor holder of this
Debenture. The holders of Common Stock of the Company shall be
third party beneficiaries of this Section 4(c) and the Company
may not waive this Section 4(c) without the consent of holders
of a majority of its Common Stock.
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of
Principal Amount. The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding
principal amount of this Debenture to be converted by (y) the
Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not
later than three Trading Days after any Conversion Date, the
Company will deliver or cause to be delivered to the Holder
(A) a certificate or certificates representing the Conversion
Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of this Debenture and (B)
an amount in cash via wire transfer in the amount of accrued
and unpaid interest. The Company shall, if available and if
allowed under applicable securities laws, use its best efforts
to deliver any certificate or certificates required to be
delivered by the Company under this Section electronically
through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the case
of any Notice of Conversion such certificate or certificates
are not delivered to or as directed by the applicable Holder
by the third Trading Day after a Conversion Date, the Holder
shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing
the principal amount of this Debenture tendered for
conversion.
iv. Obligation Absolute; Partial Liquidated Damages.
If the Company fails for any reason to deliver to the Holder
such certificate or certificates
11
pursuant to Section 4(d)(ii) by the third Trading Day after
the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each
$1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day after 5 Trading Days after
such damages begin to accrue) for each Trading Day after such
third Trading Day until such certificates are delivered. The
Company's obligations to issue and deliver the Conversion
Shares upon conversion of this Debenture in accordance with
the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same,
any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other
circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of
such Conversion Shares; provided, however, such delivery shall
not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event the Holder
of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or any
one associated or affiliated with the Holder has been engaged
in any violation of law, agreement or for any other reason,
unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of this Debenture shall
have been sought and obtained and the Company posts a surety
bond for the benefit of the Holder in the amount of 150% of
the principal amount of this Debenture outstanding, which is
subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder to
the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. Nothing herein shall limit a Holder's
right to pursue actual damages or declare an Event of Default
pursuant to Section 8 herein for the Company's failure to
deliver Conversion Shares within the period specified herein
and such Holder shall have the right to pursue all remedies
available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief. The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely
Deliver Certificates Upon Conversion. In addition to any other
rights available to the Holder, if the Company fails for any
reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading
Day after the Conversion Date, and if after such third Trading
Day the Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by such Holder of the
Conversion Shares
12
which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by
the Holder) the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1)
the aggregate number of shares of Common Stock that such
Holder anticipated receiving from the conversion at issue
multiplied by (2) the actual sale price of the Common Stock at
the time of the sale (including brokerage commissions, if any)
giving rise to such purchase obligation and (B) at the option
of the Holder, either reissue (if surrendered) this Debenture
in a principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of
shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under
Section 4(d)(ii). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this
Debenture with respect to which the actual sale price of the
Conversion Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect
of the Buy-In. Notwithstanding anything contained herein to
the contrary, if a Holder requires the Company to make payment
in respect of a Buy-In for the failure to timely deliver
certificates hereunder and the Company timely pays in full
such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(d)(iv) in respect of
the certificates resulting in such Buy-In.
vi. Reservation of Shares Issuable Upon Conversion.
The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of
Common Stock solely for the purpose of issuance upon
conversion of this Debenture as herein provided, free from
preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (and the other holders
of the Debentures), not less than such number of shares of the
Common Stock as shall (subject to the terms and conditions set
forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5) upon
the conversion of the outstanding principal amount of this
Debenture. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and,
if the Registration Statement is then effective under the
Securities Act, registered for public sale in accordance with
such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder
the Company shall not be required to issue stock certificates
representing fractions of shares of the Common Stock, but may
if otherwise permitted, make a cash payment in
13
respect of any final fraction of a share based on the VWAP at
such time. If the Company elects not, or is unable, to make
such a cash payment, the Holder shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of
Common Stock.
viii. Transfer Taxes. The issuance of certificates
for shares of the Common Stock on conversion of this Debenture
shall be made without charge to the Holder hereof for any
documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided
that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name
other than that of the Holder of this Debenture so converted
and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company,
at any time while this Debenture is outstanding: (A) pays a
stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of
Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company pursuant to
this Debenture), (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines (including
by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of
capital stock of the Company, then the Conversion Price shall
be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and
of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become
effective immediately after the record date for the
determination of stockholders entitled to receive such
dividend or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any
Subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, shall offer, sell, grant any option
to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue any Common Stock
or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less
than the then Conversion Price (such lower price, the "Base
Conversion Price" and such issuances collectively, a "Dilutive
Issuance"), as adjusted hereunder (if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of
14
purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due
to warrants, options or rights per share which is issued in
connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less
than the Conversion Price, such issuance shall be deemed to
have occurred for less than the Conversion Price on such date
of the Dilutive Issuance), then the Conversion Price shall be
reduced by multiplying the Conversion Price by a fraction, the
numerator of which is the number of shares of Common Stock
issued and outstanding immediately prior to the Dilutive
Issuance plus the number of shares of Common Stock which the
offering price for such Dilutive Issuance would purchase at
the then Conversion Price, and the denominator of which shall
be the sum of the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance plus
the number of shares of Common Stock so issued or issuable in
connection with the Dilutive Issuance. Such adjustment shall
be made whenever such Common Stock or Common Stock Equivalents
are issued. Notwithstanding the foregoing, no adjustment will
be made under this Section 5(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no
later than the Business Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this
section, indicating therein the applicable issuance price, or
of applicable reset price, exchange price, conversion price
and other pricing terms (such notice the "Dilutive Issuance
Notice"). For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this
Section 5(b), upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon
the Base Conversion Price regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice
of Conversion.
c) Pro Rata Distributions. If the Company, at any
time while this Debenture is outstanding, shall distribute to
all holders of Common Stock (and not to the holders of the
Debenture) evidences of its indebtedness or assets (including
cash and cash dividends) or rights or warrants to subscribe
for or purchase any security, then in each such case the
Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP
on such record date less the then fair market value at such
record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall
be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date mentioned above.
d) Fundamental Transaction. If, at any time while
this Debenture is outstanding, (A) the Company effects any
merger or consolidation of the Company with
15
or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to
which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such
case, a "Fundamental Transaction"), then upon any subsequent
conversion of this Debenture, the Holder shall have the right
to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common
Stock (the "Alternate Consideration"). For purposes of any
such conversion, the determination of the Conversion Price
shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion
of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new
debenture consistent with the foregoing provisions and
evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant
to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (d) and insuring
that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.
e) Calculations. All calculations under this Section
5 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be. For purposes of this Section 5,
the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number
of shares of Common Stock (excluding treasury shares, if any)
issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever
the Conversion Price is adjusted pursuant to any of
this Section 5, the Company shall promptly mail to
each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If
the Company issues a variable rate security, despite
the prohibition thereon in the
16
Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion or exercise price
at which such securities may be converted or
exercised in the case of a Variable Rate Transaction
(as defined in the Purchase Agreement).
ii. Notice to Allow Conversion by Holder. If
(A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of
any stockholders of the Company shall be required in
connection with any reclassification of the Common
Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at
each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be
mailed to the Holder at its last addresses as it
shall appear upon the stock books of the Company, at
least 20 calendar days prior to the applicable record
or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to
become effective or close, and the date as of which
it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of
the Common Stock for securities, cash or other
property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such
notice or any defect therein or in the mailing
thereof shall not affect the validity of the
corporate action required to be specified in such
notice. The Holder is entitled to convert this
Debenture during the 20-day period commencing the
date of such notice to the effective date of the
event triggering such notice.
Section 6. Redemption.
a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, at any time after the date hereof, the
Company may deliver a notice to the Holder (an "Optional Redemption
Notice" and the date such notice is deemed delivered hereunder, the
"Optional Redemption Notice Date") of its irrevocable election to
redeem some or all of the then outstanding Debentures, for an amount,
in cash via wire transfer, equal to the Optional Redemption Amount on
the 20th Trading Day following
17
the Optional Redemption Notice Date (such date, the "Optional
Redemption Date" and such redemption, the "Optional Redemption")
(provided, however, the Company may pay up to 15% of the of the
principal amount comprising a portion of the Option Redemption Amount
in shares of Common Stock (at a price per share equal to 90% of the
average of the 10 VWAPs immediately prior to the applicable Optional
Redemption Date) if all of the Equity Conditions are satisfied as to
such shares and the other conditions set forth herein are satisfied).
The Optional Redemption Amount is due in full on the Optional
Redemption Date. The Company covenants and agrees that it will honor
all Notices of Conversion tendered from the time of delivery of the
Optional Redemption Notice through the date all amounts owing thereon
are due and paid in full.
b) Monthly Redemption. On each Monthly Redemption Date, the
Company shall redeem the Monthly Redemption Amount plus accrued but
unpaid interest, the sum of all liquidated damages and any other
amounts then owing to such Holder in respect of this Debenture (the
"Monthly Redemption"). The Monthly Redemption Amount due on each
Monthly Redemption Date shall be paid in cash via wire transfer;
provided, however, as to any Monthly Redemption and upon 30 Trading
Days' prior written irrevocable notice (the "Monthly Redemption Notice"
and the 30 Trading Day period immediately following the Monthly
Redemption Notice, the "Monthly Redemption Period"), in lieu of a cash
redemption payment the Company may elect to pay all or part of the
principal amount included in such Monthly Redemption Amount in
Conversion Shares in an amount not to exceed 10% of the total dollar
trading volume of the Common Stock during the 10 Trading Days
immediately prior to the applicable Monthly Redemption Date (such
dollar amount to be paid on a Monthly Redemption Date in Conversion
Shares, the "Monthly Redemption Share Amount") based on a conversion
price equal to 85% of the average of the lowest 3 VWAPs during the 10
Trading Days immediately prior to the applicable Monthly Redemption
Date (subject to adjustment for any stock dividend, stock split, stock
combination or other similar event affecting the Common Stock during
such 10 Trading Day period) (the price calculated during the 10 Trading
Day period immediately prior to the Monthly Redemption Date, the
"Monthly Conversion Price" and such period, the "Monthly Conversion
Period"); provided, further, that the Company may not pay such portion
of a Monthly Redemption Amount in Conversion Shares unless, (y) from
the date the Holder receives the duly delivered Monthly Redemption
Notice through and until the date such Monthly Redemption is paid in
full, the Equity Conditions, unless waived in writing by the Holder,
have been satisfied and (z) as to such Monthly Redemption, prior to
such Monthly Redemption Period (but not more than 5 Trading Days prior
to the commencement of the Monthly Redemption Period), the Company
shall have delivered to the Holder's account with The Depository Trust
Company a number of shares of Common Stock to be applied against such
Monthly Redemption Share Amount equal to the quotient of (x) the
applicable Monthly Redemption Share Amount divided by (y) the then
Conversion Price (the "Pre-Redemption Conversion Shares"). The Holder
may convert, pursuant to Section 4(a), any principal amount of this
Debenture subject to a Monthly Redemption at any time prior to the date
that the Monthly Redemption Amount and all amounts owing thereon are
due and paid in full. Unless otherwise indicated by the Holder in the
applicable Notice of
18
Conversion, any principal amount of this Debenture converted during the
applicable Monthly Redemption Period until the date the Monthly
Redemption Amount is paid in full shall be first applied to the
principal amount subject to the Monthly Redemption Amount payable in
cash and then to the Monthly Redemption Share Amount. Any principal
amount of this Debenture converted during the applicable Monthly
Redemption Period in excess of the Monthly Redemption Amount shall be
applied against the last principal amount of this Debenture scheduled
to be redeemed hereunder, in reverse time order from the Maturity Date;
provided, however, if any such conversion is applied to such Monthly
Redemption Amount, the Pre-Redemption Conversion Shares, if any were
issued in connection with such Monthly Redemption or were not already
applied to such conversions, shall be first applied against such
conversion. The Company covenants and agrees that it will honor all
Notice of Conversions tendered up until such amounts are paid in full.
The Company's determination to pay a Monthly Redemption in cash, shares
of Common Stock or a combination thereof shall be applied ratably to
all of the holders of the Debentures based on their (or their
predecessor's) initial purchases of Debentures pursuant to the Purchase
Agreement. At any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common
Stock, the Company shall file a prospectus supplement pursuant to Rule
424 or file a Current Report on Form 8-K disclosing such election.
c) Additional Redemption Right. Subject to the provisions of
this Section 6, in addition to the redemption rights above, in the
event the Company has not consummated the acquisition described in
Section 4.9 of the Purchase Agreement on or before December 31, 2005,
at any time from the Original Issue Date through December 31, 2005, the
Company may deliver a notice to the Holder (a "Short Term Optional
Redemption Notice") of its irrevocable election to redeem all (but not
less than all) of the then outstanding Debentures, for an amount, in
cash (except as to (iv) below) via wire transfer, equal to the sum of
(i) 102.5% of the principal amount of the Debenture then outstanding,
(ii) accrued but unpaid interest, (iii) all liquidated damages and
other amounts due in respect of the Debenture and (iv) a warrant to
purchase shares of Common Stock as described below. Such amount is due
in full on the 30th calendar day following the date of the Short Term
Optional Redemption Notice (the "Short Term Optional Redemption Date").
If the Company fails to deliver a Short Term Redemption Notice on or
before December 31, 2005, the Company shall no longer have the right to
exercise a redemption under this Section 6(c). The Company covenants
and agrees that it will honor Notices of Conversions of up to an
aggregate of 50% of the principal amount of this Debenture then
outstanding tendered from the time of delivery of the Short Term
Optional Redemption Notice through the date all amounts owing thereon
are due and paid in full. In addition to the cash payment described
above, as partial payment for such Short Term Optional Redemption, each
Holder of Debentures shall be issued a warrant to purchase their
pro-rata share (based on such Holder's Subscription Amount and the
aggregate Subscription Amounts under the Purchase Agreement) of 100,000
shares of Common Stock (subject to adjustment for forward and reverse
stock splits, recapitalizations, stock dividends and the like), in the
form of Exhibit C to the Purchase Agreement, which warrants shall be
exercisable immediately upon their issuance, have a
19
term of exercise equal to 5 years and an exercise price equal to the
lesser of the exercise price of the Warrants issued pursuant to the
Purchase Agreement and 120% of the average Closing Price of the Common
Stock for the ten Trading Days immediately preceding the Short Term
Optional Redemption Date.
d) Redemption Procedure. The payment of cash pursuant to an
Optional Redemption or Short Term Optional Redemption shall be made via
wire transfer on the Optional Redemption Date or Short Term Optional
Redemption Date, as applicable. If any portion of the cash payment for
an Optional Redemption or Short Term Optional Redemption shall not be
paid by the Company by the respective due date, interest shall accrue
thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the payment of such amount,
plus all amounts owing thereon is paid in full. Alternatively, if any
portion of the Optional Redemption Amount or Short Term Optional
Redemption amount remains unpaid after such date, the Holders subject
to such redemption may elect, by written notice to the Company given at
any time thereafter, to invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary, and, with
respect the failure to honor the Optional Redemption as applicable, the
Company shall have no further right to exercise such Optional
Redemption. Notwithstanding anything to the contrary in this Section 6,
the Company's determination to redeem in cash or its elections under
Section 6(b) shall be applied among the Holders of Debentures ratably.
The Holder may elect to convert the outstanding principal amount of the
Debenture pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.
