EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
dated as of
April 11, 2001
by and between
Dial-Thru International Corporation
as the Issuer,
and
Global Capital Funding Group, L.P.
Securities Purchase Agreement
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.........................................1
Section 1.1 Definitions...................................1
Section 1.2 Accounting Terms and Determinations...........9
ARTICLE II. PURCHASE AND SALE OF SECURITIES...................10
Section 2.1 Purchase and Sale of Convertible Debentures..10
Section 2.2 Purchase Price...............................10
Section 2.3 Closing and Mechanics of Payment.............10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES..........10
Section 3.1 Payment of Principal and Interest; Payment
Mechanics....................................10
Section 3.2 Payment of Interest..........................11
Section 3.3 Voluntary Prepayment.........................11
Section 3.4 Mandatory Prepayments........................11
Section 3.5 Prepayment Procedures........................12
Section 3.6 Payment of Additional Amounts................13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES....................14
Section 4.1 Organization and Qualification...............14
Section 4.2 Authorization and Execution..................15
Section 4.3 Capitalization ..............................15
Section 4.4 Governmental Authorization...................16
Section 4.5 Issuance of Shares...........................16
Section 4.6 No Conflicts.................................16
Section 4.7 Financial Information........................17
Section 4.8 Litigation...................................17
Section 4.9 Compliance with ERISA and other Benefit
Plans.......................................17
Section 4.10 Environmental Matters.......................18
Section 4.11 Taxes.......................................18
Section 4.12 Investments, Joint Ventures.................18
Section 4.13 Not an Investment Company...................18
Section 4.14 Full Disclosure.............................18
Section 4.15 No Solicitation; No Integration with Other
Offerings...................................19
Section 4.16 Permits.....................................19
Section 4.17 Leases......................................19
Section 4.18 Absence of Any Undisclosed Liabilities or
Capital Calls...............................19
Section 4.19 Public Utility Holding Company..............19
Section 4.20 Intellectual Property Rights................20
Section 4.21 Insurance...................................20
Section 4.22 Title to Properties.........................20
Section 4.23 Internal Accounting Controls................20
Section 4.24 Foreign Practices...........................20
Section 4.25 Title to Certain Assets.....................20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER........21
Section 5.1 Purchaser....................................21
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES....22
Section 6.1 Conditions Precedent to Purchaser's
Obligations to Purchase......................22
Section 6.2 Conditions to the Company's Obligations......24
ARTICLE VII. AFFIRMATIVE COVENANTS............................24
Section 7.1 Information..................................25
Section 7.2 Payment of Obligations.......................25
Section 7.3 Maintenance of Property; Insurance...........26
Section 7.4 Maintenance of Existence.....................26
Section 7.5 Compliance with Laws.........................26
Section 7.6 Inspection of Property, Books and Records....26
Section 7.7 Investment Company Act.......................26
Section 7.8 Use of Proceeds..............................27
Section 7.9 Compliance with Terms and Conditions of
Material Contracts...........................27
Section 7.10 Reserved Shares and Listings................27
Section 7.11 Transfer Agent Instructions.................28
Section 7.12 Maintenance of Reporting Status;
Supplemental Information....................28
Section 7.13 Form D; Blue Sky Laws.......................28
ARTICLE VIII. NEGATIVE COVENANTS..............................29
Section 8.1 Limitations on Debt or Other Liabilities.....29
Section 8.2 Transactions with Affiliates.................29
Section 8.3 Merger or Consolidation......................29
Section 8.4 Limitation on Asset Sales....................29
Section 8.5 Restrictions on Certain Amendments...........30
Section 8.6 Restrictions on Issuances of Securities......30
Section 8.7 Limitation on Stock Repurchases..............31
ARTICLE IX. RESTRICTIVE LEGENDS...............................31
Section 9.1 Restrictions on Transfer.....................31
Section 9.2 Legends......................................32
Section 9.3 Notice of Proposed Transfers.................32
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES............32
Section 10.1 Liquidated Damages..........................32
Section 10.2 Conversion Notice...........................33
Section 10.3 Conversion Limit............................33
Section 10.4 Registration Rights.........................34
ARTICLE XI. ADJUSTMENT OF FIXED PRICE.........................35
Section 11.1 Reorganization..............................35
Section 11.2 Share Reorganization........................36
Section 11.3 Rights Offering.............................36
Section 11.4 Special Distribution........................37
Section 11.5 Capital Reorganization......................38
Section 11.6 Purchase Price Adjustments..................39
Section 11.7 Adjustment Rules............................39
Section 11.8 Certificate as to Adjustment................39
Section 11.9 Notice to Holders...........................40
ARTICLE XII. EVENTS OF DEFAULT................................40
Section 12.1 Events of Default...........................40
Section 12.2 Powers and Remedies Cumulative..............42
ARTICLE XIII. MISCELLANEOUS...................................43
Section 13.1 Notices.....................................43
Section 13.2 No Waivers; Amendments......................43
Section 13.3 Indemnification.............................44
Section 13.4 Expenses: Documentary Taxes................46
Section 13.5 Payment.....................................46
Section 13.6 Successors and Assigns......................46
Section 13.7 Brokers.....................................46
Section 13.8 Delaware Law; Submission to Jurisdiction;
Waiver of Jury Trial; Appointment of Agent..46
Section 13.9 Entire Agreement............................47
Section 13.10 Survival; Severability......................47
Section 13.11 Title and Subtitles.........................47
Section 13.12 Reporting Entity for the Common Stock.......47
Section 13.13 Publicity...................................47
LIST OF SCHEDULES
Schedule 2.2 Allocation of Purchase Price
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 4.15 No Solicitation; No Integration with Other Offerings
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Form of Convertible Debentures
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Common Stock Purchase Warrant
Exhibit F Security Agreement
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of April 11, 2001, between Dial-Thru International
Corporation (the "Company") and Global Capital Funding Group, L.P.