Section 7. Negative Covenants. So long as any portion of this Debenture
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly:
a) other than Permitted Indebtedness, enter into, create,
incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee,
on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom;
b) other than Permitted Liens, enter into, create, incur,
assume or suffer to exist any liens of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
c) amend its certificate of incorporation, bylaws or other
charter documents so as to materially and adversely affect any rights
of the Holder;
d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of its Common
Stock or Common Stock Equivalents other than as to the Conversion
Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;
20
e) enter into any agreement with respect to any of the
foregoing; or
f) pay cash dividends or distributions on any equity
securities of the Company.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal
amount of any Debenture, or (B) interest (including Late Fees)
on, or liquidated damages in respect of, any Debenture, as and
when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured,
within 3 Trading Days;
ii. the Company shall fail to observe or perform any
other covenant or agreement contained in this Debenture or any
other Debenture (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder
upon conversion which breach is addressed in clause (xi)
below) which failure is not cured, if possible to cure, within
the earlier to occur of (A) 5 Trading Days after notice of
such default sent by the Holder or by any other Holder and
(B)10 Trading Days after the Company shall become or should
have become aware of such failure;
iii. a default or event of default (subject to any
grace or cure period provided for in the applicable agreement,
document or instrument) shall occur under (A) any of the
Transaction Documents, or (B) any other material agreement,
lease, document or instrument to which the Company or any
Subsidiary is bound that involves at least $250,000;
iv. any representation or warranty made herein, in
any other Transaction Documents, in any written statement
pursuant hereto or thereto, or in any other report, financial
statement or certificate made or delivered to the Holder or
any other holder of Debentures shall be untrue or incorrect in
any material respect as of the date when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall
commence a case, as debtor, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or
21
similar law of any jurisdiction whether now or hereafter in
effect relating to the Company or any Subsidiary thereof or
(ii) there is commenced a case against the Company or any
Subsidiary thereof, under any applicable bankruptcy or
insolvency laws, as now or hereafter in effect or any
successor thereto which remains undismissed for a period of 60
days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any
such case or proceeding is entered; or (iv) the Company or any
Subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or
(v) the Company or any Subsidiary thereof makes a general
assignment for the benefit of creditors; or (vi) the Company
shall fail to pay, or shall state that it is unable to pay, or
shall be unable to pay, its debts generally as they become
due; or (vii) the Company or any Subsidiary thereof shall call
a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or
(viii) the Company or any Subsidiary thereof shall by any act
or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or (ix) any
corporate or other action is taken by the Company or any
Subsidiary thereof for the purpose of effecting any of the
foregoing;
vi. the Company or any Subsidiary shall default in
any of its obligations under any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or
other instrument under which there may be issued, or by which
there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding
$250,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior
to the date on which it would otherwise become due and
payable;
vii. the Common Stock shall not be eligible for
quotation on or quoted for trading on a Trading Market and
shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of
Control Transaction or Fundamental Transaction, shall agree to
sell or dispose of all or in excess of 50% of its assets in
one or more transactions (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem or
repurchase more than a de minimis number of its outstanding
shares of Common Stock or other equity securities of the
Company (other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity
securities of departing officers and directors of the Company;
provided such repurchases shall not exceed $100,000, in the
aggregate, for all officers and directors during the term of
this Debenture);
22
ix. a Registration Statement shall not have been
declared effective by the Commission on or prior to the 180th
calendar day after the Closing Date;
x. if, during the Effectiveness Period (as defined in
the Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder
shall not be permitted to resell Registrable Securities (as
defined in the Registration Rights Agreement) under the
Registration Statement, in either case, for more than 20
consecutive Trading Days or 30 non-consecutive Trading Days
during any 12 month period; provided, however, that in the
event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets
or a similar transaction and in the written opinion of counsel
to the Company, the Registration Statement, would be required
to be amended to include information concerning such
transactions or the parties thereto that is not available or
may not be publicly disclosed at the time, the Company shall
be permitted an additional 10 consecutive Trading Days during
any 12 month period relating to such an event;
xi. the Company shall fail for any reason to deliver
certificates to a Holder prior to the third Trading Day after
a Conversion Date pursuant to and in accordance with Section
4(d) or the Company shall provide notice to the Holder,
including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof;
xii. any Person shall breach the agreements delivered
to the initial Holders pursuant to Section 2.2(a)(v) of the
Purchase Agreement and the Company does not obtain Shareholder
Approval.
b) Remedies Upon Event of Default. If any Event of Default
occurs, the full principal amount of this Debenture, together with
interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder's election, immediately due
and payable in cash via wire transfer. The aggregate amount payable
upon an Event of Default shall be equal to the Mandatory Default
Amount. Commencing 5 days after the occurrence of any Event of Default
that results in the eventual acceleration of this Debenture, the
interest rate on this Debenture shall accrue at the rate of 18% per
annum, or such lower maximum amount of interest permitted to be charged
under applicable law. Upon the payment in full of the Mandatory Default
Amount on this entire Debenture the Holder shall promptly surrender
this Debenture to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder and the Holder shall have
all rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
23
rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth
above, facsimile number ______________, ATTN:
______________________________________or such other address or
facsimile number as the Company may specify for such purposes by notice
to the Holder delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address
of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place
of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the second Business Day following the date of mailing,
if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be
given.
b) Absolute Obligation. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal
of, interest and liquidated damages (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed.
This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter
issued under the terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount
of this Debenture so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and
24
enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in
the City of New York, Borough of Manhattan (the "New York Courts").
Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it
under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all
right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If
either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action
or proceeding shall be reimbursed by the other party for its attorneys
fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach
of any other provision of this Debenture. The failure of the Company or
the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
f) Severability. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of
25
or interest on this Debenture as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to
any such law, hinder, delay or impeded the execution of any power
herein granted to the Holder, but will suffer and permit the execution
of every such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving
entity in a Fundamental Transaction shall (i) assume in writing all of
the obligations of the Company under this Debenture and the other
Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental Transaction
and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form
and substance to this Debenture, including, without limitation, having
a principal amount and interest rate equal to the principal amounts and
the interest rates of the Debentures held by the Holder and having
similar ranking to this Debenture, and satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard
to any limitations of this Debenture.
*********************
26
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
SILVERSTAR HOLDINGS, LTD.
By:__________________________________________
Name:
Title:
27
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Variable
Rate Secured Convertible Debenture of Silverstar Holdings, Ltd., a Bermuda
corporation (the "Company"), due on October __, 2008 into shares of common
stock, par value $0.01 per share (the "Common Stock"), of the Company according
to the conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
28
SCHEDULE 1
CONVERSION SCHEDULE
The Variable Rate Secured Convertible Debentures due on October __, 2008 in the
aggregate principal amount of $____________ issued by Silverstar Holdings, Ltd.
This Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
------------------------------- ------------------------- ----------------------- ------------------------------
Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
29
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of October __, 2005, among Silverstar Holdings, Ltd., a Bermuda
corporation (the "Company"), and the purchasers signatory hereto (each such
purchaser is a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN THAT ARE
DEFINED IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN
THE PURCHASE AGREEMENT. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the initial
Registration Statement required to be filed hereunder, the 90th
calendar day following the date hereof and, with respect to any
additional Registration Statements which may be required pursuant to
Section 3(c), the 60th calendar day following the date on which the
Company first knows, or reasonably should have known, that such
additional Registration Statement is required hereunder; provided,
however, in the event the Company is notified by the Commission that
one of the above Registration Statements will not be reviewed or is no
longer subject to further review and comments, the Effectiveness Date
as to such Registration Statement shall be the fifth Trading Day
following the date on which the Company is so notified if such date
precedes the dates required above.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the initial Registration
Statement required hereunder, the 30th calendar day following the date
hereof and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 30th day following
the date on which the Company first knows, or reasonably should have
known that such additional Registration Statement is required
hereunder.
1
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in
Section 2(a).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), 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 all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means (i) all of the shares of Common
Stock issuable upon conversion in full of the Debentures, (ii) all
Warrant Shares, (iii) any securities issued or issuable upon any stock
split, dividend or other distribution, recapitalization or similar
event with respect to the foregoing and (iv) any additional shares
issuable in connection with any anti-dilution provisions in the
Debentures or the Warrants (in each case, without giving effect to any
limitations on conversion set forth in the Debenture or limitations on
exercise set forth in the Warrant).
"Registration Statement" means the registration statements
required to be filed hereunder and any additional registration
statements contemplated by Section 3(c), including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such
Rule.
"Rule 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or
2
regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.
"Selling Shareholder Questionnaire" shall have the meaning set
forth in Section 3(a).
2. Shelf Registration
(a) On or prior to each Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering
the resale of 130% of the Registrable Securities on such Filing Date
for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (except if the Company
is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders) substantially the "Plan of
Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event
prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective
under the Securities Act until all Registrable Securities covered by
such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and
the affected Holders (the "Effectiveness Period"). The Company shall
telephonically request effectiveness of a Registration Statement as of
5:00 pm Eastern Time on a Trading Day. The Company shall immediately
notify the Holders via facsimile of the effectiveness of a Registration
Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date
requested for effectiveness of a Registration Statement. The Company
shall, by 9:30 am Eastern Time on the Trading Day after the Effective
Date (as defined in the Purchase Agreement), file a Form 424(b)(5) with
the Commission. Failure to so notify the Holder within 1 Trading Day of
such notification shall be deemed an Event under Section 2(b).
(b) If: (i) a Registration Statement is not filed on or prior
to its Filing Date (if the Company files a Registration Statement
without affording the Holders the opportunity to review and comment on
the same as required by Section 3(a), the Company shall not be deemed
to have satisfied this clause (i)), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule
461 promulgated under the Securities Act, within five Trading Days of
the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that a Registration Statement will not be
"reviewed," or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the Commission in
respect of such Registration Statement within 10 calendar days after
the receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be
3
declared effective, or (iv) a Registration Statement filed or required
to be filed hereunder is not declared effective by the Commission by
its Effectiveness Date, or (v) after the Effectiveness Date, a
Registration Statement ceases for any reason to remain continuously
effective as to all Registrable Securities for which it is required to
be effective, or the Holders are not permitted to utilize the
Prospectus therein to resell such Registrable Securities for 10
consecutive calendar days but no more than an aggregate of 15 calendar
days during any 12-month period (which need not be consecutive Trading
Days) (any such failure or breach being referred to as an "Event", and
for purposes of clause (i) or (iv) the date on which such Event occurs,
or for purposes of clause (ii) the date on which such five Trading Day
period is exceeded, or for purposes of clause (iii) the date which such
10 calendar day period is exceeded, or for purposes of clause (v) the
date on which such 10 or 15 calendar day period, as applicable, is
exceeded being referred to as "Event Date"), then in addition to any
other rights the Holders may have hereunder or under applicable law, on
each such Event Date and on each monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each
Holder an amount in cash, as partial liquidated damages and not as a
penalty, equal to 2% of the aggregate purchase price paid by such
Holder pursuant to the Purchase Agreement for any Registrable
Securities then held by such Holder. If the Company fails to pay any
partial liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The partial
liquidated damages pursuant to the terms hereof shall apply on a daily
pro-rata basis for any portion of a month prior to the cure of an
Event.
3. Registration Procedures.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Not less than five Trading Days prior to the filing of
each Registration Statement or any related Prospectus or any amendment
or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the
Company shall, (i) furnish to each Holder copies of all such documents
proposed to be filed, which documents (other than those incorporated or
deemed to be incorporated by reference) will be subject to the review
of such Holders, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries
as shall be necessary, in the reasonable opinion of respective counsel
to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file a Registration Statement or
any such Prospectus or any amendments or supplements thereto to which
the Holders of a majority of the Registrable Securities shall
reasonably object in good faith, provided that, the Company is notified
of such objection in writing no later than 5 Trading Days after the
Holders have been so furnished copies of such documents. Each Holder
agrees to furnish to the Company a
4
completed Questionnaire in the form attached to this Agreement as Annex
B (a "Selling Shareholder Questionnaire") not less than two Trading
Days prior to the Filing Date or by the end of the fourth Trading Day
following the date on which such Holder receives draft materials in
accordance with this Section.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
a Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended
or supplemented by any required Prospectus supplement (subject to the
terms of this Agreement), and as so supplemented or amended to be filed
pursuant to Rule 424; (iii) respond as promptly as reasonably possible
to any comments received from the Commission with respect to a
Registration Statement or any amendment thereto and as promptly as
reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to a Registration
Statement; and (iv) comply in all material respects with the provisions
of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by a Registration
Statement during the applicable period in accordance (subject to the
terms of this Agreement) with the intended methods of disposition by
the Holders thereof set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) If during the Effectiveness Period, the number of
Registrable Securities at any time exceeds 90% of the number of shares
of Common Stock then registered in a Registration Statement, then the
Company shall file as soon as reasonably practicable but in any case
prior to the applicable Filing Date, an additional Registration
Statement covering the resale by the Holders of not less than 130% of
the number of such Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold
(which notice shall, pursuant to clauses (ii) through (vi) hereof, be
accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made) as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five Trading
Days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Trading Day following
the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be
filed; (B) when the Commission notifies the Company whether there will
be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written
responses thereto to each of the Holders); and (C) with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or
supplements to a Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission or any
5
other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement covering any
or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for
sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; (v) of the occurrence of any event or
passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any
statement made in a Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to a
Registration Statement, Prospectus or other documents so that, in the
case of a Registration Statement or the Prospectus, as the case may be,
it will not contain any untrue statement of a material fact or omit 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, not misleading; and (vi) the occurrence or existence of
any pending corporate development with respect to the Company that the
Company believes may be material and that, in the determination of the
Company, makes it not in the best interest of the Company to allow
continued availability of a Registration Statement or Prospectus;
provided that any and all of such information shall remain confidential
to each Holder until such information otherwise becomes public, unless
disclosure by a Holder is required by law; provided, further,
notwithstanding each Holder's agreement to keep such information
confidential, the Holders make no acknowledgement that any such
information is material, non-public information.
(e) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the
effectiveness of a Registration Statement, or (ii) any suspension of
the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(f) Furnish to each Holder, without charge, at least one
conformed copy of each such Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the
extent requested by such Person, and all exhibits to the extent
requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents
with the Commission.
(g) Promptly deliver to each Holder, without charge, as many
copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons
may reasonably request in connection with resales by the Holder of
Registrable Securities. Subject to the terms of this Agreement, the
Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto,
except after the giving on any notice pursuant to Section 3(d).
6
(h) If NASDR Rule 2710 requires any broker-dealer to make a
filing prior to executing a sale by a Holder, the Company shall (i)
make an Issuer Filing with the NASDR, Inc. Corporate Financing
Department pursuant to NASDR Rule 2710(b)(10)(A)(i), (ii) respond
within five Trading Days to any comments received from NASDR in
connection therewith, (iii) and pay the filing fee required in
connection therewith.
(i) Prior to any resale of Registrable Securities by a Holder,
use its commercially reasonable efforts to register or qualify or
cooperate with the selling Holders in connection with the registration
or qualification (or exemption from the Registration or qualification)
of such Registrable Securities for the resale by the Holder under the
securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during
the Effectiveness Period and to do any and all other acts or things
reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement;
provided, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified,
subject the Company to any material tax in any such jurisdiction where
it is not then so subject or file a general consent to service of
process in any such jurisdiction.
(j) If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be free,
to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may
request.
(k) Upon the occurrence of any event contemplated by this
Section 3, as promptly as reasonably possible under the circumstances
taking into account the Company's good faith assessment of any adverse
consequences to the Company and its stockholders of the premature
disclosure of such event, prepare a supplement or amendment, including
a post-effective amendment, to a Registration Statement or a supplement
to the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither a Registration Statement nor
such Prospectus will contain an 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 light of the circumstances
under which they were made, not misleading. If the Company notifies the
Holders in accordance with clauses (ii) through (vi) of Section 3(d)
above to suspend the use of any Prospectus until the requisite changes
to such Prospectus have been made, then the Holders shall suspend use
of such Prospectus. The Company will use its best efforts to ensure
that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under
this Section 3(k) to suspend the availability of a Registration
Statement and Prospectus, subject to the payment of partial
7
liquidated damages pursuant to Section 2(b), for a period not to exceed
60 days (which need not be consecutive days) in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to
the Company a certified statement as to the number of shares of Common
Stock beneficially owned by such Holder and, if required by the
Commission, the person thereof that has voting and dispositive control
over the Shares. During any periods that the Company is unable to meet
its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any
liquidated damages that are accruing at such time as to such Holder
only shall be tolled and any Event that may otherwise occur solely
because of such delay shall be suspended as to such Holder only, until
such information is delivered to the Company.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as requested by the Holders) and (C) if not
previously paid by the Company in connection with an Issuer Filing, with respect
to any filing that may be required to be made by any broker through which a
Holder intends to make sales of Registrable Securities with NASD Regulation,
Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no more
than a customary brokerage commission in connection with such sale, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in a Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.
8
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents, brokers
(including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a
margin call of Common Stock), investment advisors and employees of each
of them, each Person who controls any such Holder (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities,
costs (including, without limitation, reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or
relating to any untrue or alleged untrue statement of a material fact
contained in a Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus
or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the
extent, but only to the extent, that (i) such untrue statements or
omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in a Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for
this purpose) or (ii) in the case of an occurrence of an event of the
type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in
Section 6(d). The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding arising from or in
connection with the transactions contemplated by this Agreement of
which the Company is aware.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the
Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses, as incurred, to the
extent arising out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading (i) to the
extent, but
9
only to the extent, that such untrue statement or omission is contained
in any information so furnished in writing by such Holder to the
Company specifically for inclusion in such Registration Statement or
such Prospectus or (ii) to the extent that (1) such untrue statements
or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in a Registration Statement (it being
understood that the Holder has approved Annex A hereto for this
purpose), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of
an event of the type specified in Section 3(d)(ii)-(vi), the use by
such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall
promptly notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall have
the right to assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations
or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further
review) that such failure shall have prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses;
(2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of
the Indemnifying Party, the Indemnifying Party shall not have the right
to assume the defense thereof and the reasonable fees and expenses of
one separate counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which
consent shall not be
10
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a
party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject
matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees
and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with
this Section) shall be paid to the Indemnified Party, as incurred,
within ten Trading Days of written notice thereof to the Indemnifying
Party; provided, that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not
entitled to indemnification hereunder, determined based upon the
relative faults of the parties.
(d) Contribution. If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party
shall contribute to the amount paid or payable by such Indemnified
Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses
as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has
been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable
by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable
attorneys' or other reasonable fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in accordance
with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined
by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the proceeds
actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission,
except in the case of fraud by such Holder.
11
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including
recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and each Holder agree that
monetary damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action
for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as set forth on
Schedule 6(b) attached hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the initial
Registration Statement other than the Registrable Securities. No Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company. The Company shall not
file any other registration statements until the initial Registration
Statement required hereunder is declared effective by the Commission,
provided that this Section 6(b) shall not prohibit the Company from
filing amendments to registration statements already filed.
(c) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act
as applicable to it in connection with sales of Registrable Securities
pursuant to a Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind
described in Section 3(d), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement, or until it is
advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company will use its best efforts to ensure
that the use of the Prospectus may be resumed as promptly as it
practicable. The Company agrees and acknowledges that any periods
during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions
of Section 2(b).
(e) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of
others under the Securities Act of
12
any of its equity securities, other than on Form S-4 or Form S-8 (each
as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable
in connection with the stock option or other employee benefit plans,
then the Company shall send to each Holder a written notice of such
determination and, if within fifteen days after the date of such
notice, any such Holder shall so request in writing, the Company shall
include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered; provided,
however, that, the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(e) that are eligible
for resale pursuant to Rule 144(k) promulgated under the Securities Act
or that are the subject of a then effective Registration Statement.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing
and signed by the Company and each Holder of the then outstanding
Registrable Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given
by Holders of all of the Registrable Securities to which such waiver or
consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be
delivered as set forth in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder. The
Company may not assign its rights or obligations hereunder without the
prior written consent of all of the Holders of the then-outstanding
Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof. Except as set forth on Schedule 6(i), neither the Company nor
any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall
constitute one and the same Agreement. In the event that any signature
is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the
13
party executing (or on whose behalf such signature is executed) the
same with the same force and effect as if such facsimile signature were
the original thereof.
(k) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be
determined with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way
be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any
other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by
any Holder pursuant hereto or thereto, shall be deemed to constitute
the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in
any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be
entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not
be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.
********************
14
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
SILVERSTAR HOLDINGS, LTD.
By:_____________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
15
[SIGNATURE PAGE OF HOLDERS TO SSTR RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
16
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common
stock ("Common Stock") of Silverstar Holdings, Ltd., a Bermuda corporation (the
"Company") and any of their pledgees, assignees and successors-in-interest may,
from time to time, sell any or all of their shares of Common Stock on the
Trading Market or any other stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the effective
date of the registration statement of which this prospectus is
a part;
o broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
17
In connection with the sale of the Common Stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the Common Stock short and deliver these
securities to close out their short positions, or loan or pledge the Common
Stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each Selling Stockholder has advised us that they have not entered into any
written or oral agreements, understandings or arrangements with any underwriter
or broker-dealer regarding the sale of the resale shares. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
18
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the Common Stock for the
applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the Common Stock by the Selling Stockholders or
any other person. We will make copies of this prospectus available to the
Selling Stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.
19
ANNEX B
SILVERSTAR HOLDINGS, LTD.
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $.01 per
share (the "Common Stock"), of Silverstar Holdings, Ltd., a Bermuda corporation
(the "Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
October __, 2005 (the "Registration Rights Agreement"), among the Company and
the Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
20
-
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
--------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a
natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the
questionnaire):
--------------------------------------------------------------
2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
Contact Person:
-----------------------------------------------------------------
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
(a) Type and Principal Amount of Registrable Securities beneficially
owned:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
21
4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes [_] No [_]
(b) If "yes" to Section 4(a), did you receive your Registrable
Securities as compensation for investment banking services to
the Company.
Yes [_] No [_]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(c) Are you an affiliate of a broker-dealer?
Yes [_] No [_]
(d) If you are an affiliate of a broker-dealer, do you certify
that you bought the Registrable Securities in the ordinary
course of business, and at the time of the purchase of the
Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [_] No [_]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE SELLING
SECURITYHOLDER.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
--------------------------------------------------------------
--------------------------------------------------------------
22
6. RELATIONSHIPS WITH THE COMPANY:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
---------------------- --------------------------
By:
---------------------------------------
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
23
EXHIBIT C
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
SILVERSTAR HOLDINGS, LTD.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies
that, for value received, [______________] (the "Holder"), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of business on the fifth anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from Silverstar Holdings, Ltd., a Bermuda corporation (the "Company"),
up to ______ shares (the "Warrant Shares") of Common Stock, par value $.01 per
share, of the Company (the "Common Stock"). The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the "Purchase Agreement"), dated October 21, 2005, among the
Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before
the Termination Date by delivery to the Company of a duly executed
facsimile copy of the Notice of Exercise Form annexed hereto (or such
other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder
appearing on the books of the Company);
1
provided, however, within 5 Trading Days of the date said Notice of
Exercise is delivered to the Company, if this Warrant is exercised in
full, the Holder shall have surrendered this Warrant to the Company and
the Company shall have received payment of the aggregate Exercise Price
of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised
in full. Partial exercises of this Warrant resulting in purchases of a
portion of the total number of Warrant Shares available hereunder shall
have the effect of lowering the outstanding number of Warrant Shares
purchasable hereunder in an amount equal to the applicable number of
Warrant Shares purchased. The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of
such purchases. The Company shall deliver any objection to any Notice
of Exercise Form within 2 Business Days of receipt of such notice. The
Holder and any assignee, by acceptance of this Warrant, acknowledge and
agree that, by reason of the provisions of this paragraph, following
the purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given time
may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price of the Common Stock
under this Warrant shall be $1.896 subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. If at any time after one year from the
date of issuance of this Warrant there is no effective Registration
Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also
be exercised at such time by means of a "cashless exercise" in which
the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)]
by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the
date of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise
of this Warrant in accordance with the terms of this
Warrant by means of a cash exercise rather than a
cashless exercise.
Notwithstanding anything herein to the contrary, on the
Termination Date, this Warrant shall be automatically exercised via
cashless exercise pursuant to this Section 2(c).
d) Exercise Limitations.
i. Holder's Restrictions. The Company shall not effect
any exercise of this Warrant, and a Holder shall not
have the right to exercise any portion of
2
this Warrant, pursuant to Section 2(c) or otherwise,
to the extent that after giving effect to such
issuance after exercise, such Holder (together with
such Holder's affiliates, and any other person or
entity acting as a group together with such Holder or
any of such Holder's affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own
in excess of 4.99% of the number of shares of the
Common Stock outstanding immediately after giving
effect to such issuance. For purposes of the
foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its
affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant
with respect to which the determination of such
sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by such
Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion
of any other securities of the Company (including,
without limitation, any other Debentures or Warrants)
subject to a limitation on conversion or exercise
analogous to the limitation contained herein
beneficially owned by such Holder or any of its
affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(d)(i),
beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder, it
being acknowledged by a Holder that the Company is
not representing to such Holder that such calculation
is in compliance with Section 13(d) of the Exchange
Act and such Holder is solely responsible for any
schedules required to be filed in accordance
therewith. To the extent that the limitation
contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable
(in relation to other securities owned by such
Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a
Holder, and the submission of a Notice of Exercise
shall be deemed to be each Holder's determination of
whether this Warrant is exercisable (in relation to
other securities owned by such Holder) and of which
portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or
confirm the accuracy of such determination. In
addition, a determination as to any group status as
contemplated above shall be determined in accordance
with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes
of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock
as reflected in (x) the Company's most recent Form
10-Q or Form 10-K, as the case may be, (y) a more
recent public announcement by the Company or (z) any
other notice by the Company or the Company's Transfer
Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request
of a Holder, the Company shall within two Trading
Days confirm orally and in writing to such
3
Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after
giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by
such Holder or its affiliates since the date as of
which such number of outstanding shares of Common
Stock was reported. The provisions of this Section
2(d) may be waived by such Holder, at the election of
such Holder, upon not less than 61 days' prior notice
to the Company, and the provisions of this Section
2(d) shall continue to apply until such 61st day (or
such later date, as determined by such Holder, as may
be specified in such notice of waiver). The
provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the
terms of this Section 2(d) to correct this paragraph
(or any portion hereof) which may be defective or
inconsistent with the intended 4.99% beneficial
ownership limitation herein contained or to make
changes or supplements necessary or desirable to
properly give effect to such 4.99% limitation. The
limitations contained in this paragraph shall apply
to a successor holder of this Warrant. The holders of
Common Stock of the Company shall be third party
beneficiaries of this Section 2(d) and the Company
may not waive this Section 2(d) without the consent
of holders of a majority of its Common Stock.
ii. Trading Market Restrictions. If the
Company has not obtained Shareholder Approval (as
defined below), then the Company may not issue upon
exercise of this Warrant a number of shares of Common
Stock, which, when aggregated with any shares of
Common Stock issued (A) upon conversion of or as
payment of interest on the Debentures issued pursuant
to the Purchase Agreement and (B) upon prior exercise
of this or any other Warrant issued pursuant to the
Purchase Agreement, would exceed 19.999% of the
number of shares of Common Stock outstanding on the
Trading Day immediately preceding the Closing Date
(such number of shares, the "Issuable Maximum"). If
on any attempted exercise of this Warrant, the
issuance of Warrant Shares would exceed the Issuable
Maximum and the Company shall not have previously
obtained the vote of shareholders to approve the
issuance of shares of Common Stock in excess of the
Issuable Maximum pursuant to the terms hereof (the
"Shareholder Approval"), then the Company shall issue
to the Holder requesting a Warrant exercise such
number of Warrant Shares as may be issued below the
Issuable Maximum and, with respect to the remainder
of the aggregate number of Warrant Shares, this
Warrant shall not be exercisable until and unless
Shareholder Approval has been obtained.
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The
Company covenants that all Warrant Shares which may
be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of
the purchase rights represented by this Warrant, be
duly authorized, validly
4
issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise.
Certificates for shares purchased hereunder shall be
transmitted by the transfer agent of the Company to
the Holder by crediting the account of the Holder's
prime broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission
("DWAC") system if the Company is a participant in
such system, and otherwise by physical delivery to
the address specified by the Holder in the Notice of
Exercise within 3 Trading Days from the delivery to
the Company of the Notice of Exercise Form, surrender
of this Warrant (if required) and payment of the
aggregate Exercise Price as set forth above ("Warrant
Share Delivery Date"). This Warrant shall be deemed
to have been exercised on the date the Exercise Price
is received by the Company. The Warrant Shares shall
be deemed to have been issued, and Holder or any
other person so designated to be named therein shall
be deemed to have become a holder of record of such
shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by
the Holder, if any, pursuant to Section 2(e)(vii)
prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise.
If this Warrant shall have been exercised in part,
the Company shall, at the request of a Holder and
upon surrender of this Warrant certificate, at the
time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
iv. Rescission Rights. If the Company fails
to cause its transfer agent to transmit to the Holder
a certificate or certificates representing the
Warrant Shares pursuant to this Section 2(e)(iv) by
the Warrant Share Delivery Date, then the Holder will
have the right to rescind such exercise.
v. Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Exercise. In
addition to any other rights available to the Holder,
if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an
exercise on or before the Warrant Share Delivery
Date, and if after such date the Holder is required
by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of
the Warrant Shares which the Holder anticipated
receiving upon such exercise (a "Buy-In"), then the
Company shall (1) pay in cash to the Holder the
amount by which (x) the
5
Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock
so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the
Company was required to deliver to the Holder in
connection with the exercise at issue times (B) the
price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the
option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares
for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that
would have been issued had the Company timely
complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate
sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to
pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In, together with
applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein
shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in
equity including, without limitation, a decree of
specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the
terms hereof.
vi. No Fractional Shares or Scrip. No
fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price.
vii. Charges, Taxes and Expenses. Issuance
of certificates for Warrant Shares shall be made
without charge to the Holder for any issue or
transfer tax or other incidental expense in respect
of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event
certificates for Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by
the Assignment Form attached hereto duly executed by
the Holder; and the Company may require, as a
condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6
viii. Closing of Books. The Company will not
close its stockholder books or records in any manner
which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time
while this Warrant is outstanding: (A) pays a stock dividend or
otherwise make a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to
this Warrant), (B) subdivides outstanding shares of Common Stock into a
larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number
of shares, or (D) issues by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then in each case the
Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares
issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while this Warrant is outstanding,
shall offer, sell, grant any option to purchase or offer, sell or grant
any right to reprice its securities, or otherwise dispose of or issue
any Common Stock or Common Stock Equivalents entitling any Person to
acquire shares of Common Stock, at an effective price per share less
than the then Exercise Price (such lower price, the "Base Share Price"
and such issuances collectively, a "Dilutive Issuance"), as adjusted
hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options
or rights per share which is issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per
share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price on such date
of the Dilutive Issuance), then the Exercise Price shall be reduced by
multiplying the Exercise Price by a fraction, the numerator of which is
the number of shares of Common Stock issued and outstanding immediately
prior to the Dilutive Issuance plus the number of shares of Common
Stock which the offering price for such Dilutive Issuance would
purchase at the then Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance plus the number
of shares of Common Stock so issued or issuable in connection with the
Dilutive Issuance and the number of Warrant Shares issuable hereunder
shall be increased such that the aggregate Exercise Price payable
hereunder, after taking into
7
account the decrease in the Exercise Price, shall be equal to the
aggregate Exercise Price prior to such adjustment. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents
are issued. Notwithstanding the foregoing, no adjustments shall be
made, paid or issued under this Section 3(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than
the Trading Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms (such notice the
"Dilutive Issuance Notice"). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this
Section 3(b), upon the occurrence of any Dilutive Issuance, after the
date of such Dilutive Issuance the Holder is entitled to receive a
number of Warrant Shares based upon the Base Share Price regardless of
whether the Holder accurately refers to the Base Share Price in the
Notice of Exercise.
c) Pro Rata Distributions. If the Company, at any time prior
to the Termination Date, shall distribute to all holders of Common
Stock (and not to Holders of the Warrants) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security other than the
Common Stock (which shall be subject to Section 3(b)), then in each
such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of
the record date mentioned above, and of which the numerator shall be
such VWAP on such record date less the then per share fair market value
at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
d) Fundamental Transaction. If, at any time while this Warrant
is outstanding, (A) the Company effects any merger or consolidation of
the Company with or into another Person, (B) the Company effects any
sale of all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in
any such case, a "Fundamental Transaction"), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at
the option of the Holder, (a) upon exercise of this Warrant, the number
of shares of Common Stock of the successor or acquiring corporation or
of the Company, if it is the surviving corporation, and any additional
consideration (the "Alternate
8
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option
pricing formula. For purposes of any such exercise, the determination
of the Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the
Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the
Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of
this Section 3(d) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
e) Calculations. All calculations under this Section 3 shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) Voluntary Adjustment By Company. The Company may at any
time during the term of this Warrant reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
g) Notice to Holders.
i. Adjustment to Exercise Price. Whenever the
Exercise Price is adjusted pursuant to this Section 3, the
Company shall promptly mail to each Holder a notice setting
forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or
exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as
defined in the Purchase Agreement).
9
ii. Notice to Allow Exercise by Holder. If (A) the
Company shall declare a dividend (or any other distribution)
on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of
any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or
merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear
upon the Warrant Register of the Company, at least 20 calendar
days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the failure
to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action
required to be specified in such notice. The Holder is
entitled to exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of
the event triggering such notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d)
hereof and to the provisions of Section 4.1 of the Purchase Agreement,
this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant
10
shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
c) Warrant Register. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time
to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise
hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of
this Warrant in connection with any transfer of this Warrant, the
transfer of this Warrant shall not be registered pursuant to an
effective registration statement under the Securities Act and under
applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such transfer (i) that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions)
to the effect that such transfer may be made without registration under
the Securities Act and under applicable state securities or blue sky
laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the
Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a qualified institutional buyer
as defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws and Section 4 of this Warrant, this
Warrant and all rights hereunder are transferable, in whole or in part,
at the office or agency of the Company by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with
the Assignment Form annexed hereto properly endorsed. The transferee
shall sign an investment letter in form and substance reasonably
satisfactory to the Company.
b) No Rights as Shareholder Until Exercise. This Warrant does
not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the
surrender of this Warrant and the payment of the aggregate Exercise
Price (or by means of a cashless exercise), the Warrant Shares so
purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of
the date of such surrender or payment.
11
c) Loss, Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of
like tenor and dated as of such cancellation, in lieu of such Warrant
or stock certificate.
d) Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal
holiday, then such action may be taken or such right may be exercised
on the next succeeding day not a Saturday, Sunday or legal holiday.
e) Authorized Shares.
The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of
this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Trading
Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth
in this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any
Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this
Warrant.
12
Before taking any action which would result in an
adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
f) Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
g) Restrictions. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal
securities laws.
h) Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's
rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date. If the Company willfully
and knowingly fails to comply with any provision of this Warrant, which
results in any material damages to the Holder, the Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
i) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
j) Limitation of Liability. No provision hereof, in the
absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or
privileges of Holder, shall give rise to any liability of Holder for
the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by
creditors of the Company.
k) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
l) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the
Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all
Holders
13
from time to time of this Warrant and shall be enforceable by any such
Holder or holder of Warrant Shares.
m) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and
the Holder.
n) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Warrant shall
be prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
o) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
********************
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: October __, 2005
SILVERSTAR HOLDINGS, LTD.
By:_____________________________________
Name:
Title:
15
NOTICE OF EXERCISE
TO: SILVERSTAR HOLDINGS, LTD.
(1) The undersigned hereby elects to purchase ________ Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares
as is necessary, in accordance with the formula set
forth in subsection 2(c), to exercise this Warrant
with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
The Warrant Shares shall be delivered to the following:
----------------------------------------
----------------------------------------
----------------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation
D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
---------
Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT E
TO: The Purchasers of Silverstar Holdings Ltd.'s Debentures and Warrants
To Whom It May Concern:
This letter will confirm my agreement to vote all shares of Silverstar
Holdings, Ltd., ("SSTR") voting stock over which I have voting control in favor
of any resolution presented to the shareholders of SSTR to approve the issuance,
in the aggregate, of more than 19.999% of the number of shares of common stock
of SSTR outstanding on the date of closing pursuant to that certain Securities
Purchase Agreement, dated October __, 2005, among SSTR and the purchasers
signatory thereto (the "Purchase Agreement") and the other agreements entered
into in connection therewith or as otherwise may be required by the applicable
rules and regulations of the Nasdaq SmallCap Market (or any successor entity).
This agreement is given in consideration of, and as a condition to enter into
such Securities Purchase Agreement and is not revocable by me.
By:_______________________________________
Name of Shareholder:
Percentage Beneficial Ownership:
EXHIBIT F
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of October ___, 2005 (this "Agreement"),
among Silverstar Holdings, Ltd., a Bermuda corporation (the "Company") and all
of the Subsidiaries of the Company (such subsidiaries, the "Guarantors") (the
Company and Guarantors are collectively referred to as the "Debtors") and the
holder or holders of the Company's Variable Rate Secured Convertible Debentures
due October ___, 2008 in the original aggregate principal amount of $________
(the "Debenture"), signatory hereto, their endorsees, transferees and assigns
(collectively referred to as, the "Secured Parties").