("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and
Purchaser desires to purchase from the Company $1,000,000 principal amount
of the Company's 6% Convertible Debentures due April 6, 2003 (the
"Convertible Debentures") in accordance with the terms and conditions as set
forth in the form of Convertible Debenture attached hereto as Exhibit A;
WHEREAS, the Convertible Debentures will be convertible into shares of
the Company's common stock, $.001 par value per share (the "Common Stock")
and secured by certain assets of the Company as set forth in the Security
Agreement attached hereto as Exhibit F ("Security Agreement");
WHEREAS, in order to induce the Purchaser to enter into the
transactions described in this Agreement, the Company desires to issue to
the Purchaser up to an aggregate of 100,000 warrants to purchase shares of
Common Stock upon the Closing (as defined herein) on the terms and
conditions described in the form of the common stock purchase warrant
attached hereto as Exhibit E (the "Warrants"); and
WHEREAS, Purchaser will have certain registration rights with respect
to such shares of Common Stock issuable as interest under, and upon
conversion of, the Convertible Debentures (the "Debenture Shares") and upon
exercise of the Warrants (the "Warrant Shares," the Debenture Shares and the
Warrant Shares being collectively referred to herein as the "Conversion
Shares") as set forth in the Registration Rights Agreement in the form
attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1. DEFINITIONS
ARTICLE 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Additional Shares of Common Stock" has the meaning set forth in
Section 11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary of
the Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer
Plan and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by
law to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to
such sections) other than Purchaser shall have acquired beneficial ownership
(within the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission
pursuant to the Exchange Act) of 33a% or more of the outstanding shares of
Common Stock of the Company without the prior written consent of Purchaser;
(ii) any sale or other disposition (other than by reason of death or
disability) to any Person of more than 75,000 shares of Common Stock of the
Company by any executive officers and/or employee directors of the Company
without the prior written consent of Purchaser, except any disposition made
by Roger Bryant in accordance with Rule 144 promulgated under the Securities
Act; (iii) individuals constituting the Board of Directors of the Company on
the date hereof (together with any new Directors whose election by such
Board of Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of at least 50.1% of the Directors still
in office who are either Directors as of the date hereof or whose election
or nomination for election was previously so approved), cease for any reason
to constitute at least two-thirds of the Board of Directors of the Company
then in office, scheduled to be held in May, 2001, except changes in the
Board of Directors made at the Company's Annual Meeting of Shareholders for
2001.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is
listed or traded or, if the foregoing does not apply, the lowest closing bid
price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no lowest
trading price is reported for such security by Bloomberg, then the average
of the bid prices of any market makers for such securities as reported in
the "Pink Sheets" by the National Quotation Bureau, Inc. If the lowest
closing bid price cannot be calculated for such security on such date on any
of the foregoing bases, the lowest closing bid price of such security on
such date shall be the fair market value as mutually determined by Purchaser
and the Company for which the calculation of the closing bid price requires,
and in the absence of such mutual determination, as determined by the Board
of Directors of the Company in good faith.
"Closing Date" means the date on which all of the conditions set forth
in Sections 6.1 and 6.2 shall have been satisfied and Convertible Debentures
in the aggregate principal amount of $1,000,000 are issued by the Company to
Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $.001 par value per share, of the
Company.
"Company" means Dial-Thru International Corporation, a Delaware
corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation
and bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's
equity which would appear on a consolidated balance sheet of the Company
prepared as of such date.
"Consolidated Subsidiary" means at any date with respect to any Person
or Subsidiary or other entity, the accounts of which would be consolidated
with those of such Person in its consolidated financial statements if such
statements were prepared as of such date.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used
with respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities, by contract
or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of a
Convertible Debenture by the holder thereof to the Company as specified in
each Convertible Debenture.
"Conversion Price" has the meaning set forth in the Convertible
Debentures.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Debentures" means the Company's 6% Convertible Debentures
substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which
(y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-
leaseback transactions, (iv) all reimbursement obligations of such Person in
respect of letters of credit or other similar instruments, (v) all Debt of
others secured by a Lien on any asset of such Person, whether or not such
Debt is otherwise an obligation of such Person and (vi) all Debt of others
Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes
into the environment, including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes or the
cleanup or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of
a controlled group of corporation and all trades or businesses (whether or
not incorporated) under common control which, together with the Company or
any Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities)
of the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by
virtue of partnership arrangements, by agreement to keep well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain a
minimum net worth, financial ratio or similar requirements, or otherwise)
any Debt of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or (ii) entered into for the purpose of
assuring in any other manner the holder of such Debt of the payment thereof
or to protect such holder against loss in respect thereof (in whole or in
part); provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term
Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of
share purchase, partnership interest, capital contribution, loan, time
deposit or otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction,
security interest or other adverse claim, whether arising by contract or
under law or otherwise (including, without limitation, any financing lease
having substantially the same economic effect as any of the foregoing, and
the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii)
at any time thereafter, the holders of more than 50% in aggregate principal
amount of the 6% Convertible Debentures dated April 11, 2001 outstanding at
such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock on
the date immediately preceding the date on which a determination of Market
Price is required to be made in accordance with any section of this
Agreement or any other Transaction Agreement.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Debentures.
"Maximum Number of Shares" shall mean that percentage that the Company
may issue without shareholder approval under the applicable rules of the
National Market or the applicable OTC Bulletin Board or equivalent entity,
of the then issued and outstanding shares of Common Stock of the Company as
of the applicable date of determination, or such greater number of shares as
the stockholders of the Company may have previously approved.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market,
the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable
professional fees and other customary out-of-pocket expenses payable in
connection with such transaction, and (ii) in the case of dispositions of
assets, (A) actual transfer taxes (but not income taxes) payable with
respect to such dispositions, and (B) the amount of Debt, if any, secured by
a Lien on the asset or assets disposed of and required to be, and actually
repaid by the Company or any Subsidiary in connection therewith, and any
trade payables specifically relating to such asset or assets sold by the
Company or any Subsidiary that are not assumed by the purchaser of such
asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the
Company substantially in the form of Exhibit A to the form of Convertible
Debenture.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company
substantially in the form of Exhibit A to the Warrant.
"Officer's Certificate" shall mean a certificate executed by the
president, chief executive officer or chief financial officer of the Company
in the form of Exhibit D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated
by the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the
Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
Company, government (or any agency or political subdivision thereof) or
other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards
under the Code and either (i) is maintained, or contributed to, by any
member of the ERISA group for employees of any member of the ERISA group or
(ii) has at any time within the preceding five years been maintained, or
contributed to, by any Person which was at such time a member of the ERISA
group for employees of the Person which was at such time a member of the
ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and
its successors and assigns, including holders from time to time of the
Convertible Debentures.
"Recourse Financing" means Debt of the Company or any Subsidiary which,
by its terms, does not bar the lender thereof from action against the
Company or any Subsidiary, as borrower or guarantor, if the security value
of the project or asset pledged in respect thereof falls below the amount
required to repay such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company
and Purchaser dated the date hereof substantially in the form set forth in
Exhibit B attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section
10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any
dividend or other distribution on any shares of capital stock of such Person
(except dividends payable solely in shares of capital stock of the same or
junior class of such Person and dividends from a wholly-owned direct or
indirect Subsidiary of the Company to its parent corporation), (ii) any
payment on account of the purchase, redemption, retirement or acquisition of
(a) any shares of such Person's capital stock or (b) any option, warrant or
other right to acquire shares of such Person's capital stock or (iii) any
loan, or advance or capital contribution to any Person (a "Stockholder")
owning any capital stock of such Person other than relocation, travel or
like advances to officers and employees in the ordinary course of business,
and other than reasonable compensation as determined by the Board of
Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Convertible Debentures, the Warrants and, as
applicable, the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" has the meaning set forth in the recitals.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer or treasurer of the Company as to the solvency of the
Company, the adequacy of its capital and its ability to pay its debts, all
after giving effect to the issuance and sale of the Convertible Debentures
and the completion of the offering (including without limitation the payment
of any fees or expenses in connection therewith), which such Solvency
Certificate shall be in the form of Exhibit C attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which (x) a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person or (y) the results of
operations, the assets and the liabilities of which are consolidated with
such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of
incorporation and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin
Board, National Market or other automated quotation system or exchange on
which the Common Stock is then traded is open for trading for at least four
(4) hours.