W I T N E S S E T H:
WHEREAS, pursuant to the Debenture, the Secured Parties have severally
agreed to purchase the Debentures;
WHEREAS, pursuant to a certain Subsidiary Guarantee dated as of the
date hereof (the "Guaranty"), the Guarantors have jointly and severally agreed
to guaranty and act as surety for payment of the obligations underlying the
Debentures; and
WHEREAS, in order to induce the Secured Parties to purchase the
Debentures, each Debtor has agreed to execute and deliver to the Secured Parties
this Agreement and to grant the Secured Parties, pari passu with each other
Secured Party, a perfected security interest in certain property of such Debtor
to secure the prompt payment, performance and discharge in full of all of the
Company's obligations under the Debenture and the other Debtor's obligations
under the Guaranty.
NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC.
(a) "Collateral" means the collateral in which the Secured
Parties are granted a security interest by this Agreement and which
shall include the following personal property of the Debtors, whether
presently owned or existing or hereafter acquired or coming into
existence, wherever situated, and all additions and accessions thereto
and all substitutions and replacements thereof, and all proceeds,
products and accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and
1
of insurance covering the same and of any tort claims in connection
therewith, and all dividends, interest, cash, notes, securities, equity
interest or other property at any time and from time to time acquired,
receivable or otherwise distributed in respect of, or in exchange for,
any or all of the Pledged Securities (as defined below):
(i) All goods, including, without limitations, (A)
all machinery, equipment, computers, motor vehicles, trucks,
tanks, boats, ships, appliances, furniture, special and
general tools, fixtures, test and quality control devices and
other equipment of every kind and nature and wherever
situated, together with all documents of title and documents
representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes
for any of the foregoing and all other items used and useful
in connection with any Debtor's businesses and all
improvements thereto; and (B) all inventory;
(ii) All contract rights and other general
intangibles, including, without limitation, all partnership
interests, membership interests, stock or other securities,
rights under any of the Organizational Documents, agreements
related to the Pledged Securities, licenses, distribution and
other agreements, computer software (whether "off-the-shelf",
licensed from any third party or developed by any Debtor),
computer software development rights, leases, franchises,
customer lists, quality control procedures, grants and rights,
goodwill, trademarks, service marks, trade styles, trade
names, patents, patent applications, copyrights, and income
tax refunds;
(iii) All accounts, together with all instruments,
all documents of title representing any of the foregoing, all
rights in any merchandising, goods, equipment, motor vehicles
and trucks which any of the same may represent, and all right,
title, security and guaranties with respect to each account,
including any right of stoppage in transit;
(iv) All documents, letter-of-credit rights,
instruments and chattel paper;
(v) All commercial tort claims;
(vi) All deposit accounts and all cash (whether or
not deposited in such deposit accounts);
(vii) All investment property;
(viii) All supporting obligations; and
(ix) All files, records, books of account, business
papers, and computer programs; and
(x) the products and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(ix) above.
2
Without limiting the generality of the foregoing, the
"Collateral" shall include all investment property and general
intangibles respecting ownership and/or other equity interests
in each Guarantor, including, without limitation, the shares
of capital stock and the other equity interests listed on
Schedule H hereto (as the same may be modified from time to
time pursuant to the terms hereof), and any other shares of
capital stock and/or other equity interests of any other
direct or indirect subsidiary of any Debtor obtained in the
future, and, in each case, all certificates representing such
shares and/or equity interests and, in each case, all rights,
options, warrants, stock, other securities and/or equity
interests that may hereafter be received, receivable or
distributed in respect of, or exchanged for, any of the
foregoing (all of the foregoing being referred to herein as
the "Pledged Securities") and all rights arising under or in
connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.
Notwithstanding the foregoing, nothing herein shall
be deemed to constitute an assignment of any asset which, in
the event of an assignment, becomes void by operation of
applicable law or the assignment of which is otherwise
prohibited by applicable law (in each case to the extent that
such applicable law is not overridden by Sections 9-406, 9-407
and/or 9-408 of the UCC or other similar applicable law);
provided, however, that to the extent permitted by applicable
law, this Agreement shall create a valid security interest in
such asset and, to the extent permitted by applicable law,
this Agreement shall create a valid security interest in the
proceeds of such asset.
(b) "Intellectual Property" means the collective reference to
all rights, priorities and privileges relating to intellectual
property, whether arising under United States, multinational or foreign
laws or otherwise, including, without limitation, (i) all copyrights
arising under the laws of the United States, any other country or any
political subdivision thereof, whether registered or unregistered and
whether published or unpublished, all registrations and recordings
thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in
the United States Copyright Office, (ii) all letters patent of the
United States, any other country or any political subdivision thereof,
all reissues and extensions thereof, and all applications for letters
patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all trademarks,
trade names, corporate names, company names, business names, fictitious
business names, trade dress, service marks, logos, domain names and
other source or business identifiers, and all goodwill associated
therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision
thereof, or otherwise, and all common law rights related thereto, (iv)
all trade secrets arising under the laws of the United States, any
other country or any political subdivision thereof, (v) all rights to
obtain any reissues, renewals or extensions of the foregoing, (vi) all
licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.
3
(c) "Majority in Interest" shall mean, at any time of
determination, the majority in interest (based on then-outstanding
principal amounts of Debentures at the time of such determination) of
the Secured Parties.
(d) "Necessary Endorsement" shall mean undated stock powers
endorsed in blank or other proper instruments of assignment duly
executed and such other instruments or documents as the Agent (as that
term is defined below) may reasonably request.
(e) "Obligations" means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or
to become due, or that are now or may be hereafter contracted or
acquired, or owing to, of any Debtor to the Secured Parties, including,
without limitation, all obligations under this Agreement, the
Debentures, the Guaranty and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or
therewith, in each case, whether now or hereafter existing, voluntary
or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased,
created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such
payment is avoided or recovered directly or indirectly from any of the
Secured Parties as a preference, fraudulent transfer or otherwise as
such obligations may be amended, supplemented, converted, extended or
modified from time to time. Without limiting the generality of the
foregoing, the term "Obligations" shall include, without limitation:
(i) principal of, and interest on the Debentures; (ii) any and all
other fees, indemnities, costs, obligations and liabilities of the
Debtors from time to time under or in connection with this Agreement,
the Debentures, the Guaranty and any other instruments, agreements or
other documents executed and/or delivered in connection herewith or
therewith; and (iii) all amounts (including but not limited to
post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.
(f) "Organizational Documents" means with respect to any
Debtor, the documents by which such Debtor was organized (such as a
certificate of incorporation, certificate of limited partnership or
articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of
preferred equity) and which relate to the internal governance of such
Debtor (such as bylaws, a partnership agreement or an operating,
limited liability or members agreement).
(g) "UCC" means the Uniform Commercial Code of the State of
New York and or any other applicable law of any state or states which
has jurisdiction with respect to all, or any portion of, the Collateral
or this Agreement, from time to time. It is the intent of the parties
that defined terms in the UCC should be construed in their broadest
sense so that the term "Collateral" will be construed in its broadest
sense. Accordingly if there are, from time to time, changes to defined
terms in the UCC that broaden
4
the definitions, they are incorporated herein and if existing
definitions in the UCC are broader than the amended definitions, the
existing ones shall be controlling.
2. GRANT OF PERFECTED FIRST PRIORITY SECURITY INTEREST. As an
inducement for the Secured Parties to purchase the Debentures and to secure the
complete and timely payment, performance and discharge in full, as the case may
be, of all of the Obligations, each Debtor hereby unconditionally and
irrevocably pledges, grants and hypothecates to the Secured Parties a continuing
and perfected security interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (the "Security Interest").
3. DELIVERY OF CERTAIN COLLATERAL. Contemporaneously or prior to the
execution of this Agreement, each Debtor shall deliver or cause to be delivered
to the Agent (a) any and all certificates and other instruments representing or
evidencing the Pledged Securities, and (b) any and all certificates and other
instruments or documents representing any of the other Collateral, in each case,
together with all Necessary Endorsements. The Debtors are, contemporaneously
with the execution hereof, delivering to Agent, or have previously delivered to
Agent, a true and correct copy of each Organizational Document governing any of
the Pledged Securities.
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
DEBTORS. Each Debtor represents and warrants to, and covenants and agrees with,
the Secured Parties as follows:
(a) Each Debtor has the requisite corporate, partnership,
limited liability company or other power and authority to enter into
this Agreement and otherwise to carry out its obligations hereunder.
The execution, delivery and performance by each Debtor of this
Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of such Debtor and no
further action is required by such Debtor. This Agreement has been duly
executed by each Debtor. This Agreement constitutes the legal, valid
and binding obligation of each Debtor, enforceable against each Debtor
in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and
similar laws of general application relating to or affecting the rights
and remedies of creditors and by general principles of equity.
(b) The Debtors have no place of business or offices where
their respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places
where Collateral is stored or located, except as set forth on Schedule
A attached hereto. Except as specifically set forth on Schedule A, each
Debtor is the record owner of the real property where such Collateral
is located, and there exist no mortgages or other liens on any such
real property except for Permitted Liens (as defined in the
Debentures). Except as disclosed on Schedule A, none of such Collateral
is in the possession of any consignee, bailee, warehouseman, agent or
processor.
(c) Except for Permitted Liens (as defined in the Debentures)
and except as set forth on Schedule B attached hereto, the Debtors are
the sole owner of the Collateral
5
(except for non-exclusive licenses granted by any Debtor in the
ordinary course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and are fully authorized to
grant the Security Interest. There is not on file in any governmental
or regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that will be filed in
favor of the Secured Parties pursuant to this Agreement) covering or
affecting any of the Collateral. So long as this Agreement shall be in
effect, the Debtors shall not execute and shall not knowingly permit to
be on file in any such office or agency any such financing statement or
other document or instrument (except to the extent filed or recorded in
favor of the Secured Parties pursuant to the terms of this Agreement).
(d) No written claim has been received that any Collateral or
Debtor's use of any Collateral violates the rights of any third party.
There has been no adverse decision to any Debtor's claim of ownership
rights in or exclusive rights to use the Collateral in any jurisdiction
or to any Debtor's right to keep and maintain such Collateral in full
force and effect, and there is no proceeding involving said rights
pending or, to the best knowledge of any Debtor, threatened before any
court, judicial body, administrative or regulatory agency, arbitrator
or other governmental authority.
(e) Each Debtor shall at all times maintain its books of
account and records relating to the Collateral at its principal place
of business and its Collateral at the locations set forth on Schedule A
attached hereto and may not relocate such books of account and records
or tangible Collateral unless it delivers to the Secured Parties at
least 30 days prior to such relocation (i) written notice of such
relocation and the new location thereof (which must be within the
United States) and (ii) evidence that appropriate financing statements
under the UCC and other necessary documents have been filed and
recorded and other steps have been taken to perfect the Security
Interest to create in favor of the Secured Parties a valid, perfected
and continuing perfected first priority lien in the Collateral.
(f) This Agreement creates in favor of the Secured Parties a
valid, security interest in the Collateral, subject only to Permitted
Liens (as defined in the Debentures) securing the payment and
performance of the Obligations. Upon making the filings described in
the immediately following paragraph, all security interests created
hereunder in any Collateral which may be perfected by filing Uniform
Commercial Code financing statements shall have been duly perfected.
Except for the filing of the Uniform Commercial Code financing
statements referred to in the immediately following paragraph, the
recordation of the Intellectual Property Security Agreement (as defined
below) with respect to copyrights and copyright applications in the
United States Copyright Office referred to in paragraph (m), the
execution and delivery of deposit account control agreements satisfying
the requirements of Section 9-104(a)(2) of the UCC with respect to each
deposit account of the Debtors, and the delivery of the certificates
and other instruments provided in Section 3, no action is necessary to
create, perfect or protect the security interests created hereunder.
Without limiting the generality of the foregoing, except for the filing
of said financing statements, the recordation of said
6
Intellectual Property Security Agreement, and the execution and
delivery of said deposit account control agreements, no consent of any
third parties and no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for (i) the execution, delivery and performance of this
Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral or (iii) the enforcement of the
rights of the Secured Parties hereunder.
(g) Each Debtor hereby authorizes the Secured Parties, or any
of them, to file one or more financing statements under the UCC, with
respect to the Security Interest with the proper filing and recording
agencies in any jurisdiction deemed proper by them.
(h) The execution, delivery and performance of this Agreement
by the Debtors does not (i) violate any of the provisions of any
Organizational Documents of any Debtor or any judgment, decree, order
or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to any Debtor or (ii)
conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing any Debtor's debt
or otherwise) or other understanding to which any Debtor is a party or
by which any property or asset of any Debtor is bound or affected. No
consent (including, without limitation, from stockholders or creditors
of any Debtor) is required for any Debtor to enter into and perform its
obligations hereunder.
(i) The capital stock and other equity interests listed on
Schedule H hereto represent all of the capital stock and other equity
interests of the Guarantors, and represent all capital stock and other
equity interests owned, directly or indirectly, by the Company. All of
the Pledged Securities are validly issued, fully paid and
nonassessable, and the Company is the legal and beneficial owner of the
Pledged Securities, free and clear of any lien, security interest or
other encumbrance except for the security interests created by this
Agreement and other Permitted Liens (as defined in the Debenture).
(j) The ownership and other equity interests in partnerships
and limited liability companies (if any) included in the Collateral
(the "Pledged Interests") by their express terms do not provide that
they are securities governed by Article 8 of the UCC and are not held
in a securities account or by any financial intermediary.
(k) Each Debtor shall at all times maintain the liens and
Security Interest provided for hereunder as valid and perfected first
priority liens and security interests in the Collateral in favor of the
Secured Parties until this Agreement and the Security Interest
hereunder shall be terminated pursuant to Section 11 hereof. Each
Debtor hereby agrees to defend the same against the claims of any and
all persons and entities. Each Debtor shall safeguard and protect all
Collateral for the account of the Secured Parties. At the request of
the Secured Parties, each Debtor will sign and deliver to the Secured
Parties at any time or from time to time one or more financing
statements pursuant to the UCC in form reasonably satisfactory to the
Secured Parties and will pay the cost of filing
7
the same in all public offices wherever filing is, or is deemed by the
Secured Parties to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, each Debtor shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the Security Interest
hereunder, and each Debtor shall obtain and furnish to the Secured
Parties from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain
the priority of the Security Interest hereunder.
(l) No Debtor will transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Collateral (except for
non-exclusive licenses granted by a Debtor in its ordinary course of
business and sales of inventory by a Debtor in its ordinary course of
business) without the prior written consent of a Majority in Interest.
(m) Each Debtor shall keep and preserve its equipment,
inventory and other tangible Collateral in good condition, repair and
order and shall not operate or locate any such Collateral (or cause to
be operated or located) in any area excluded from insurance coverage.
(n) Each Debtor shall maintain with financially sound and
reputable insurers, insurance with respect to the Collateral against
loss or damage of the kinds and in the amounts customarily insured
against by entities of established reputation having similar properties
similarly situated and in such amounts as are customarily carried under
similar circumstances by other such entities and otherwise as is
prudent for entities engaged in similar businesses but in any event
sufficient to cover the full replacement cost thereof. Each Debtor
shall cause each insurance policy issued in connection herewith to
provide, and the insurer issuing such policy to certify to the Agent
that (a) the Agent will be named as lender loss payee and additional
insured under each such insurance policy; (b) if such insurance be
proposed to be cancelled or materially changed for any reason
whatsoever, such insurer will promptly notify the Agent and such
cancellation or change shall not be effective as to the Agent for at
least thirty (30) days after receipt by the Agent of such notice,
unless the effect of such change is to extend or increase coverage
under the policy; and (c) the Agent will have the right (but no
obligation) at its election to remedy any default in the payment of
premiums within thirty (30) days of notice from the insurer of such
default. If no Event of Default (as defined in the Debenture) exists
and if the proceeds arising out of any claim or series of related
claims do not exceed $100,000, loss payments in each instance will be
applied by the applicable Debtor to the repair and/or replacement of
property with respect to which the loss was incurred to the extent
reasonably feasible, and any loss payments or the balance thereof
remaining, to the extent not so applied, shall be payable to the
applicable Debtor, provided, however, that payments received by any
Debtor after an Event of Default occurs and is continuing or in excess
of $100,000 for any occurrence or series of related occurrences shall
be paid to the Agent and, if received by such Debtor, shall be held in
trust for and immediately paid over to the Agent unless otherwise
directed in writing by the Agent. Copies of such policies or the
related certificates, in each case, naming the Agent as lender loss
payee and additional insured shall be delivered to the Agent at least
annually and at the time any new policy of insurance is issued.
8
(o) Each Debtor shall, within ten (10) days of obtaining
knowledge thereof, advise the Secured Parties promptly, in sufficient
detail, of any substantial change in the Collateral, and of the
occurrence of any event which would have a material adverse effect on
the value of the Collateral or on the Secured Parties' security
interest therein.
(p) Each Debtor shall promptly execute and deliver to the
Secured Parties such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments, documents,
certificates and assurances and take such further action as the Secured
Parties may from time to time request and may in its sole discretion
deem necessary to perfect, protect or enforce its security interest in
the Collateral including, without limitation, if applicable, the
execution and delivery of a separate security agreement with respect to
each Debtor's Intellectual Property ("Intellectual Property Security
Agreement") in which the Secured Parties have been granted a security
interest hereunder, substantially in a form acceptable to the Secured
Parties, which Intellectual Property Security Agreement, other than as
stated therein, shall be subject to all of the terms and conditions
hereof.
(q) Each Debtor shall permit the Secured Parties and their
representatives and agents to inspect the Collateral at any time, and
to make copies of records pertaining to the Collateral as may be
requested by a Secured Party from time to time.
(r) Each Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Collateral.
(s) Each Debtor shall promptly notify the Secured Parties in
sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and of
any other information received by such Debtor that may materially
affect the value of the Collateral, the Security Interest or the rights
and remedies of the Secured Parties hereunder.
(t) All information heretofore, herein or hereafter supplied
to the Secured Parties by or on behalf of any Debtor with respect to
the Collateral is accurate and complete in all material respects as of
the date furnished.
(u) The Debtors shall at all times preserve and keep in full
force and effect their respective valid existence and good standing and
any rights and franchises material to its business.
(v) No Debtor will change its name, type of organization,
jurisdiction of organization, organizational identification number (if
it has one), legal or corporate structure, or identity, or add any new
fictitious name unless it provides at least 30 days prior written
notice to the Secured Parties of such change and, at the time of such
written notification, such Debtor provides any financing statements or
fixture filings necessary to
9
perfect and continue perfected the perfected security Interest granted
and evidenced by this Agreement.
(w) No Debtor may consign any of its Inventory or sell any of
its Inventory on xxxx and hold, sale or return, sale on approval, or
other conditional terms of sale without the consent of a Majority in
Interest which shall not be unreasonably withheld, except to the extent
such consignment or sale does not exceed 15% of the total value of all
of the Company's finished goods in Inventory.
(x) No Debtor may relocate its chief executive office to a new
location without providing 30 days prior written notification thereof
to the Secured Parties and so long as, at the time of such written
notification, such Debtor provides any financing statements or fixture
filings necessary to perfect and continue perfected the perfected
security Interest granted and evidenced by this Agreement.
(y) Each Debtor was organized and remains organized solely
under the laws of the state set forth next to such Debtor's name in the
first paragraph of this Agreement. Schedule D attached hereto sets
forth each Debtor's organizational identification number or, if any
Debtor does not have one, states that one does not exist.
(z) (i) The actual name of each Debtor is the name set forth
in the preamble above; (ii) no Debtor has any trade names except as set
forth on Schedule E attached hereto; (iii) no Debtor has used any name
other than that stated in the preamble hereto or as set forth on
Schedule E for the preceding five years; and (iv) no entity has merged
into any Debtor or been acquired by any Debtor within the past five
years except as set forth on Schedule E.
(aa) At any time and from time to time that any Collateral
consists of instruments, certificated securities or other items that
require or permit possession by the secured party to perfect the
security interest created hereby, the applicable Debtor shall deliver
such Collateral to the Agent.
(bb) Each Debtor, in its capacity as issuer, hereby agrees to
comply with any and all orders and instructions of Agent regarding the
Pledged Interests consistent with the terms of this Agreement without
the further consent of any Debtor as contemplated by Section 8-106 (or
any successor section) of the UCC. Further, each Debtor agrees that it
shall not enter into a similar agreement (or one that would confer
"control" within the meaning of Article 8 of the UCC) with any other
person or entity.
(cc) Each Debtor shall cause all tangible chattel paper
constituting Collateral to be delivered to the Agent, or, if such
delivery is not possible, then to cause such tangible chattel paper to
contain a legend noting that it is subject to the security interest
created by this Agreement. To the extent that any Collateral consists
of electronic chattel paper, the applicable Debtor shall cause the
underlying chattel paper to be "marked" within the meaning of Section
9-105 of the UCC (or successor section thereto).
10
(dd) If there is any investment property or deposit account
included as Collateral that can be perfected by "control" through an
account control agreement, the applicable Debtor shall cause such an
account control agreement, in form and substance in each case
satisfactory to the Secured Parties, to be entered into and delivered
to the Secured Parties.
(ee) To the extent that any Collateral consists of
letter-of-credit rights, the applicable Debtor shall cause the issuer
of each underlying letter of credit to consent to an assignment of the
proceeds thereof to the Secured Parties.
(ff) To the extent that any Collateral is in the possession of
any third party, the applicable Debtor shall join with the Secured
Parties in notifying such third party of the Secured Parties' security
interest in such Collateral and shall use its best efforts to obtain an
acknowledgement and agreement from such third party with respect to the
Collateral, in form and substance satisfactory to the Secured Parties.
(gg) If any Debtor shall at any time hold or acquire a
commercial tort claim, such Debtor shall promptly notify the Secured
Parties in a writing signed by such Debtor of the particulars thereof
and grant to the Secured Parties in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory
to the Secured Parties.
(hh) Each Debtor shall immediately provide written notice to
the Secured Parties of any and all accounts which arise out of
contracts with any governmental authority and, to the extent necessary
to perfect or continue the perfected status of the Security Interest in
such accounts and proceeds thereof, shall execute and deliver to the
Secured Parties an assignment of claims for such accounts and cooperate
with the Secured Parties in taking any other steps required, in their
judgment, under the Federal Assignment of Claims Act or any similar
federal, state or local statute or rule to perfect or continue the
perfected status of the Security Interest in such accounts and proceeds
thereof.
(ii) Each Debtor shall cause each subsidiary of such Debtor
to immediately become a party hereto (an "Additional Debtor"), by
executing and delivering an Additional Debtor Joinder in substantially
the form of Annex A attached hereto and comply with the provisions
hereof applicable to the Debtors. Concurrent therewith, the Additional
Debtor shall deliver replacement schedules for, or supplements to all
other Schedules to (or referred to in) this Agreement, as applicable,
which replacement schedules shall supersede, or supplements shall
modify, the Schedules then in effect. The Additional Debtor shall also
deliver such opinions of counsel, authorizing resolutions, good
standing certificates, incumbency certificates, organizational
documents, financing statements and other information and documentation
as the Secured Parties may reasonably request. Upon delivery of the
foregoing to the Secured Parties, the Additional Debtor shall be and
become a party to this Agreement with the same rights and obligations
as the Debtors, for all purposes hereof as fully and to the same extent
as if it were an original signatory hereto and shall be deemed to have
made the representations,
11
warranties and covenants set forth herein as of the date of execution
and delivery of such Additional Debtor Joinder, and all references
herein to the "Debtors" shall be deemed to include each Additional
Debtor.
(jj) Each Debtor shall vote the Pledged Securities to comply
with the covenants and agreements set forth herein and in the
Debentures.
(kk) Each Debtor shall register the pledge of the applicable
Pledged Securities on the books of such Debtor. Each Debtor shall
notify each issuer of Pledged Securities to register the pledge of the
applicable Pledged Securities in the name of the Secured Parties on the
books of such issuer. Further, except with respect to certificated
securities delivered to the Agent, the applicable Debtor shall deliver
to Agent an acknowledgement of pledge (which, where appropriate, shall
comply with the requirements of the relevant UCC with respect to
perfection by registration) signed by the issuer of the applicable
Pledged Securities, which acknowledgement shall confirm that: (a) it
has registered the pledge on its books and records; and (b) at any time
directed by Agent during the continuation of an Event of Default, such
issuer will transfer the record ownership of such Pledged Securities
into the name of any designee of Agent, will take such steps as may be
necessary to effect the transfer, and will comply with all other
instructions of Agent regarding such Pledged Securities without the
further consent of the applicable Debtor.
(ll) In the event that, upon an occurrence of an Event of
Default, Agent shall sell all or any of the Pledged Securities to
another party or parties (herein called the "Transferee") or shall
purchase or retain all or any of the Pledged Securities, each Debtor
shall, to the extent applicable: (i) deliver to Agent or the
Transferee, as the case may be, the articles of incorporation, bylaws,
minute books, stock certificate books, corporate seals, deeds, leases,
indentures, agreements, evidences of indebtedness, books of account,
financial records and all other Organizational Documents and records of
the Debtors and their direct and indirect subsidiaries; (ii) use its
best efforts to obtain resignations of the persons then serving as
officers and directors of the Debtors and their direct and indirect
subsidiaries, if so requested; and (iii) use its best efforts to obtain
any approvals that are required by any governmental or regulatory body
in order to permit the sale of the Pledged Securities to the Transferee
or the purchase or retention of the Pledged Securities by Agent and
allow the Transferee or Agent to continue the business of the Debtors
and their direct and indirect subsidiaries.
(mm) Without limiting the generality of the other obligations
of the Debtors hereunder, each Debtor shall promptly (i) cause to be
registered at the United States Copyright Office all of its material
copyrights, (ii) cause the security interest contemplated hereby with
respect to all Intellectual Property registered at the United States
Copyright Office or United States Patent and Trademark Office to be
duly recorded at the applicable office, and (iii) give the Agent notice
whenever it acquires (whether absolutely or by license) or creates any
additional material Intellectual Property.
(nn) Each Debtor will from time to time, at the joint and
several expense of the Debtors, promptly execute and deliver all such
further instruments and documents, and
12
take all such further action as may be necessary or desirable, or as
the Secured Parties may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby
or to enable the Secured Parties to exercise and enforce their rights
and remedies hereunder and with respect to any Collateral or to
otherwise carry out the purposes of this Agreement.
(oo) Schedule F attached hereto lists all of the patents,
patent applications, trademarks, trademark applications, registered
copyrights, and domain names owned by any of the Debtors as of the date
hereof. Schedule F lists all material licenses in favor of any Debtor
for the use of any patents, trademarks, copyrights and domain names as
of the date hereof. All material patents and trademarks of the Debtors
have been duly recorded at the United States Patent and Trademark
Office and all material copyrights of the Debtors have been duly
recorded at the United States Copyright Office.
(pp) Except as set forth on Schedule G attached hereto, none
of the account debtors or other persons or entities obligated on any of
the Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local statute
or rule in respect of such Collateral.
5. EFFECT OF PLEDGE ON CERTAIN RIGHTS. If any of the Collateral subject
to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including, without limitation, upon the transfer of all or any of the other
stock or assets of the issuer), it is agreed that the pledge of such equity or
ownership interests pursuant to this Agreement or the enforcement of any of
Agent's rights hereunder shall not be deemed to be the type of event which would
trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.
6. DEFAULTS. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default (as defined in the
Debenture) under the Debenture;
(b) Any representation or warranty of any Debtor in this
Agreement shall prove to have been incorrect in any material respect
when made;
(c) The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor
of notice of such failure by or on behalf of a Secured Party unless
such default is capable of cure but cannot be cured within such time
frame and such Debtor is using best efforts to cure same in a timely
fashion; or
(d) If any provision of this Agreement shall at any time for
any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Debtor, or a
proceeding shall be commenced by any Debtor, or by any governmental
13
authority having jurisdiction over any Debtor, seeking to establish the
invalidity or unenforceability thereof, or any Debtor shall deny that
any Debtor has any liability or obligation purported to be created
under this Agreement.
7. DUTY TO HOLD IN TRUST.
(a) Upon the occurrence of any Event of Default and at any
time thereafter, each Debtor shall, upon receipt of any revenue,
income, dividend, interest or other sums subject to the Security
Interest, whether payable pursuant to the Debenture or otherwise, or of
any check, draft, note, trade acceptance or other instrument evidencing
an obligation to pay any such sum, hold the same in trust for the
Secured Parties and shall forthwith endorse and transfer any such sums
or instruments, or both, to the Secured Parties, pro-rata in proportion
to their initial purchases of Debentures for application to the
satisfaction of the Obligations (and if any Debenture is not
outstanding, pro-rata in proportion to the initial purchases of the
remaining Debentures).
(b) If any Debtor shall become entitled to receive or shall
receive any securities or other property (including, without
limitation, shares of Pledged Securities or instruments representing
Pledged Securities acquired after the date hereof, or any options,
warrants, rights or other similar property or certificates representing
a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital,
or issued in connection with any reorganization of such Debtor or any
of its direct or indirect subsidiaries) in respect of the Pledged
Securities (whether as an addition to, in substitution of, or in
exchange for, such Pledged Securities or otherwise), such Debtor agrees
to (i) accept the same as the agent of the Secured Parties; (ii) hold
the same in trust on behalf of and for the benefit of the Secured
Parties; and (iii) to deliver any and all certificates or instruments
evidencing the same to Agent on or before the close of business on the
fifth business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be
held by Agent subject to the terms of this Agreement as Collateral.
8. RIGHTS AND REMEDIES UPON DEFAULT.
(a) Upon the occurrence of any Event of Default and at any
time thereafter, the Secured Parties, acting through any agent
appointed by them for such purpose, shall have the right to exercise
all of the remedies conferred hereunder and under the Debentures, and
the Secured Parties shall have all the rights and remedies of a secured
party under the UCC. Without limitation, the Secured Parties shall have
the following rights and powers:
(i) The Secured Parties shall have the right to take
possession of the Collateral and, for that purpose, enter,
with the aid and assistance of any person, any premises where
the Collateral, or any part thereof, is or may be placed and
remove the same, and each Debtor shall assemble the Collateral
and make it available to the Secured Parties at places which
the Secured Parties shall reasonably select, whether at such
Debtor's premises or elsewhere, and make
14
available to the Secured Parties, without rent, all of such
Debtor's respective premises and facilities for the purpose of
the Secured Parties taking possession of, removing or putting
the Collateral in saleable or disposable form.
(ii) Upon notice to the Debtors by Agent, all rights
of each Debtor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise and
all rights of each Debtor to receive the dividends and
interest which it would otherwise be authorized to receive and
retain, shall cease. Upon such notice, Agent shall have the
right to receive any interest, cash dividends or other
payments on the Collateral and, at the option of Agent, to
exercise in such Agent's discretion all voting rights
pertaining thereto. Without limiting the generality of the
foregoing, Agent shall have the right (but not the obligation)
to exercise all rights with respect to the Collateral as it
were the sole and absolute owners thereof, including, without
limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a
merger, reorganization, consolidation, recapitalization or
other readjustment concerning or involving the Collateral or
any Debtor or any of its direct or indirect subsidiaries.
(iii) The Secured Parties shall have the right to
operate the business of each Debtor using the Collateral and
shall have the right to assign, sell, lease or otherwise
dispose of and deliver all or any part of the Collateral, at
public or private sale or otherwise, either with or without
special conditions or stipulations, for cash or on credit or
for future delivery, in such parcel or parcels and at such
time or times and at such place or places, and upon such terms
and conditions as the Secured Parties may deem commercially
reasonable, all without (except as shall be required by
applicable statute and cannot be waived) advertisement or
demand upon or notice to any Debtor or right of redemption of
a Debtor, which are hereby expressly waived. Upon each such
sale, lease, assignment or other transfer of Collateral, the
Secured Parties may, unless prohibited by applicable law which
cannot be waived, purchase all or any part of the Collateral
being sold, free from and discharged of all trusts, claims,
right of redemption and equities of any Debtor, which are
hereby waived and released.
(iv) The Secured Parties shall have the right (but
not the obligation) to notify any account debtors and any
obligors under instruments or accounts to make payments
directly to the Secured Parties and to enforce the Debtors'
rights against such account debtors and obligors.
(v) The Secured Parties may (but are not obligated
to) direct any financial intermediary or any other person or
entity holding any investment property to transfer the same to
the Secured Parties or their designee.
(vi) The Secured Parties may (but are not obligated
to) transfer any or all Intellectual Property registered in
the name of any Debtor at the United States
15
Patent and Trademark Office and/or Copyright Office into the
name of the Secured Parties or any designee or any purchaser
of any Collateral.
(b) The Agent may comply with any applicable law in connection
with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any
sale of the Collateral. The Agent may sell the Collateral without
giving any warranties and may specifically disclaim such warranties. If
the Agent sells any of the Collateral on credit, the Debtors will only
be credited with payments actually made by the purchaser. In addition,
each Debtor waives any and all rights that it may have to a judicial
hearing in advance of the enforcement of any of the Agent's rights and
remedies hereunder, including, without limitation, its right following
an Event of Default to take immediate possession of the Collateral and
to exercise its rights and remedies with respect thereto.
(c) For the purpose of enabling the Agent to further exercise
rights and remedies under this Section 8 or elsewhere provided by
agreement or applicable law, each Debtor hereby grants to the Agent,
for the benefit of the Agent and the Secured Parties, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to such Debtor) to use, license or sublicense following an
Event of Default, any Intellectual Property now owned or hereafter
acquired by such Debtor, and wherever the same may be located, and
including in such license access to all media in which any of the
licensed items may be recorded or stored and to all computer software
and programs used for the compilation or printout thereof.
9. APPLICATIONS OF PROCEEDS. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys' fees and expenses incurred by the Secured Parties in enforcing their
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata among the
Secured Parties (based on then-outstanding principal amounts of Debentures at
the time of any such determination), and to the payment of any other amounts
required by applicable law, after which the Secured Parties shall pay to the
applicable Debtor any surplus proceeds. If, upon the sale, license or other
disposition of the Collateral, the proceeds thereof are insufficient to pay all
amounts to which the Secured Parties are legally entitled, the Debtors will be
liable for the deficiency, together with interest thereon, at the rate of 10%
per annum or the lesser amount permitted by applicable law (the "Default Rate"),
and the reasonable fees of any attorneys employed by the Secured Parties to
collect such deficiency. To the extent permitted by applicable law, each Debtor
waives all claims, damages and demands against the Secured Parties arising out
of the repossession, removal, retention or sale of the Collateral, unless due
solely to the gross negligence or willful misconduct of the Secured Parties as
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction.