"Transaction Agreements" means this Agreement, the Convertible
Debenture, the Warrants, the Registration Rights Agreement, the Security
Agreement, and the other agreements contemplated by this Agreement.
"Transaction Fee" has the meaning set forth in Section 13.4.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant substantially in the
form set forth in Exhibit E hereto.
ARTICLE 1.2 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from
time to time, applied on a consistent basis (except for changes concurred in
by the Company's independent public accountants) ("GAAP") and Regulation S-X
promulgated under the Securities Act ("Regulation S-X"). All references to
"dollars," "Dollars" or "$" are to United States dollars unless otherwise
indicated.
ARTICLE 2. PURCHASE AND SALE OF SECURITIES
ARTICLE 2.1 Purchase and Sale of Convertible Debentures.
(a) Subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to Purchaser, and Purchaser agrees to
purchase from the Company, the Convertible Debenture.
(b) Purchaser shall acquire the Convertible Debenture on the
Closing Date in an aggregate principal amount of One Million Dollars
($1,000,000.00).
(c) In connection with the Purchaser's agreement to purchase the
Convertible Debentures specified in this Article II, the Company shall issue
and deliver to the Purchaser on the Closing Date Warrants to purchase an
aggregate of 100,000 shares of Common Stock.
ARTICLE 2.2 Purchase Price. The purchase price (the "Purchase Price")
for the Convertible Debenture and the Warrants on the Closing Date shall be
$1,000,000.00 and shall be allocated as set forth in Schedule 2.2.
ARTICLE 2.3 Closing and Mechanics of Payment.
(a) The Purchase Price shall be paid on the Closing Date by wire
transfer of immediately available funds.
(b) The Convertible Debentures and Warrants issued on the Closing
Date shall be dated the date thereof.
ARTICLE 3. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
ARTICLE 3.1 Payment of Principal and Interest; Payment Mechanics. The
Company will pay all amounts due on each Convertible Debenture by the method
and at the address specified for such purpose by Purchaser in writing,
without the presentation or surrender of any Convertible Debenture or the
making of any notation thereon, except that upon written request of the
Company made concurrently with or reasonably promptly after payment or
prepayment in full of this Convertible Debenture, the holder shall surrender
the Convertible Debenture for cancellation, reasonably promptly after any
such request, to the Company at its principal executive office. Prior to
any sale or other disposition of any Convertible Debenture, the holder
thereof will, at its election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid
thereon or surrender the Convertible Debenture to the Company in exchange
for a new Convertible Debenture or Convertible Debentures. The Company will
afford the benefits of this Section 3.1 to any direct or indirect transferee
of the Convertible Debenture purchased under this Agreement and that has
made the same agreement relating to this Convertible Debenture as Purchaser
has in this Section 3.1; provided that such transferee is an "accredited
investor" under Rule 501 of the Securities Act and that such transfer has
been made in compliance with applicable securities laws.
ARTICLE 3.2 Payment of Interest. Interest shall accrue on the
outstanding principal amount of each Convertible Debenture as of the date of
issuance and shall be payable as specified therein.
ARTICLE 3.3 Voluntary Prepayment. For so long as no Event of Default
shall have occurred or is continuing, the Company may, at its option, repay,
in whole or in part, the Convertible Debentures, per the formula set forth
in Section 3 of Exhibit A hereto, thereof following at least five (5)
Business Days prior written notice to Purchaser (the expiration of such five
(5) Business Day period being referred to as the "prepayment date");
provided, however, that if such date is not a Business Day, the prepayment
date shall be the next Business Day thereafter.
ARTICLE 3.4 Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change in Control of the
Company, (ii) a transfer of all or substantially all of the assets of
the Company to any Person in a single transaction or series of related
transactions, or (iii) a consolidation, merger or amalgamation of the
Company with or into another Person in which the Company is not the
surviving entity (other than a merger which is effected solely to
change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock) (each of items (i),
(ii) and (iii) being referred to as a "Sale Event"), then, in each
case, the Company shall, upon request of the Majority Holders, redeem
the Convertible Debentures and Warrants, subject to the provisions of
Section 5 of the Convertible Debentures and Section 13 of the Warrants,
respectively. The redemption price payable upon any such redemption
shall be the Redemption Price in Section 5 of the Convertible
Debentures and Section 13 of the Warrants, respectively (referred to
herein as the "Formula Price").
(b) At the option of Purchaser, upon the consummation of one or
more Financings following the first anniversary of the Closing Date,
the Company shall use 25% of the Net Cash Proceeds therefrom (unless
such Net Cash Proceeds from each such Financing is less than $250,000)
to redeem the Convertible Debentures.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days of such issuance to obtain shareholder approval
to issue additional shares of Common Stock (the "Redemption Event"),
the Company shall redeem the outstanding balance of each Convertible
Debenture and Warrant for the applicable Prepayment Price and the
Warrant Formula Price, respectively.
ARTICLE 3.5 Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible
Debentures and Warrants, as applicable pursuant to Sections 3.3 or 3.4
above shall be deemed to be effective and consummated (for purposes of
determining the Prepayment Price, the Formula Price and the time at
which Purchaser shall thereafter not be entitled to deliver a Notice of
Conversion for the Convertible Debentures) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment
date" specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event or the Registration
Default;
(iii) A redemption pursuant to Section 3.4(b), three (3)
Business Days following the date of consummation of the applicable
Financing (meaning closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), the date
specified in each Convertible Debenture.