10. SECURITIES LAW PROVISION. Each Debtor recognizes that Agent may be
limited in its ability to effect a sale to the public of all or part of the
Pledged Securities by reason of certain prohibitions in the Securities Act of
1933, as amended, or other federal or state securities laws
16
(collectively, the "Securities Laws"), and may be compelled to resort to one or
more sales to a restricted group of purchasers who may be required to agree to
acquire the Pledged Securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Debtor agrees that sales
so made may be at prices and on terms less favorable than if the Pledged
Securities were sold to the public, and that Agent has no obligation to delay
the sale of any Pledged Securities for the period of time necessary to register
the Pledged Securities for sale to the public under the Securities Laws. Each
Debtor shall cooperate with Agent in its attempt to satisfy any requirements
under the Securities Laws (including, without limitation, registration
thereunder if requested by Agent) applicable to the sale of the Pledged
Securities by Agent.
11. COSTS AND EXPENSES. Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Secured Parties. The Debtors shall also pay all other
claims and charges which in the reasonable opinion of the Secured Parties might
prejudice, imperil or otherwise affect the Collateral or the Security Interest
therein. The Debtors will also, upon demand, pay to the Secured Parties the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Secured Parties
may incur in connection with (i) the enforcement of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured Parties under the Debentures. Until so paid,
any fees payable hereunder shall be added to the principal amount of the
Debentures and shall bear interest at the Default Rate.
12. RESPONSIBILITY FOR COLLATERAL. The Debtors assume all
liabilities and responsibility in connection with all Collateral, and the
Obligations shall in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Collateral or its unavailability for
any reason. Without limiting the generality of the foregoing, (a) neither the
Agent nor any Secured Party (i) has any duty (either before or after an Event of
Default) to collect any amounts in respect of the Collateral or to preserve any
rights relating to the Collateral, or (ii) has any obligation to clean-up or
otherwise prepare the Collateral for sale, and (b) each Debtor shall remain
obligated and liable under each contract or agreement included in the Collateral
to be observed or performed by such Debtor thereunder. Neither the Agent nor any
Secured Party shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt by the
Agent or any Secured Party of any payment relating to any of the Collateral, nor
shall the Agent or any Secured Party be obligated in any manner to perform any
of the obligations of any Debtor under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Agent or any Secured Party in respect of the Collateral or as to
the sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Agent or to which the Agent or any Secured Party may be entitled
at any time or times.
13. SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties and
all obligations of the Debtors hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of
17
validity or enforceability of this Agreement, the Debentures or any agreement
entered into in connection with the foregoing, or any portion hereof or thereof;
(b) any change in the time, manner or place of payment or performance of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Debentures or any other
agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Collateral, or any release or amendment
or waiver of or consent to departure from any other collateral for, or any
guaranty, or any other security, for all or any of the Obligations; (d) any
action by the Secured Parties to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to a Debtor, or a discharge of all or
any part of the Security Interest granted hereby. Until the Obligations shall
have been paid and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or bankruptcy. Each Debtor
expressly waives presentment, protest, notice of protest, demand, notice of
nonpayment and demand for performance. In the event that at any time any
transfer of any Collateral or any payment received by the Secured Parties
hereunder shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be otherwise due to
any party other than the Secured Parties, then, in any such event, each Debtor's
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof. Each Debtor waives all right
to require the Secured Parties to proceed against any other person or entity or
to apply any Collateral which the Secured Parties may hold at any time, or to
marshal assets, or to pursue any other remedy. Each Debtor waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby.
14. TERM OF AGREEMENT. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Debentures have been
indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Debtors contained in
this Agreement (including, without limitation, Annex B hereto) shall survive and
remain operative and in full force and effect regardless of the termination of
this Agreement.
15. POWER OF ATTORNEY; FURTHER ASSURANCES.
(a) Each Debtor authorizes the Secured Parties, and does
hereby make, constitute and appoint the Secured Parties and their
respective officers, agents, successors or assigns with full power of
substitution, as such Debtor's true and lawful attorney-in-fact, with
power, in the name of the various Secured Parties or such Debtor, to,
after the occurrence and during the continuance of an Event of Default,
(i) endorse any note, checks, drafts, money orders or other instruments
of payment (including payments payable under or in respect of any
policy of insurance) in respect of the Collateral that may come into
possession of the Secured Parties; (ii) to sign and endorse any
financing statement pursuant to the UCC or any invoice, freight or
express xxxx, xxxx of lading,
18
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to pay or discharge taxes,
liens, security interests or other encumbrances at any time levied or
placed on or threatened against the Collateral; (iv) to demand,
collect, receipt for, compromise, settle and xxx for monies due in
respect of the Collateral; (v) to transfer any Intellectual Property or
provide licenses respecting any Intellectual Property; and (vi)
generally, at the option of the Secured Parties, and at the expense of
the Debtors, at any time, or from time to time, to execute and deliver
any and all documents and instruments and to do all acts and things
which the Secured Parties deem necessary to protect, preserve and
realize upon the Collateral and the Security Interest granted therein
in order to effect the intent of this Agreement and the Debentures all
as fully and effectually as the Debtors might or could do; and each
Debtor hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled
with an interest and shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Obligations shall be
outstanding. The designation set forth herein shall be deemed to amend
and supersede any inconsistent provision in the Organizational
Documents or other documents or agreements to which any Debtor is
subject or to which any Debtor is a party. Without limiting the
generality of the foregoing, after the occurrence and during the
continuance of an Event of Default, each Secured Party is specifically
authorized to execute and file any applications for or instruments of
transfer and assignment of any patents, trademarks, copyrights or other
Intellectual Property with the United States Patent and Trademark
Office and the United States Copyright Office.
(b) On a continuing basis, each Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the
proper filing and recording agencies in any jurisdiction, including,
without limitation, the jurisdictions indicated on Schedule C attached
hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested
by the Secured Parties, to perfect the Security Interest granted
hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Parties the
grant or perfection of a perfected security interest in all the
Collateral under the UCC.
(c) Each Debtor hereby irrevocably appoints the Secured
Parties as such Debtor's attorney-in-fact, with full authority in the
place and instead of such Debtor and in the name of such Debtor, from
time to time in the Secured Parties' discretion, to take any action and
to execute any instrument which the Secured Parties may deem necessary
or advisable to accomplish the purposes of this Agreement, including
the filing, in its sole discretion, of one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of such Debtor where permitted by law,
which financing statements may (but need not) describe the Collateral
as "all assets" or "all personal property" or words of like import, and
ratifies all such actions taken by the Secured Parties. This power of
attorney is coupled with an interest and shall be irrevocable for the
term of this Agreement and thereafter as long as any of the Obligations
shall be outstanding.
19
16. NOTICES. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement (as
such term is defined in the Debentures).
17. OTHER SECURITY. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
18. APPOINTMENT OF AGENT. The Secured Parties hereby appoint [DKR
SoundShore Oasis Holding Fund Ltd.] to act as their agent ("DKR" or the "Agent")
for purposes of exercising any and all rights and remedies of the Secured
Parties hereunder. Such appointment shall continue until revoked in writing by a
Majority in Interest, at which time a Majority in Interest shall appoint a new
Agent; provided, that DKR may not be removed as Agent unless __________________
shall then hold less than $____________ principal amount of Debentures; provided
further that such removal may occur only if each of the other Secured Parties
shall then hold not less than $______________ principal amount of Debentures.
The Agent shall have the rights, responsibilities and immunities set forth in
Annex B hereto.
19. MISCELLANEOUS.
(a) No course of dealing between the Debtors and the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on
the part of the Secured Parties, any right, power or privilege
hereunder or under the Debentures shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.
(b) All of the rights and remedies of the Secured Parties with
respect to the Collateral, whether established hereby or by the
Debentures or by any other agreements, instruments or documents or by
law shall be cumulative and may be exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements with
respect thereto. Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a
written agreement specifically referring to this Agreement and signed
by the parties hereto.
(d) In the event any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any
reason, unless such provision is narrowed by judicial construction,
this Agreement shall, as to such jurisdiction, be construed as if such
invalid, prohibited or unenforceable provision had been more
20
narrowly drawn so as not to be invalid, prohibited or unenforceable.
If, notwithstanding the foregoing, any provision of this Agreement is
held to be invalid, prohibited or unenforceable in any jurisdiction,
such provision, as to such jurisdiction, shall be ineffective to the
extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other
provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this
Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver
of any subsequent breach or default or right, whether of the same or
similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the
benefit of each party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in
order to carry out the provisions and purposes of this Agreement.
(h) All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each Debtor agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions
contemplated by this Agreement and the Debenture (whether brought
against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each Debtor hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any proceeding, any
claim that it is not personally subject to the jurisdiction of any such
court, that such proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all
right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If
any party shall commence a proceeding to enforce any provisions of this
Agreement, then the prevailing party in such proceeding shall be
reimbursed by the other party for its reasonable attorney's fees and
21
other costs and expenses incurred with the investigation, preparation
and prosecution of such proceeding.
(i) This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original thereof.
(j) All Debtors shall jointly and severally be liable for the
obligations of each Debtor to the Secured Parties hereunder.
(k) Each Debtor shall indemnify, reimburse and hold harmless
the Secured Parties and their respective partners, members,
shareholders, officers, directors, employees and agents (collectively,
"Indemnitees") from and against any and all losses, claims,
liabilities, damages, penalties, suits, costs and expenses, of any kind
or nature, (including fees relating to the cost of investigating and
defending any of the foregoing) imposed on, incurred by or asserted
against such Indemnitee in any way related to or arising from or
alleged to arise from this Agreement or the Collateral, except any such
losses, claims, liabilities, damages, penalties, suits, costs and
expenses which result from the gross negligence or willful misconduct
of the Indemnitee as determined by a final, nonappealable decision of a
court of competent jurisdiction. This indemnification provision is in
addition to, and not in limitation of, any other indemnification
provision in the Debentures, the Purchase Agreement (as such term is
defined in the Debentures) or any other agreement, instrument or other
document executed or delivered in connection herewith or therewith.
(l) Nothing in this Agreement shall be construed to subject
Agent or any Secured Party to liability as a partner in any Debtor or
any if its direct or indirect subsidiaries that is a partnership or as
a member in any Debtor or any of its direct or indirect subsidiaries
that is a limited liability company, nor shall Agent or any Secured
Party be deemed to have assumed any obligations under any partnership
agreement or limited liability company agreement, as applicable, of any
such Debtor or any if its direct or indirect subsidiaries or otherwise,
unless and until any such Secured Party exercises its right to be
substituted for such Debtor as a partner or member, as applicable,
pursuant hereto.
(m) To the extent that the grant of the security interest in
the Collateral and the enforcement of the terms hereof require the
consent, approval or action of any partner or member, as applicable, of
any Debtor or any direct or indirect subsidiary of any Debtor or
compliance with any provisions of any of the Organizational Documents,
the Debtors hereby grant such consent and approval and waive any such
noncompliance with the terms of said documents.
[SIGNATURE PAGES FOLLOW]
22
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.
SILVERSTAR HOLDINGS, LTD.
By:__________________________________________
Name:
Title:
[SUBSIDIARY]
By:__________________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
23
[SIGNATURE PAGE OF HOLDERS TO SSTR SA]
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing entity: ______________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
24
SCHEDULE A
Principal Place of Business of Debtors:
Locations Where Collateral is Located or Stored:
25
SCHEDULE B
26
SCHEDULE C
27
SCHEDULE D
Organizational Identification Numbers
28
SCHEDULE E
Names; Mergers and Acquisitions
29
SCHEDULE F
Intellectual Property
30
SCHEDULE G
Account Debtors
31
SCHEDULE H
Pledged Securities
32
ANNEX A
TO
SECURITY
AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security Agreement dated as of [_____ ___, 2005 made by
Silverstar Holdings, Ltd.
and its subsidiaries party thereto from time to time, as Debtors
to and in favor of
the Secured Parties identified therein (the "Security Agreement")
Reference is made to the Security Agreement as defined above;
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in, or by reference in, the Security Agreement.
The undersigned hereby agrees that upon delivery of this Additional
Debtor Joinder to the Secured Parties referred to above, the undersigned shall
(a) be an Additional Debtor under the Security Agreement, (b) have all the
rights and obligations of the Debtors under the Security Agreement as fully and
to the same extent as if the undersigned was an original signatory thereto and
(c) be deemed to have made the representations and warranties set forth in
Section ___ therein as of the date of execution and delivery of this Additional
Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN
THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND
ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.
Attached hereto are supplemental and/or replacement Schedules to the
Security Agreement, as applicable.
An executed copy of this Joinder shall be delivered to the Secured
Parties, and the Secured Parties may rely on the matters set forth herein on or
after the date hereof. This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Parties.
IN WITNESS WHEREOF, the undersigned has caused this Joinder to be
executed in the name and on behalf of the undersigned.
[Name of Additional Debtor]
By:
Name:
Title:
Address:
Dated:
ANNEX B
TO
SECURITY
AGREEMENT
THE AGENT
1. APPOINTMENT. The Secured Parties (all capitalized terms
used herein and not otherwise defined shall have the respective
meanings provided in the Security Agreement to which this Annex B is
attached (the "Agreement")), by their acceptance of the benefits of the
Agreement, hereby designate [DKR SoundShore Oasis Holding Fund Ltd.
("DKR" or "Agent") as the Agent to act as specified herein and in the
Agreement. Each Secured Party shall be deemed irrevocably to authorize
the Agent to take such action on its behalf under the provisions of the
Agreement and any other Transaction Document (as such term is defined
in the Debentures) and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or
required of the Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto. The Agent may perform any
of its duties hereunder by or through its agents or employees.
2. NATURE OF DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement.
Neither the Agent nor any of its partners, members, shareholders,
officers, directors, employees or agents shall be liable for any action
taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of
any oversight or error of judgment or answerable for any loss, unless
caused solely by its or their gross negligence or willful conduct as
determined by a final judgment (not subject to further appeal) of a
court of competent jurisdiction. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by
reason of the Agreement or any other Transaction Document a fiduciary
relationship in respect of any Debtor or any Secured Party; and nothing
in the Agreement or any other Transaction Document, expressed or
implied, is intended to or shall be so construed as to impose upon the
Agent any obligations in respect of the Agreement or any other
Transaction Document except as expressly set forth herein and therein.
3. LACK OF RELIANCE ON THE AGENT. Independently and without
reliance upon the Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the
Company and its subsidiaries in connection with such Secured Party's
investment in the Debtors, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction
Documents, and the taking or not taking of any action in connection
therewith, and (ii) its own appraisal of the creditworthiness of the
Company and its subsidiaries, and of the value of the Collateral from
time to time, and the Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Secured Party
with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred
or
at any time or times thereafter. The Agent shall not be responsible to
the Debtors or any Secured Party for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith, or for
the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of the Agreement or
any other Transaction Document, or for the financial condition of the
Debtors or the value of any of the Collateral, or be required to make
any inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of the Agreement or any other
Transaction Document, or the financial condition of the Debtors, or the
value of any of the Collateral, or the existence or possible existence
of any default or Event of Default under the Agreement, the Debentures
or any of the other Transaction Documents.
4. CERTAIN RIGHTS OF THE AGENT. The Agent shall have the right
to take any action with respect to the Collateral, on behalf of all of
the Secured Parties. To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act
or action (including failure to act) in connection with the Agreement
or any other Transaction Document, and shall be entitled to act or
refrain from acting in accordance with the instructions of Secured
Parties holding a majority in principal amount of Debentures (based on
then-outstanding principal amounts of Debentures at the time of any
such determination); if such instructions are not provided despite the
Agent's request therefor, the Agent shall be entitled to refrain from
such act or taking such action, and if such action is taken, shall be
entitled to appropriate indemnification from the Secured Parties in
respect of actions to be taken by the Agent; and the Agent shall not
incur liability to any person or entity by reason of so refraining.
Without limiting the foregoing, (a) no Secured Party shall have any
right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting hereunder in accordance with the terms
of the Agreement or any other Transaction Document, and the Debtors
shall have no right to question or challenge the authority of, or the
instructions given to, the Agent pursuant to the foregoing and (b) the
Agent shall not be required to take any action which the Agent believes
(i) could reasonably be expected to expose it to personal liability or
(ii) is contrary to this Agreement, the Transaction Documents or
applicable law.
5. RELIANCE. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message,
cablegram, radiogram, order or other document or telephone message
signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other
Transaction Documents and its duties thereunder, upon advice of counsel
selected by it and upon all other matters pertaining to this Agreement
and the other Transaction Documents and its duties thereunder, upon
advice of other experts selected by it.
6. INDEMNIFICATION. To the extent that the Agent is not
reimbursed and indemnified by the Debtors, the Secured Parties will
jointly and severally reimburse and indemnify the Agent, in proportion
to their initially purchased respective principal amounts of
Debentures, from and against any and all liabilities, obligations,
losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties
hereunder or under the Agreement or any other Transaction Document, or
in any way relating to or arising out of the Agreement or any other
Transaction Document except for those determined by a final judgment
(not subject to further appeal) of a court of competent jurisdiction to
have resulted solely from the Agent's own gross negligence or willful
misconduct. Prior to taking any action hereunder as Agent, the Agent
may require each Secured Party to deposit with it sufficient sums as it
determines in good faith is necessary to protect the Agent for costs
and expenses associated with taking such action.
7. RESIGNATION BY THE AGENT.
(a) The Agent may resign from the performance of all its
functions and duties under the Agreement and the other Transaction
Documents at any time by giving 30 days' prior written notice (as
provided in the Agreement) to the Debtors and the Secured Parties. Such
resignation shall take effect upon the appointment of a successor Agent
pursuant to clauses (b) and (c) below.
(b) Upon any such notice of resignation, the Secured Parties,
acting by a Majority in Interest, shall appoint a successor Agent
hereunder.
(c) If a successor Agent shall not have been so appointed
within said 30-day period, the Agent shall then appoint a successor
Agent who shall serve as Agent until such time, if any, as the Secured
Parties appoint a successor Agent as provided above. If a successor
Agent has not been appointed within such 30-day period, the Agent may
petition any court of competent jurisdiction or may interplead the
Debtors and the Secured Parties in a proceeding for the appointment of
a successor Agent, and all fees, including, but not limited to,
extraordinary fees associated with the filing of interpleader and
expenses associated therewith, shall be payable by the Debtors on
demand.
8. RIGHTS WITH RESPECT TO COLLATERAL. Each Secured Party
agrees with all other Secured Parties and the Agent (i) that it shall
not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other
agreement or otherwise (other than pursuant to this Agreement), or take
or institute any action against the Agent or any of the other Secured
Parties in respect of the Collateral or its rights hereunder (other
than any such action arising from the breach of this Agreement) and
(ii) that such Secured Party has no other rights with respect to the
Collateral other than as set forth in this Agreement and the other
Transaction Documents.
EXHIBIT G
SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE, dated as of October __, 2005 (this "Guarantee"),
made by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, (the "Guarantors"), in favor of the
purchasers signatory (the "Purchasers") to that certain Securities Purchase
Agreement, dated as of the date hereof, between Silverstar Holdings, Ltd., a
Bermuda corporation (the "Company") and the Purchasers.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement, dated
as of the date hereof, by and between the Company and the Purchasers (the
"Purchase Agreement"), the Company has agreed to sell and issue to the
Purchasers, and the Purchasers have agreed to purchase from the Company the
Company's Secured Convertible Debentures, due October ___, 2008 (the
"Debentures"), subject to the terms and conditions set forth therein; and
WHEREAS, each Guarantor will directly benefit from the extension of
credit to the Company represented by the issuance of the Debentures; and
NOW, THEREFORE, in consideration of the premises and to induce the
Purchasers to enter into the Purchase Agreement and to carry out the
transactions contemplated thereby, each Guarantor hereby agrees with the
Purchasers as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Purchase Agreement and used herein shall have the meanings given to them in the
Purchase Agreement. The words "hereof," "herein," "hereto" and "hereunder" and
words of similar import when used in this Guarantee shall refer to this
Guarantee as a whole and not to any particular provision of this Guarantee, and
Section and Schedule references are to this Guarantee unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The following
terms shall have the following meanings:
"Guarantee" means this Subsidiary Guarantee, as the same may
be amended, supplemented or otherwise modified from time to time.
"Obligations" means the collective reference to all
obligations and undertakings of the Company of whatever nature,
monetary or otherwise, under the Debentures, the Purchase Agreement,
the Security Agreement, the Warrants, the Registration Rights Agreement
or any other future agreement or obligations undertaken by the Company
to the Purchasers, together with all reasonable attorneys' fees,
disbursements and all other costs and expenses of collection
1
incurred by Purchasers in enforcing any of such Obligations and/or this
Guarantee.
2. Guarantee.
(a) Guarantee.
(i) The Guarantors hereby, jointly and severally, unconditionally
and irrevocably, guarantee to the Purchasers and their
respective successors, indorsees, transferees and assigns, the
prompt and complete payment and performance by the Company
when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
(ii) Anything herein or in any other Transaction Document to the
contrary notwithstanding, the maximum liability of each
Guarantor hereunder and under the other Transaction Documents
shall in no event exceed the amount which can be guaranteed by
such Guarantor under applicable federal and state laws,
including laws relating to the insolvency of debtors,
fraudulent conveyance or transfer or laws affecting the rights
of creditors generally (after giving effect to the right of
contribution established in Section 2(b)).
(iii) Each Guarantor agrees that the Obligations may at any time and
from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee contained
in this Section 2 or affecting the rights and remedies of the
Purchasers hereunder.
(iv) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Obligations and the obligations
of each Guarantor under the guarantee contained in this
Section 2 shall have been satisfied by payment in full.
(v) No payment made by the Company, any of the Guarantors, any
other guarantor or any other Person or received or collected
by the Purchasers from the Company, any of the Guarantors, any
other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at
any time or from time to time in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder
which shall,
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notwithstanding any such payment (other than any payment made
by such Guarantor in respect of the Obligations or any payment
received or collected from such Guarantor in respect of the
Obligations), remain liable for the Obligations up to the
maximum liability of such Guarantor hereunder until the
Obligations are paid in full.
(vi) Notwithstanding anything to the contrary in this Agreement,
with respect to any defaulted non-monetary Obligations the
specific performance of which by the Guarantors is not
reasonably possible (e.g. the issuance of the Company's Common
Stock), the Guarantors shall only be liable for making the
Purchasers whole on a monetary basis for the Company's failure
to perform such Obligations in accordance with the Transaction
Documents.
(b) Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its
proportionate share of any payment made hereunder, such Guarantor shall
be entitled to seek and receive contribution from and against any other
Guarantor hereunder which has not paid its proportionate share of such
payment. Each Guarantor's right of contribution shall be subject to the
terms and conditions of Section 2(c). The provisions of this Section
2(b) shall in no respect limit the obligations and liabilities of any
Guarantor to the Purchasers, and each Guarantor shall remain liable to
the Purchasers for the full amount guaranteed by such Guarantor
hereunder.
(c) No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any
Guarantor by the Purchasers, no Guarantor shall be entitled to be
subrogated to any of the rights of the Purchasers against the Company
or any other Guarantor or any collateral security or guarantee or right
of offset held by the Purchasers for the payment of the Obligations,
nor shall any Guarantor seek or be entitled to seek any contribution or
reimbursement from the Company or any other Guarantor in respect of
payments made by such Guarantor hereunder, until all amounts owing to
the Purchasers by the Company on account of the Obligations are paid in
full. If any amount shall be paid to any Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not
have been paid in full, such amount shall be held by such Guarantor in
trust for the Purchasers, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be
turned over to the Purchasers in the exact form received by such
Guarantor (duly indorsed by such Guarantor to the Purchasers, if
required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Purchasers may determine.
(d) Amendments, Etc. With Respect to the Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that,
without any
3
reservation of rights against any Guarantor and without notice to or
further assent by any Guarantor, any demand for payment of any of the
Obligations made by the Purchasers may be rescinded by the Purchasers
and any of the Obligations continued, and the Obligations, or the
liability of any other Person upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with
respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Purchasers, and the Purchase Agreement
and the other Transaction Documents and any other documents executed
and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Purchasers may
deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Purchasers for the
payment of the Obligations may be sold, exchanged, waived, surrendered
or released. The Purchasers shall have no obligation to protect,
secure, perfect or insure any Lien at any time held by them as security
for the Obligations or for the guarantee contained in this Section 2 or
any property subject thereto.
(e) Guarantee Absolute and Unconditional. Each Guarantor
waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by
the Purchasers upon the guarantee contained in this Section 2 or
acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon the guarantee contained in this Section 2; and
all dealings between the Company and any of the Guarantors, on the one
hand, and the Purchasers, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon
the guarantee contained in this Section 2. Each Guarantor waives to the
extent permitted by law diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Company or
any of the Guarantors with respect to the Obligations. Each Guarantor
understands and agrees that the guarantee contained in this Section 2
shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or
enforceability of the Purchase Agreement or any other Transaction
Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Purchasers, (b) any defense,
set-off or counterclaim (other than a defense of payment or performance
or fraud or misconduct by Purchasers) which may at any time be
available to or be asserted by the Company or any other Person against
the Purchasers, or (c) any other circumstance whatsoever (with or
without notice to or knowledge of the Company or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Company for the Obligations, or of such Guarantor
under the guarantee contained in this Section 2, in bankruptcy or in
any other instance. When making any demand hereunder or otherwise
pursuing its rights and remedies hereunder against any Guarantor, the
Purchasers may, but shall be under no obligation to, make a similar
demand on or otherwise
4
pursue such rights and remedies as they may have against the Company,
any other Guarantor or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with
respect thereto, and any failure by the Purchasers to make any such
demand, to pursue such other rights or remedies or to collect any
payments from the Company, any other Guarantor or any other Person or
to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Company, any
other Guarantor or any other Person or any such collateral security,
guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the
rights and remedies, whether express, implied or available as a matter
of law, of the Purchasers against any Guarantor. For the purposes
hereof, "demand" shall include the commencement and continuance of any
legal proceedings.
(f) Reinstatement. The guarantee contained in this Section 2
shall continue to be effective, or be reinstated, as the case may be,
if at any time payment, or any part thereof, of any of the Obligations
is rescinded or must otherwise be restored or returned by the
Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or any Guarantor, or upon or as a result
of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Company or any Guarantor or any
substantial part of its property, or otherwise, all as though such
payments had not been made.
(g) Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Purchasers without set-off or
counterclaim in U.S. dollars at the address set forth or referred to in
the Purchase Agreement.
3. Representations and Warranties. Each Guarantor hereby makes the
following representations and warranties to Purchasers as of the date hereof:
(a) Organization and Qualification. The Guarantor is a
corporation, duly incorporated, validly existing and in good standing
under the laws of the applicable jurisdiction set forth on Schedule 1,
with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. The Guarantor has no subsidiaries other than those
identified as such on the Disclosure Schedules to the Purchase
Agreement. The Guarantor is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, could not, individually or in the
aggregate, (x) adversely affect the legality, validity or
enforceability of any of this Guaranty in any material respect, (y)
have a material adverse effect on the results of operations, assets,
prospects, or financial condition of the Guarantor or (z) adversely
impair in any material respect the Guarantor's ability to perform
5
fully on a timely basis its obligations under this Guaranty (a
"Material Adverse Effect").
(b) Authorization; Enforcement. The Guarantor has the
requisite corporate power and authority to enter into and to consummate
the transactions contemplated by this Guaranty, and otherwise to carry
out its obligations hereunder. The execution and delivery of this
Guaranty by the Guarantor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all
requisite corporate action on the part of the Guarantor. This Guaranty
has been duly executed and delivered by the Guarantor and constitutes
the valid and binding obligation of the Guarantor enforceable against
the Guarantor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of
this Guaranty by the Guarantor and the consummation by the Guarantor of
the transactions contemplated thereby do not and will not (i) conflict
with or violate any provision of its Certificate of Incorporation or
By-laws or (ii) conflict with, constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the
Guarantor is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Guarantor is subject
(including Federal and state securities laws and regulations), or by
which any material property or asset of the Guarantor is bound or
affected, except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of
the Guarantor is not being conducted in violation of any law, ordinance
or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse
Effect.
(d) Consents and Approvals. The Guarantor is not required to
obtain any consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal, state, local,
foreign or other governmental authority or other person in connection
with the execution, delivery and performance by the Guarantor of this
Guaranty.
(e) Purchase Agreement. The representations and warranties of
the Company set forth in the Purchase Agreement as they relate to such
Guarantor, each of which is hereby incorporated herein by reference,
are true and correct as of each time such representations are deemed to
be made pursuant to such
6
Purchase Agreement, and the Purchasers shall be entitled to rely on
each of them as if they were fully set forth herein, provided, that
each reference in each such representation and warranty to the
Company's knowledge shall, for the purposes of this Section 3, be
deemed to be a reference to such Guarantor's knowledge.
(f) Foreign Law. Each Guarantor has consulted with appropriate
foreign legal counsel with respect to any of the above representations
for which non-U.S. law is applicable. Such foreign counsel have advised
each applicable Guarantor that such counsel knows of no reason why any
of the above representations would not be true and accurate. Such
foreign counsel were provided with copies of this Subsidiary Guarantee
and the Transaction Documents prior to rendering their advice.
4. Covenants.
(a) Each Guarantor covenants and agrees with the Purchasers
that, from and after the date of this Guarantee until the Obligations
shall have been paid in full, such Guarantor shall take, and/or shall
refrain from taking, as the case may be, each commercially reasonable
action that is necessary to be taken or not taken, as the case may be,
so that no Event of Default is caused by the failure to take such
action or to refrain from taking such action by such Guarantor.
(b) So long as any of the Obligations are outstanding, each
Guarantor will not directly or indirectly on or after the date of this
Guarantee:
i. except with the prior written consent of the Agent
(as defined in the Security Agreement), enter into, create,
incur, assume or suffer to exist any indebtedness for borrowed
money of any kind, including but not limited to, a guarantee,
on or with respect to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or
profits therefrom that is senior to, or pari passu with, in
any respect, such Guarantor's obligations hereunder;
ii. enter into, create, incur, assume or suffer to
exist any liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom that is
senior to, in any respect, such Guarantor's obligations
hereunder;
iii. amend its certificate of incorporation, bylaws
or other charter documents so as to adversely affect any
rights of the Holder hereunder;
iv. repay, repurchase or offer to repay, repurchase
or otherwise acquire more than a de minimis number of shares
of its Common Stock or Common Stock Equivalents;
7
v. enter into any agreement with respect to any of
the foregoing; or
vi. pay cash dividends on any equity securities of
the Company.
5. Miscellaneous.
(a) Amendments in Writing. None of the terms or provisions of
this Guarantee may be waived, amended, supplemented or otherwise
modified except in writing by the Purchasers.
(b) Notices. All notices, requests and demands to or upon the
Purchasers or any Guarantor hereunder shall be effected in the manner
provided for in the Purchase Agreement; provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 5(b).
(c) No Waiver By Course Of Conduct; Cumulative Remedies. The
Purchasers shall not by any act (except by a written instrument
pursuant to Section 5(a)), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have
acquiesced in any default under the Transaction Documents or Event of
Default. No failure to exercise, nor any delay in exercising, on the
part of the Purchasers, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any
right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Purchasers of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or
remedy which the Purchasers would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may
be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
(d) Enforcement Expenses; Indemnification.
(i) Each Guarantor agrees to pay, or reimburse
the Purchasers for, all its costs and
expenses incurred in collecting against such
Guarantor under the guarantee contained in
Section 2 or otherwise enforcing or
preserving any rights under this Guarantee
and the other Transaction Documents to which
such Guarantor is a party, including,
without limitation, the reasonable fees and
disbursements of counsel to the Purchasers.
8
(ii) Each Guarantor agrees to pay, and to save
the Purchasers harmless from, any and all
liabilities with respect to, or resulting
from any delay in paying, any and all stamp,
excise, sales or other taxes which may be
payable or determined to be payable in
connection with any of the transactions
contemplated by this Guarantee.
(iii) Each Guarantor agrees to pay, and to save
the Purchasers harmless from, any and all
liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or
nature whatsoever with respect to the
execution, delivery, enforcement,
performance and administration of this
Guarantee to the extent the Company would be
required to do so pursuant to the Purchase
Agreement.
(iv) The agreements in this Section shall survive
repayment of the Obligations and all other
amounts payable under the Purchase Agreement
and the other Transaction Documents.
(e) Successor and Assigns. This Guarantee shall be binding
upon the successors and assigns of each Guarantor and shall inure to
the benefit of the Purchasers and their respective successors and
assigns; provided that no Guarantor may assign, transfer or delegate
any of its rights or obligations under this Guarantee without the prior
written consent of the Purchasers.
(f) Set-Off. Each Guarantor hereby irrevocably authorizes the
Purchasers at any time and from time to time while an Event of Default
under any of the Transaction Documents shall have occurred and be
continuing, without notice to such Guarantor or any other Guarantor,
any such notice being expressly waived by each Guarantor, to set-off
and appropriate and apply any and all deposits, credits, indebtedness
or claims, in any currency, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held or owing
by the Purchasers to or for the credit or the account of such
Guarantor, or any part thereof in such amounts as the Purchasers may
elect, against and on account of the obligations and liabilities of
such Guarantor to the Purchasers hereunder and claims of every nature
and description of the Purchasers against such Guarantor, in any
currency, whether arising hereunder, under the Purchase Agreement, any
other Transaction Document or otherwise, as the Purchasers may elect,
whether or not the Purchasers have made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Purchasers shall notify such Guarantor promptly of any
such set-off and the application made by the Purchasers of the proceeds
thereof, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of the
Purchasers under this Section are in addition to other
9
rights and remedies(including, without limitation, other rights of
set-off) which the Purchasers may have.
(g) Counterparts. This Guarantee may be executed by one or
more of the parties to this Guarantee on any number of separate
counterparts (including by telecopy), and all of said counterparts
taken together shall be deemed to constitute one and the same
instrument.
(h) Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
(i) Section Headings. The Section headings used in this
Guarantee are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the
interpretation hereof.
(j) Integration. This Guarantee and the other Transaction
Documents represent the agreement of the Guarantors and the Purchasers
with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Purchasers
relative to subject matter hereof and thereof not expressly set forth
or referred to herein or in the other Transaction Documents.
(k) Governing Law. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAWS.
(l) Submission to Jurisdictional; Waiver. Each Guarantor
hereby irrevocably and unconditionally:
(i) submits for itself and its property in any
legal action or proceeding relating to this
Guarantee and the other Transaction
Documents to which it is a party, or for
recognition and enforcement of any judgment
in respect thereof, to the non-exclusive
general jurisdiction of the Courts of the
State of New York, located in New York
County, New York, the courts of the United
States of America for the Southern District
of New York, and appellate courts from any
thereof;
(ii) consents that any such action or proceeding
may be brought in such courts and waives any
objection that it may now or
10
hereafter have to the venue of any such
action or proceeding in any such court or
that such action or proceeding was brought
in an inconvenient court and agrees not to
plead or claim the same;
(iii) agrees that service of process in any such
action or proceeding may be effected by
mailing a copy thereof by registered or
certified mail (or any substantially similar
form of mail), postage prepaid, to such
Guarantor at its address referred to in the
Purchase Agreement or at such other address
of which the Purchasers shall have been
notified pursuant thereto;
(iv) agrees that nothing herein shall affect the
right to effect service of process in any
other manner permitted by law or shall limit
the right to xxx in any other jurisdiction;
and
(v) waives, to the maximum extent not prohibited
by law, any right it may have to claim or
recover in any legal action or proceeding
referred to in this Section any special,
exemplary, punitive or consequential
damages.