(b) On the Maturity Date and on the effective date of a
prepayment or redemption of the Convertible Debentures and Warrants as
specified in Section 3.5(a) above, the Company shall deliver by wire
transfer of funds the prepayment/redemption price to Purchaser of the
Convertible Debentures and Warrants subject to redemption. Should
Purchaser not receive payment of any amounts due on redemption of its
Convertible Debentures and Warrants by reason of the Company's failure
to make payment at the times prescribed above for any reason, the
Company shall pay to the applicable holder on demand (x) interest on
the sums not paid when due at an annual rate equal to 14%, until the
applicable holder is paid in full and (y) all costs of collection,
including, but not limited to, reasonable attorneys' fees and costs,
whether or not suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Debentures and
Warrants to be redeemed in any redemption in which not all of the
Convertible Debentures and Warrants are to be redeemed so that the
ratio of the Convertible Debentures and Warrants of each holder
selected for redemption to the total Convertible Debentures and
Warrants owned by that holder shall be the same as the ratio of all
such Convertible Debentures and Warrants selected for redemption bears
to the total of all then outstanding Convertible Debentures and
Warrants. Should any Convertible Debentures and Warrants required to
be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Debentures and
Warrants shall be redeemed on the earliest possible dates thereafter to
the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a voluntary prepayment pursuant to Section 3.3 or
a mandatory repayment pursuant to Section 3.4 as specified in Section
3.5(a) above), shall be honored by the Company and the conversion of
the Convertible Debentures shall be deemed effected on the Conversion
Date. In addition, between the effective date of a voluntary
prepayment pursuant to Section 3.3 or a mandatory repayment pursuant to
Section 3.4 as specified in Section 3.5(a) above and the date the
Company is required to deliver the redemption proceeds in full to
Purchaser, Purchaser may deliver a Notice of Conversion to the Company.
Such notice will be (x) of no force or effect if the Company timely
pays the redemption proceeds to Purchaser when due or (y) honored on or
as of the date of the Notice of Conversion if the Company fails to
timely pay the redemption proceeds to Purchaser when due.
ARTICLE 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Debentures to Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to
be deducted or withheld. If the Company shall be required by law or
the administration thereof to deduct or withhold any Taxes from or in
respect of any sum payable under the Convertible Debentures (i) the
holders of the Convertible Debentures subject to such Taxes shall have
the right, but not the obligation, for a period of thirty (30) days
commencing upon the day it shall have received written notice from the
Company that it is required to withhold Taxes to transfer all or any
portion of the Convertible Debentures to a qualified assignee to the
extent such transfer can be effected in accordance with the other
provisions of this Agreement and applicable law; (ii) the Company shall
make such deductions or withholdings; (iii) the sum payable shall be
increased as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid under this Section 3.6) Purchaser
receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law;
provided, however the Company shall not be required to pay any taxes
owed by Purchaser or any qualified assignee resulting from (x) the
payment of interest on the Convertible Debentures by the Company or (y)
any gain recognized from the transfer of the Convertible Debentures by
the Purchaser or any qualified assignee. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (i) the
United States or (ii) any jurisdiction other than the United States or
any political subdivision thereof and that (y) represents and warrants
to the Company that payments of the Company to such assignee under the
laws in existence on the date of this Agreement would not be subject to
any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal Revenue
Service forms, and provides the Company with any information necessary
to establish such assignee's continued exemption from Taxes under
applicable law.
(b) The Company shall forthwith pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter referred
to as "Other Taxes") which arise from any payment made under any of the
Transaction Agreements or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement other than Taxes
payable solely as a result of the transfer from Purchaser to a Person
of any Security.
(c) The Company shall indemnify Purchaser, or qualified assignee,
for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.6) paid by Purchaser, or qualified
assignee, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Payment
under this indemnification shall be made within 30 days from the date
Purchaser or assignee makes written demand therefor. A certificate as
to the amount of such Taxes or Other Taxes submitted to the Company by
Purchaser or assignee shall be conclusive evidence of the amount due
from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing
Date, the following:
ARTICLE 4.1 Organization and Qualification. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate
its properties and to carry on its business as and where now owned, leased,
used, operated and conducted. The Company is qualified to conduct business
as a foreign corporation and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary, except where such failure would not have a Material Adverse
Effect. A "Material Adverse Effect" means any material adverse effect on
the operations, results of operations, properties, assets or condition
(financial or otherwise) of the Company or the Company and its Subsidiaries,
taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
ARTICLE 4.2 Authorization and Execution.
(a) The Company has all requisite corporate power and authority
to enter into and perform each Transaction Agreement and to consummate
the transactions contemplated hereby and thereby and to issue the
Securities in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of
each Transaction Agreement and the issuance by the Company of the
Securities have been duly and validly authorized and no further consent
or authorization of the Company, its Board of Directors or its
shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective terms
subject to (i) applicable bankruptcy, insolvency or similar laws
affecting the enforceability of creditor's rights generally and (ii)
equitable principles of general applicability.
ARTICLE 4.3 Capitalization . As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth on
Schedule 4.3 hereto and except as set forth on Schedule 4.3 no other shares
of capital stock of the Company will be outstanding as of the Closing Date.
All of such outstanding shares of capital stock are, or upon issuance will
be, duly authorized, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are subject to preemptive rights or
similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Other than as set forth on Schedule 4.3 hereto, as of the date hereof, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
Subsidiaries, and (ii) there are no agreements or arrangements under which
the Company or any of its Subsidiaries are obligated to register the sale of
any of its or their securities under the Securities Act (except pursuant to
the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Convertible Debentures or Conversion
Shares. The Company has furnished to Purchaser true and correct copies of
the Company's Corporate Documents, and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of
the holders thereof in respect thereto.
ARTICLE 4.4 Governmental Authorization. The execution and delivery by
the Company of the Transaction Agreements does not and will not, the
issuance and sale by the Company of the Securities does not and will not,
and the consummation of the transactions contemplated hereby and by the
other Transaction Agreements will not, require any action by or in respect
of, or filing with, any governmental body, agency or governmental official
except (a) such actions or filings that have been undertaken or made prior
to the date hereof and that will be in full force and effect (or as to
which all applicable waiting periods have expired) on and as of the date
hereof or which are not required to be filed on or prior to the Closing
Date, (b) such actions or filings that, if not obtained, would not result in
a Material Adverse Effect, (c) listing applications ("Listing Applications")
to be filed with the OTC Bulletin Board or the National Market relating to
the Conversion Shares of Common Stock issuable upon conversion of the
Convertible Debentures, (d) the filing of a "Form D" as described in Section
7.13 below, (e) the filing of one or more registration statements covering
the Securities and such registration statement being declared effective and
(f) compliance with applicable state securities laws provisions.
ARTICLE 4.5 Issuance of Shares. Upon conversion in accordance with the
terms of the Convertible Debentures and exercise of the Warrants, the
Conversion Shares shall be duly and validly issued and outstanding, fully
paid and nonassessable, free and clear of any Taxes, Liens and charges with
respect to issuance and shall not be subject to preemptive rights or similar
rights of any other stockholders of the Company. Assuming the
representations and warranties of Purchaser herein are true and correct in
all material respects, each of the Securities will have been issued in
material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain
circumstances, the issuance of Conversion Shares could dilute the ownership
interests of other stockholders of the Company. Subject to the provisions
of this Agreement and the Transaction Agreements, the Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of the Convertible Debentures and exercise of the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other stockholders of the Company.
ARTICLE 4.6 No Conflicts. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and
the consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the
Company Corporate Documents, (iii) any agreement, judgment, injunction,
order, decree or other instrument binding upon the Company or any Subsidiary
or any of their respective assets, or result in the creation or imposition
of any Lien on any asset of the Company or any Subsidiary. The Company and
each Subsidiary is in compliance with and conforms to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any instrumentality
thereof having jurisdiction over the conduct of its businesses or the
ownership of its properties, except where such failure would not have a
Material Adverse Effect.
ARTICLE 4.7 Financial Information. Since October 31, 2000 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or
prospects, of the Company and its Subsidiaries, whether as a result of any
legislative or regulatory change, revocation of any license or rights to do
business, fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company and its subsidiaries except in the
ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the future.
The audited and unaudited consolidated balance sheets of the Company and its
Subsidiaries for the periods ending October 31, 2000 and January 31, 2001,
respectively, and the related consolidated statements of income, changes in
stockholders' equity and changes in cash flows for the periods then ended,
including the footnotes thereto, except as indicated therein, (i) complied
in all material respects with applicable accounting requirements and (ii)
have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain notes and may be subject to normal audit adjustments and normal
annual adjustments. Such financial statements fairly present the financial
condition of the Company and its Subsidiaries at the dates indicated and the
consolidated results of their operations and cash flows for the periods then
ended and, except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company and its Subsidiaries, fixed or
contingent.
ARTICLE 4.8 Litigation. Except as set forth on Schedule 4.8, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could materially
adversely affect the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company or which
challenges the validity of any Transaction Agreements.
ARTICLE 4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all material respects with the presently
applicable provisions of ERISA and the Code with respect to each Plan. No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any Plan, (ii) failed
to make any required contribution or payment to any Plan or Multiemployer
Plan or in respect of any Benefit Arrangement, or made any amendment to any
Plan or Benefit Arrangement, which as resulted or could result in the
imposition of a Lien or the posting of a bond or other security under ERISA
or the Code or (iii) incurred any liability under Title IV of ERISA other
than a liability to the PBGC for premiums under Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock
purchase, bonus, retirement, health or insurance plans, collectively the
"Benefit Plans") relating to the employees of the Company are duly
registered where required by, and are in good standing in all material
respects under, all applicable laws. All required employer and employee
contributions and premiums under the Benefit Plans to the date hereof have
been made, the respective fund or funds established under the Benefit Plans
are funded in accordance with applicable laws, and no past service funding
liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all
applicable laws and actuarial practices and using actuarial assumptions and
methods that are reasonable in the circumstances. No event has occurred and
no condition exists with respect to any Benefit Plans that has resulted or
could reasonably be expected to result in any pension plan having its
registration revoked or wound up (in whole or in part) or refused for the
purposes of any applicable laws or being placed under the administration of
any relevant pension benefits regulatory authority or being required to pay
any taxes or penalties (in any material amounts) under any applicable laws.
ARTICLE 4.10 Environmental Matters. The costs and liabilities
associated with Environmental Laws (including the cost of compliance
therewith) are unlikely to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or any Subsidiary. Each of the Company and the
Subsidiaries conducts its businesses in compliance in all material respects
with all applicable Environmental Laws.
ARTICLE 4.11 Taxes. All United States federal, state, county,
municipality, local or foreign income tax returns and all other material
tax returns (including foreign tax returns) which are required to be filed
by or on behalf of the Company and each Subsidiary have been filed and all
material taxes due pursuant to such returns or pursuant to any assessment
received by the Company and each Subsidiary have been paid except those
being disputed in good faith and for which adequate reserves have been
established. The charges, accruals and reserves on the books of the Company
and each Subsidiary in respect of taxes and other governmental charges have
been established in accordance with GAAP and Regulation S-X.
ARTICLE 4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
ARTICLE 4.13 Not an Investment Company. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment
Company Act of 1940, as amended.
ARTICLE 4.14 Full Disclosure. The information heretofore furnished by
the Company to Purchaser for purposes of or in connection with this
Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company or any Subsidiary to
Purchaser will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they are made, not misleading.
ARTICLE 4.15 No Solicitation; No Integration with Other Offerings. No
form of general solicitation or general advertising was used by the Company
or, to the best of its actual knowledge, any other Person acting on behalf
of the Company, in connection with the offer and sale of the Securities.
Except as set forth on Schedule 4.15, neither the Company, nor, to its
knowledge, any Person acting on behalf of the Company, has, either directly
or indirectly, sold or offered for sale to any Person (other than Purchaser)
any of the Securities or, within the six months prior to the date hereof,
any other similar security of the Company except as contemplated by this
Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no
representation as to Purchaser and their Affiliates) will sell or offer for
sale any such security to, or solicit any offers to buy any such security
from, or otherwise approach or negotiate in respect thereof with, any Person
or Persons so as thereby to cause the issuance or sale of any of the
Securities to be in violation of any of the provisions of Section 5 of the
Securities Act. The issuance of the Securities to Purchaser will not be
integrated with any other issuance of the Company's securities (past,
current or future) which requires stockholder approval under the rules of
the OTC Bulletin Board.
ARTICLE 4.16 Permits. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; (c) no event has occurred
which allows, or after notice of lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the
Company has no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Permit.
ARTICLE 4.17 Leases. Neither the Company nor any Subsidiary is a party
to any capital lease obligation with a value greater than $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 during
the life of such lease.
ARTICLE 4.18 Absence of Any Undisclosed Liabilities or Capital Calls.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which would reasonably be expected to result in such a
liability, other than (i) those liabilities provided for in the financial
statements delivered pursuant to Section 4.7 and (ii) other undisclosed
liabilities which, individually or in the aggregate, would not have a
Material Adverse Effect. Public Utility Holding Company. Neither the
Company nor any Subsidiary is, or will be upon issuance and sale of the
Securities and the use of the proceeds described herein, subject to
regulation under the Public Utility Holding Company Act of 1935, as amended,
the Federal Power Act, the Interstate Commerce Act or to any federal or
state statute or regulation limiting its ability to issue and perform its
obligations under any Transaction Agreement.
ARTICLE 4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all
material patents, trademarks, trade names, copyrights, technology, know-how
and processes (collectively, "Intellectual Property") used in, or necessary
for the conduct of its business; no claims have been asserted by any Person
to the use of any such Intellectual Property or challenging or questioning
the validity or effectiveness of any license or agreement related thereto.
To the best of Company's and its Subsidiaries' knowledge, there is no valid
basis for any such claim and the use of such Intellectual Property by the
Company and its Subsidiaries will not infringe upon the rights of any
Person.