(m) Acknowledgements. Each Guarantor hereby acknowledges
that:
(i) it has been advised by counsel in the
negotiation, execution and delivery of this
Guarantee and the other Transaction
Documents to which it is a party;
(ii) the Purchasers have no fiduciary
relationship with or duty to any Guarantor
arising out of or in connection with this
Guarantee or any of the other Transaction
Documents, and the relationship between the
Guarantors, on the one hand, and the
Purchasers, on the other hand, in connection
herewith or therewith is solely that of
debtor and creditor; and
(iii) no joint venture is created hereby or by the
other Transaction Documents or otherwise
exists by virtue of the transactions
contemplated hereby among the Guarantors and
the Purchasers.
(n) Additional Guarantors. The Company shall cause each of its
subsidiaries formed or acquired on or subsequent to the date hereof to
become a Guarantor for all purposes of this Guarantee by executing and
delivering an Assumption Agreement in the form of Annex 1 hereto.
11
(o) Release of Guarantors. Subject to Section 2.6, each
Guarantor will be released from all liability hereunder concurrently
with the repayment in full of all amounts owed under the Purchase
Agreement, the Debentures and the other Transaction Documents.
(p) Seniority. The Obligations of each of the Guarantors
hereunder rank senior in priority to any other unsecured Debt (as
defined in the Debentures) of such Guarantor.
(q) Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF
THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.
12
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered as of the date first above written.
[SUBSIDIARY]
By:_________________________________
Name:
Title:
13
SCHEDULE 1
GUARANTORS
The following are the names, notice addresses and jurisdiction
of organization of each Guarantor.
COMPANY
JURISDICTION OF OWNED BY
INCORPORATION PERCENTAGE
------------- ----------
----------
14
Annex 1 to
SUBSIDIARY GUARANTEE
ASSUMPTION AGREEMENT, dated as of ____ __, ______ made by
______________________________, a ______________ corporation (the "Additional
Guarantor"), in favor of the Purchasers pursuant to the Purchase Agreement
referred to below. All capitalized terms not defined herein shall have the
meaning ascribed to them in such Purchase Agreement.
W I T N E S S E T H :
WHEREAS, Silverstar Holdings, Ltd., a Bermuda corporation (the
"Company") and the Purchasers have entered into a Securities Purchase Agreement,
dated as of ____________, 2005 (as amended, supplemented or otherwise modified
from time to time, the "Purchase Agreement");
WHEREAS, in connection with the Purchase Agreement, the Company and its
Subsidiaries (other than the Additional Guarantor) have entered into the
Subsidiary Guarantee, dated as of [______________ ____, 2005 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee") in favor
of the Purchasers;
WHEREAS, the Purchase Agreement requires the Additional Guarantor to
become a party to the Guarantee; and
WHEREAS, the Additional Guarantor has agreed to execute and deliver
this Assumption Agreement in order to become a party to the Guarantee;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee. By executing and delivering this Assumption Agreement, the
Additional Guarantor, as provided in Section 5.14 of the Guarantee, hereby
becomes a party to the Guarantee as a Guarantor thereunder with the same force
and effect as if originally named therein as a Guarantor and, without limiting
the generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Guarantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in Schedule 1 to the
Guarantee. The Additional Guarantor hereby represents and warrants that each of
the representations and warranties contained in Section 3 of the Guarantee is
true and correct on and as the date hereof as to such Additional Guarantor
(after giving effect to this Assumption Agreement) as if made on and as of such
date.
2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
15
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONALGUARANTOR]
By: ________________________________________
Name:
Title:
16
EXHIBIT H
INDIVIDUAL GUARANTY
October _, 2005
To: The Purchasers Identified on the Signature Pages
of the Securities Purchase Agreement Referred to Below
1. The Guaranty. For valuable consideration, the undersigned
("Guarantor") hereby unconditionally guarantees and promises to pay promptly to
the purchasers identified on the signature pages of the Securities Purchase
Agreement, dated as of October _, 2005 (the "Securities Purchase Agreement"),
among Silverstar Holdings, Ltd., a Bermuda corporation (the "Borrower"), and
each such purchaser (each, including its successors and assigns, a "Purchaser"
and collectively, the "Purchasers"), in lawful money of the United States, any
and all Indebtedness of Borrower to each Purchaser when due, whether at stated
maturity, upon acceleration or otherwise, and at all times thereafter. The
liability of Guarantor is continuing and relates to any Indebtedness, including
that arising under successive transactions which shall either continue the
Indebtedness or from time to time renew it after it has been satisfied. All
payments made by Guarantor to or for the account of any Purchaser hereunder
shall be made by wire transfer of immediately available funds to the account set
forth on Schedule 1 to this Guaranty, or in such other manner as Purchasers
shall hereafter advise Guarantor.
2. Definitions.
(a) "Borrower" shall mean the entity named in Paragraph 1 of
this Guaranty.
(b) "Guarantor" shall mean the individual signing this
Guaranty.
(c) "Indebtedness" shall mean the collective reference to all
obligations and undertakings of the Borrower of whatever nature,
monetary or otherwise, under the Debentures, the Purchase Agreement,
the Security Agreement, the Warrants, the Registration Rights Agreement
or any other Transaction Document, together with all reasonable
attorneys' fees, disbursements and all other costs and expenses of
collection incurred by the Purchasers in enforcing any of such
obligations or this Guaranty.
(d) Capitalized terms used in this Guaranty without definition
have the meanings ascribed to them in the Securities Purchase
Agreement.
3. Obligations Independent. The obligations hereunder are independent
of the obligations of Borrower or any other guarantor, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Borrower or any other guarantor or whether Borrower or any other
guarantor be joined in any such action or actions.
4. Rights of Purchasers. Guarantor authorizes Purchasers, without
notice or demand and without affecting its liability hereunder, from time to
time to:
(a) subject to the terms of the Transaction Documents, renew,
compromise, extend, accelerate, or otherwise change the time for
payment, or otherwise change the terms, of the Indebtedness or any part
thereof, including increase or decrease of the rate of interest
thereon, or otherwise change the terms of any Transaction Document;
(b) subject to the terms of the Transaction Documents, receive
and hold security for the payment of this Guaranty or any Indebtedness
and exchange, enforce, waive, release, fail to perfect, sell, or
otherwise dispose of any such security;
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(c) subject to the terms of the Security Agreement, apply such
security and direct the order or manner of sale thereof as Purchasers
in their discretion may determine; and
(d) release or substitute the Guarantor or any one or more of
any endorsers or other guarantors of any of the Indebtedness.
All actions, notices, requests or demands that Purchasers or any Purchaser may
take or make pursuant to the provisions of this Guaranty, shall be taken or made
by and through DKR SoundShore Oasis Holding Fund Ltd.
5. Guaranty to be Absolute. Guarantor agrees that until all the
Indebtedness has been indefeasibly paid in full and any commitments of any
Purchaser or facilities provided by any Purchaser with respect to the
Indebtedness have been terminated, Guarantor shall not be released by or because
of the taking, or failure to take, any action that might in any manner or to any
extent vary the risks of Guarantor under this Guaranty or that, but for this
paragraph, might discharge or otherwise reduce, limit, or modify Guarantor's
obligations under this Guaranty. Guarantor waives and surrenders any defense to
any liability under this Guaranty based upon any such action, including but not
limited to any action of Purchasers described in the immediately preceding
paragraph of this Guaranty. It is the express intent of Guarantor that
Guarantor's obligations under this Guaranty are and shall be absolute and
unconditional.
6. Guarantor's Waivers of Certain Rights and Certain Defenses.
Guarantor waives:
(a) any right to require Purchasers to proceed against
Borrower, proceed against or exhaust any security for the Indebtedness,
or pursue any other remedy in Purchaser's power whatsoever;
(b) any defense arising by reason of any disability or other
defense of Borrower, or the cessation from any cause whatsoever of the
liability of Borrower; and
(c) any defense based on any claim that Guarantor's
obligations exceed or are more burdensome than those of Borrower.
No provision or waiver in this Guaranty shall be construed as
limiting the generality of any other waiver contained in this Guaranty.
7. Subordination of Subrogation. Until all the Indebtedness has been
indefeasibly paid in full and any commitments of any Purchaser or facilities
provided by any Purchaser with respect to the Indebtedness have been terminated,
even though the Indebtedness may be in excess of Guarantor's liability
hereunder, Guarantor agrees to subordinate to the rights of the Purchasers any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Guaranty, and until such time, Guarantor agrees to subordinate to the rights of
the Purchasers any right to enforce any remedy that any Purchaser now has or may
hereafter have against Borrower, and agrees to subordinate to the rights of the
Purchasers any benefit of, and any right to participate in, any security now or
hereafter held by any Purchaser. Such subordination of subrogation rights shall
end at such time as all Indebtedness has been indefeasibly paid in full.
8. Waiver of Notices. Except as otherwise provided herein, Guarantor
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, notices of intent to
accelerate, notices of acceleration, notices of any suit or any other action
against Borrower or any other person, any other notices to any party liable on
any Transaction Document (including Guarantor), notices of acceptance of this
Guaranty, notices of the existence, creation, or incurring of new or additional
Indebtedness to which this Guaranty applies or any other Indebtedness of
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Borrower to any Purchaser, and notices of any fact that might increase
Guarantor's risk.
9. Subordination. Any obligations of Borrower to Guarantor, now or
hereafter existing, including but not limited to any obligations to Guarantor as
subrogee of the Purchasers or resulting from Guarantor's performance under this
Guaranty, are hereby subordinated to the Indebtedness. Guarantor agrees that, if
Purchasers so request, Guarantor shall not demand, take, or receive from
Borrower, by setoff or in any other manner, payment of any other obligations of
Borrower to Guarantor until all the Indebtedness has been indefeasibly paid in
full and any commitments of any Purchaser or facilities provided by any
Purchaser with respect to the Indebtedness have been terminated. If any payments
are received by Guarantor in violation of such waiver or agreement, such
payments shall be received by Guarantor as trustee for Purchasers and shall be
paid over to Purchasers on account of the Indebtedness, but without reducing or
affecting in any manner the liability of Guarantor under the other provisions of
this Guaranty. Any security interest, lien, or other encumbrance that Guarantor
may now or hereafter have on any property of Borrower is hereby subordinated to
any security interest, lien, or other encumbrance that Purchasers may have on
any such property.
10. Revocation of Guaranty.
(a) This Guaranty may be revoked at any time by Guarantor in
respect to future transactions, unless there is a continuing
consideration as to such transactions that Guarantor does not renounce.
Such revocation shall be effective upon actual receipt by Purchasers,
at the address shown below or at such other address as may have been
provided to Guarantor by Purchasers, of written notice of revocation.
Revocation shall not affect any of Guarantor's obligations or
Purchaser's rights with respect to transactions committed or entered
into prior to Purchaser's receipt of such notice, regardless of whether
or not the Indebtedness related to such transactions, before or after
revocation, has been incurred, renewed, compromised, extended,
accelerated, or otherwise changed as to any of its terms, including
time for payment or increase or decrease of the rate of interest
thereon, and regardless of any other act or omission of Purchasers
authorized hereunder.
(b) In the event of the death of Guarantor, the liability of
the estate of the deceased Guarantor shall continue in full force and
effect the Indebtedness existing at the date of death, and any renewals
or extensions thereof.
(c) Guarantor acknowledges and agrees that this Guaranty may
be revoked only in accordance with the foregoing provisions of this
paragraph and shall not be revoked simply as a result of any change in
name, location, or composition or structure of Borrower, the
dissolution of Borrower, or the termination, increase, decrease, or
other change of any personnel or owners of Borrower.
11. Reinstatement of Guaranty. If this Guaranty is revoked, returned,
or canceled, and subsequently any payment or transfer of any interest in
property by Borrower to any Purchaser is rescinded or must be returned by any
Purchaser to Borrower, this Guaranty shall be reinstated with respect to any
such payment or transfer, regardless of any such prior revocation, return, or
cancellation.
12. Stay of Acceleration. In the event that acceleration of the time
for payment of any of the Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower or otherwise, all such Indebtedness
guaranteed by Guarantor shall nonetheless be payable by Guarantor immediately if
requested by Purchasers.
13. Information Relating to Borrower. Guarantor acknowledges and agrees
that it shall have the sole responsibility for, and has adequate means of,
obtaining from Borrower such information concerning Borrower's financial
condition or business operations as Guarantor may require, and that Purchasers
have no duty, and Guarantor is not relying on Purchasers, at any time to
disclose to Guarantor any information relating to the business operations or
financial condition of Borrower.
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14. Borrower's Authorization. It is not necessary for Purchasers to
inquire into the powers of Borrower or of the officers, directors or agents
acting or purporting to act on its behalf, and any Indebtedness made or created
in reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
15. [RESERVED].
16. Remedies. If Guarantor fails to fulfill its duty to pay all
Indebtedness guaranteed hereunder, Purchasers shall have all of the remedies of
a creditor under all applicable law. Without limiting the foregoing, Purchasers
may, at their option and without notice or demand:
(a) declare any Indebtedness due and payable at once;
(b) take possession of any collateral pledged by Borrower
pursuant to the Security Agreement, wherever located, and sell, resell,
assign, transfer, and deliver all or any part of the collateral in
accordance with the provisions of the Transaction Documents; and
(c) set off against any or all liabilities of Guarantor all
money owed by any Purchaser or any of its agents or affiliates in any
capacity to Guarantor, whether or not due, and also set off against all
other liabilities of Guarantor to any Purchaser all money owed by such
Purchaser in any capacity to Guarantor. If exercised by any Purchaser,
such Purchaser shall be deemed to have exercised such right of setoff
and to have made a charge against any such money immediately upon the
occurrence of such default although made or entered on the books
subsequent thereto.
17. Representations and Warranties. Guarantor represents and warrants
to the Purchasers that: (a) Guarantor has full power and capacity to execute and
deliver this Guaranty and each other Transaction Document to which he is a party
and to incur and perform the obligations and undertakings provided herein and
therein; (b) no consent or approval of any Governmental Authority or any third
party is or will be required as a condition to the enforceability of this
Guaranty and each other Transaction Document to which he is a party; (c) this
Guaranty and each other Transaction Document to which he is a party has been
duly executed and delivered by the Guarantor and is enforceable against the
Guarantor in accordance with the terms hereof and thereof; (d) there is no
litigation or proceeding involving the Guarantor pending or, to the knowledge of
the Guarantor, threatened before any court, tribunal or governmental authority,
which may in any way materially adversely affect the financial condition or
property of the Guarantor, except as previously disclosed to Purchasers; (e)
there is no law, rule, regulation or order pertaining to the Guarantor and no
provision of any agreement, mortgage or contract binding on the Guarantor or
affecting his property, which could conflict with, be breached by, be in default
or in any way prevent, the execution, delivery or carrying out of the terms of
this Guaranty and each other Transaction Document to which he is a party; and
(f) Guarantor has a substantial financial interest in the Company and is
receiving immediate, substantial and direct benefit from the transactions
contemplated by the Transaction Documents.
18. Notices. All notices required under this Guaranty shall be
personally delivered or sent by first class mail, postage prepaid, or by
overnight courier, to the addresses on the signature page of this Guaranty, or
sent by facsimile to the fax numbers listed on the signature page, or to such
other addresses as Purchasers and Guarantor may specify from time to time in
writing. Notices sent by (a) first class mail shall be deemed delivered on the
earlier of actual receipt or on the fourth business day after deposit in the
U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on
the next business day, and (c) telecopy shall be deemed delivered when
transmitted.
19. Entire Agreement. This Guaranty, together with the other
Transaction Documents and the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
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20. Amendments; Waivers. No provision of this Guaranty may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Guarantor and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Guaranty shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of Purchasers to exercise any right hereunder in any
manner impair the exercise of any such right.
21. Headings. The headings herein are for convenience only, do not
constitute a part of this Guaranty and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Guaranty will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
22. Successors and Assigns. This Guaranty shall be binding upon
Guarantor and his heirs, representatives, estate and permitted assigns and shall
inure to the benefit of the Purchasers and their respective successors and
permitted assigns. The Guarantor may not assign this Guaranty or any rights or
obligations hereunder without the prior written consent of each Purchaser. Any
Purchaser may assign any or all of its rights under this Guaranty to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Securities Purchase Agreement that apply to
the "Purchasers".
23. Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Guaranty shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Guaranty and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of this Guaranty), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Guaranty and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
The parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of this Guaranty,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
24. Execution. In the event that Guarantor's signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the Guarantor with the same force and effect as if such facsimile
signature page were an original thereof.
25. Severability. If any provision of this Guaranty is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Guaranty shall not in any way be affected
or impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Guaranty.
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26. Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise this Guaranty
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Guaranty or any amendments hereto.
(Signature Page Follows)
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IN WITNESS WHEREOF, the Guarantor has duly executed this Guaranty as of
the date first indicated above.
GUARANTOR:
___________________________
Xxxxxx Xxxxxxxxx
Address for notices to Purchasers: Address for notices to Guarantor:
_______________________________ _________________________________
_______________________________ _________________________________
Facsimile:_____________________ Facsimile:_______________________
Address of primary
residence (if
different than
notice address):
_________________________________
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SCHEDULE 1
(Wire Instructions for Payment)
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