ARTICLE 4.21 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least
such amounts and against such risks such that any uninsured loss would not
have a Material Adverse Effect. All insurance coverages of the Company and
its Subsidiaries are in full force and effect and there are no past due
premiums in respect of any such insurance.
ARTICLE 4.22 Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties free and clear
of all Liens.
ARTICLE 4.23 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
ARTICLE 4.24 Foreign Practices. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of
any law, rule or regulation.
ARTICLE 4.25 Title to Certain Assets. The Company owns the assets
designated as collateral and described on Exhibit A to the Security
Agreement, free and clear of any lien or encumbrance.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
ARTICLE 5.1 Purchaser. Purchaser hereby represents and warrants to the
Company that:
(a) Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the Securities to be acquired
by it pursuant to this Agreement are being acquired for its own account
and, as of the date hereof, not with a view toward, or for sale in
connection with, any distribution thereof except in compliance with
applicable United States federal and state securities law;
(b) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant thereto are within Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
and no further consent or authorization by the Purchaser, or its
partners is required;
(c) this Agreement has been duly executed and delivered by
Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of
applicable law or regulation, or (ii) any agreement, judgment,
injunction, order, decree or other instrument binding upon Purchaser;
(e) Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement or the remaining Transaction
Agreements;
(f) this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability;
(g) Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks
of its investment in the Securities and Purchaser is capable of bearing
the economic risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; Purchaser fully understands the
limitations on transfer described herein; Purchaser has been afforded
access to information about the Company and the financial condition,
results of operations, property, management and prospects of the
Company sufficient to enable it to evaluate its investment in the
Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and the risks of
investing in the Securities; and Purchaser has been afforded the
opportunity to obtain such additional information which the Company
possesses or can acquire that is necessary to verify the accuracy and
completeness of the information given to Purchaser concerning the
Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
Purchaser's ability to rely thereon; and
(i) no part of the source of funds used by Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by Purchaser in which any employee benefit plan (or its
related trust) has any interest.
ARTICLE 6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
ARTICLE 6.1 Conditions Precedent to Purchaser's Obligations to
Purchase. The obligation of Purchaser hereunder to purchase the Convertible
Debenture at the Closing is subject to the satisfaction, on or before the
Closing Date, of each of the following conditions, provided that these
conditions are for Purchaser's sole benefit and may be waived by Purchaser
at any time in its sole discretion:
(a) The Company shall have duly executed this Agreement, the
Convertible Debenture, the Warrant, the Registration Rights Agreement,
the Security Agreement and all appropriate financing statements, and
the Escrow Agreement and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser duly executed
certificates representing the Convertible Debentures and Warrants in
accordance with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained
in each Transaction Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak
as of a specified date) and the Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by
such Transaction Agreements to be performed, satisfied or complied with
by it at or prior to the Closing Date. Purchaser shall have received
an Officer's Certificate executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as
to such other matters as may be reasonably requested by Purchaser,
including but not limited to certificates with respect to the Company
Corporate Documents, resolutions relating to the transactions
contemplated hereby and the incumbencies of certain officers and
directors of the Company. The form of such certificate is attached
hereto as Exhibit D;
(e) Except as set forth in Section 4.4 of this Agreement, the
Company shall have received all governmental, Board of Directors,
shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities
and the consummation of the transactions contemplated by the
Transaction Agreements;
(f) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent or
impose any materially adverse conditions thereon or that could seek or
threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that,
in the judgment of Purchaser, could adversely affect the transactions
set forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchaser could reasonably have any such effect;
(h) Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, in form and substance satisfactory to
Purchaser;
(i) All fees and expenses due and payable by the Company prior to
the Closing Date shall have been paid; provided that, all fees and
expenses due and payable on the Closing Date shall be subtracted from
the payment of the Purchase Price;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of Purchaser;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since January
31, 2001;
(l) There shall exist no action, suit, investigation, litigation
or proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that challenges the validity
of or purports to affect this Agreement or any other Transaction
Agreement, or other transaction contemplated hereby or thereby or that
could reasonably be expected to have a Material Adverse Effect, or any
material adverse effect on the enforceability of the Transaction
Agreements or the Securities or the rights of the holders of the
Securities or Purchaser hereunder;
(m) Purchaser shall have confirmed the receipt of the Convertible
Debenture and the Warrants to be issued, duly executed by the Company
and registered in the name of Purchaser;
(n) There shall not have occurred any disruption or adverse
change in the financial or capital markets generally, or in the market
for the Common Stock (including but not limited to any suspension or
delisting), which Purchaser reasonably deems material in connection
with the purchase of the Securities;
(o) Immediately before and on the Closing Date, no Default or
Event of Default shall have occurred and be continuing;
(p) Purchaser shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents
as they shall reasonably request;
(q) Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8.
ARTICLE 6.2 Conditions to the Company's Obligations. The obligations
of the Company to issue and sell the Securities to Purchaser pursuant to
this Agreement are subject to the satisfaction, at or prior to the Closing
Date, of the following conditions:
(a) The representations and warranties of Purchaser contained
herein shall be true and correct in all material respects on the
Closing Date and Purchaser shall have performed and complied in all
material respects with all agreements required by this Agreement to be
performed or complied with by Purchaser at or prior to the Closing
Date;
(b) The issue and sale of the Securities by the Company shall not
be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement, the Security Agreement, the Escrow Agreement, and the
Registration Rights Agreement signed by Purchaser;
(d) The Company shall have received payment of Purchase Price,
less the Transaction Fee.
ARTICLE 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
ARTICLE 7.1 Information. The Company will deliver to each holder of the
Convertible Debentures:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (ii) all
reports of Forms 10-K, 10-Q and 8-K (or other equivalents) which the
Company or any Subsidiary has filed with the Commission (collectively,
"SEC Reports");
(b) simultaneously with the delivery of each item referred to in
clause (a) above, a certificate from the chief financial officer of the
Company certifying the accuracy of the financial statements contained
in the Company's reports on Forms 10-K and 10-Q (or other equivalents)
and stating that no Default or Event of Default has occurred and is
continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting
forth the details of such Default or Event of Default and the action
which the Company is taking or proposes to take with respect thereto;
(c) within two (2) days after any officer of the Company obtains
knowledge of a Default or Event of Default, or that any Person has
given any notice or taken any action with respect to a claimed Default
hereunder, a certificate of the chief financial officer of the Company
setting forth the details thereof and the action which the Company is
taking or proposed to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally distributed
to shareholders;
(e) at least two (2) Business Days prior to the consummation of
any Financing or other event requiring a repayment of the Convertible
Debentures under Section 3.4, notice thereof together with a summary of
all material terms thereof and copies of all documents and instruments
associated therewith;
(f) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum
number of Conversion Shares issuable pursuant to the Transaction
Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to
which the Company or any Subsidiary is a party in which the amount
involved is $250,000 or more and not covered by insurance or in which
injunctive or similar relief is sought.
ARTICLE 7.2 Payment of Obligations. The Company will, and will cause
each Subsidiary to, pay and discharge, at or before maturity, all their
respective material obligations, including, without limitation, tax
liabilities, except where the same may be contested in good faith by
appropriate proceedings and will maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
ARTICLE 7.3 Maintenance of Property; Insurance. The Company will, and
will cause each Subsidiary to, keep all property useful and necessary in its
business in good working order and condition, ordinary wear and tear
excepted. In addition, the Company and each Subsidiary will maintain
insurance in at least such amounts and against such risks as it has insured
against as of the Closing Date.
ARTICLE 7.4 Maintenance of Existence. The Company will, and will cause
each Subsidiary to, continue to engage in business of the same general type
as now conducted by the Company and such Subsidiaries, and will preserve,
renew and keep in full force and effect its respective corporate existence
and their respective material rights, privileges and franchises necessary or
desirable in the normal conduct of business.
ARTICLE 7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules
and regulations thereunder) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-
compliance therewith could not reasonably be expected, in the aggregate, to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company
or such Subsidiary.
ARTICLE 7.6 Inspection of Property, Books and Records. The Company
will, and will cause each Subsidiary to, keep proper books of record and
account in which full, true and correct entries shall be made of all
dealings and transactions in relation to their respective businesses and
activities; and will permit, during normal business hours, Purchaser'
Representative or an affiliate thereof, as representatives of Purchaser, and
representatives of the Small Business Administration to visit and inspect
any of their respective properties, upon reasonable prior notice, to examine
and make abstracts from any of their respective books and records and to
discuss their respective affairs, finances and accounts with their
respective executive officers and independent public accountants (and by
this provision the Company authorizes its independent public accountants to
disclose and discuss with Purchaser the affairs, finances and accounts of
the Company and its Subsidiaries in the presence of a representative of the
Company; provided, however, that such discussions will not result in any
unreasonable expense to the Company, without Company consent), all at such
reasonable times.
ARTICLE 7.7 Investment Company Act. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount
certificate company that is or is required to be registered under Section 8
of the Investment Company Act of 1940, as amended.
ARTICLE 7.8 Use of Proceeds. The proceeds from the issuance and sale of
the Convertible Debentures by the Company shall be used in accordance with
Schedule 7.8 attached hereto. None of the proceeds from the issuance and
sale of the Convertible Debentures by the Company pursuant to this Agreement
will be used directly or indirectly for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any "margin stock" within
the meaning of Regulation G of the Board of Governors of the Federal Reserve
System.
ARTICLE 7.9 Compliance with Terms and Conditions of Material Contracts.
The Company will, and will cause each Subsidiary to, comply, in all
respects, with all terms and conditions of all material contracts to which
it is subject.
ARTICLE 7.10 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Debentures
and exercise of the Warrants and issuance of the Conversion Shares (based on
the conversion price of the Convertible Debentures in effect from time to
time and the exercise price of the Warrants, respectively) (the "Reserved
Amount"). The Company shall not reduce the Reserved Amount without the
prior written consent of Purchaser. With respect to all Securities which
contain an indeterminate number of shares of Common Stock issuable in
connection therewith (such as the Convertible Debentures), the Company shall
include in the Reserve Amount, no less than two (2) times the number of
shares that is then actually issuable upon conversion or exercise of such
Securities. If at any time the number of shares of Common Stock authorized
and reserved for issuance is below the number of Conversion Shares issued or
issuable upon conversion of the Convertible Debentures and exercise of the
Warrants, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, either (x) calling a special meeting of shareholders to
authorize additional shares, in the case of an insufficient number of
authorized shares or (y) in lieu thereof, consummating the immediate
repurchase of the Convertible Debentures and the Warrants contemplated in
Section 3.4(c) hereof.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Conversion Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all Conversion Shares from time to time issuable upon
conversion or exercise of the Convertible Debentures and Warrants,
respectively. The Company will maintain the listing and trading of its
Common Stock on the OTC Bulletin Board. The Company will use its
commercially reasonable best efforts to obtain as soon as practicable and
maintain the listing and trading of its Common Stock on a National Market.
The Company will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National Association
of Securities Dealers, Inc. (the "NASD") and such exchanges, as applicable.
The Company shall promptly provide to Purchaser copies of any notices it
receives regarding the continued eligibility of the Common Stock for listing
on the OTC Bulletin Board or any National Market.
ARTICLE 7.11 Transfer Agent Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall
immediately direct the Company's transfer agent to issue certificates,
registered in the name of Purchaser or its nominee, for the Conversion
Shares, in such amounts as specified from time to time by Purchaser to the
Company upon proper conversion of the Convertible Debentures or exercise of
the Warrants. Upon conversion of any Convertible Debentures in accordance
with their terms and/or exercise of any Warrants in accordance with their
terms, the Company will, and will use its best lawful efforts to cause its
transfer agent to, issue one or more certificates representing shares of
Common Stock in such name or names and in such denominations specified by a
Purchaser in a Notice of Conversion or Notice of Exercise, as the case may
be. As long as the Registration Statement contemplated by the Registration
Rights Agreement shall remain effective, the shares of Common Stock issuable
upon conversion of any Convertible Debentures or exercise of the Warrants
shall be issued to any transferee of such shares from Purchaser without any
restrictive legend upon appropriate evidence of transfer in compliance with
the Securities Act and the rules and regulations of the Commission; provided
that for so long as the Registration Statement is effective, no opinion of
counsel will be required to effect any such transfer. The Company further
warrants and agrees that no instructions other than these instructions have
been or will be given to its transfer agent. Nothing in this Section 7.11
shall affect in any way a Purchaser's obligation to comply with all
securities laws applicable to Purchaser upon resale of such shares of Common
Stock, including any prospectus delivery requirements.
ARTICLE 7.12 Maintenance of Reporting Status; Supplemental Information.
So long as any of the Securities are outstanding, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act. The Company shall not terminate its status as an issuer
required to file reports under the Exchange Act, even if the Exchange Act or
the rules and regulations thereunder would permit such termination. If at
anytime the Company is not subject to the requirements of Section 13 or
15(d) of the Exchange Act, the Company will promptly furnish at its expense,
upon request, for the benefit of the holders from time to time of
Securities, and prospective purchasers of Securities, information satisfying
the information requirements of Rule 144 under the Securities Act.
ARTICLE 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form
D" with respect to the Securities as required under Regulation D of the
Securities Act and to provide a copy thereof to Purchaser promptly after
such filing. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to Purchaser at the Closing pursuant to this Agreement
under applicable securities or "blue sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to Purchaser on or prior to the
Closing Date.
ARTICLE 8. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Convertible Debentures remain outstanding and for the benefit of Purchaser:
ARTICLE 8.1 Limitations on Debt or Other Liabilities. Neither the
Company nor any Subsidiary will create, incur, assume or suffer to exist (at
any time after the Closing Date, after giving effect to the application of
the proceeds of the issuance of the Securities), without the prior written
consent of Purchaser, any Debt except (x) Debt incurred in a Permitted
Financing, (y) Debt incurred in connection with equipment leases to which
the Company or its Subsidiaries are a party incurred in the ordinary course
of business; and (z) Debt incurred in connection with trade accounts
payable, imbalances and refunds arising in the ordinary course of business.
ARTICLE 8.2 Transactions with Affiliates. The Company and each
Subsidiary will not, directly or indirectly, pay any funds to or for the
account of, make any investment (whether by acquisition or stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, and Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect any transaction in
connection with any joint enterprise or other joint arrangement with, any
Affiliate, except, (1) pursuant to those agreements specifically identified
on Schedule 8.2 attached hereto (with a copy of such agreements annexed to
such Schedule 8.2) and (2) on terms to the Company or such Subsidiary no
less favorable than terms that could be obtained by the Company or such
Subsidiary from a Person that is not an Affiliate of the Company upon
negotiation at arms' length, as determined in good faith by the Board of
Directors of the Company; provided that no determination of the Board of
Directors shall be required with respect to any such transactions entered
into in the ordinary course of business.
ARTICLE 8.3 Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or
merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless the Company shall be the survivor
of such merger or consolidation and (x) immediately before and immediately
after given effect to such transaction (including any indebtedness incurred
or anticipated to be incurred in connection with the transaction), no
Default or Event of Default shall have occurred and be continuing; and (y)
the Company has delivered to Purchaser an Officer's Certificate stating that
such consolidation, merger or transfer complies with this Agreement, and
that all conditions precedent in this Agreement relating to such transaction
have been satisfied.
ARTICLE 8.4 Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company
or any Subsidiary without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld. As used herein, "Asset Sale"
means any sale, lease, transfer or other disposition (or series of related
sales, leases, transfers or dispositions) or sales of capital stock of a
Subsidiary (other than directors' qualifying shares), property or other
assets (each referred to for the purpose of this definition as a
"disposition"), including any disposition by means of a merger,
consolidation or similar transaction other than a disposition of property or
assets at fair market value in the ordinary course of business.
ARTICLE 8.5 Restrictions on Certain Amendments. Neither the Company
nor any Subsidiary will waive any provision of, amend, or suffer to be
amended, any provision of such entity's existing Debt, any material contract
or agreement previously or hereafter filed by the Company with the
Commission as part of its SEC Reports, any Company Corporate Document or
Subsidiary Corporate Document if such amendment, in the Company's reasonable
judgment, would materially adversely affect Purchaser or the holders of the
Securities without the prior written consent of Purchaser.
ARTICLE 8.6 Restrictions on Issuances of Securities.
(a) From the Closing Date and continuing until 120 days following
the date on which the Registration Statement becomes effective, the
Company agrees that it will not, without the prior written consent of
Purchaser, issue any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities
(the "Derivative Securities")) on terms that allow a holder thereof to
acquire such equity securities (or Derivative Securities) at a discount
to the Market Price of the Common Stock at the time of issuance or, in
the case of Derivative Securities, at a conversion price based on any
formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance which is below
the Market Price on the date of issuance (each such event, a
"Discounted Equity Offering") other than (i) borrowings under
conventional credit facilities existing as of the date hereof, (ii)
stock issued or credit facilities to be established in connection with
acquisitions, (iii) equity securities or Derivative Securities in
connection with employee and director stock option and stock purchase
plans and (iv) securities issued under the Convertible Debenture or
Warrants. In addition, the Company shall not issue any equity
securities in connection with a strategic alliance entered into by the
Company unless such securities are the subject of a one year statutory
or contractual hold period or, if not subject to such a hold period,
unless the Purchaser has fully converted all outstanding Convertible
Debentures and exercised all Warrants. As used herein, "discount"
shall include, but not be limited to, (i) any warrant, right or other
security granted or offered in connection with such issuance which, on
the applicable date of grant, is offered with an exercise or conversion
price, as the case may be, at less than the then current Market Price
of the Common Stock or, if such security has an exercise or conversion
price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of
issuance, then at a price below the Market Price on such date of
exercise or conversion, as the case may be, or (ii) any commissions,
fees or other allowances paid in connection with such issuances (other
than customary underwriter or placement agent commissions, fees or
allowances). For the purposes of determining the Market Price at which
Common Stock is acquired under this Section, normal underwriting
commissions and placement fees (including underwriters' warrants) shall
be excluded. Notwithstanding the foregoing, the Company may enter into
the following types of transactions (collectively referred to as
"Permitted Financings"): (1) "permanent financing" transactions, which
would include any form of debt or equity financing (other than an
underwritten offering), which is followed by a reduction of the said
financing commitment to zero and payment of all related fees and
expenses; (2) "project financing" which provide for the issuance of
recourse debt instruments in connection with the operation of the
Company's business as presently conducted or as proposed to be
conducted; (3) an underwritten offering of Common Stock, provided that
such offering provides for the registration of the Conversion Shares if
the Registration Statement has not been declared effective; and (4)
other financing transactions specifically consented to in writing by
the Purchaser. The 120-day restrictive period set forth in this
paragraph (a) of this Section 8.6 shall be increased by one day for
each day a Registration Default has occurred and not been cured by the
Company.
(b) Until such time as all of the Convertible Debentures have
been either redeemed or converted into Conversion Shares in full, the
Company agrees it will not issue any of its equity securities (or
Derivative Securities), unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities." As used
herein "restricted securities" shall mean securities which may not be
sold prior to twelve (12) months following the date of issuance of such
securities by virtue of contractual restrictions imposed by the Company
or otherwise.
(c) Notwithstanding the foregoing, the restrictions contained in
this Section 8.6 shall not apply to the issuance by the Company of (or
the agreement to issue) Common Stock or securities convertible into
Common Stock in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this
Agreement, or (ii) Company or Subsidiary stock option or other
compensatory or employee benefit plans.
ARTICLE 8.7 Limitation on Stock Repurchases. Except as otherwise set
forth in the Convertible Debentures and the Warrants, the Company shall not,
without the written consent of the Majority Holders, redeem, repurchase or
otherwise acquire (whether for cash or in exchange for property or other
securities or otherwise) any shares of capital stock of the Company or any
warrants, rights or options to purchase or acquire any such shares.
ARTICLE 9. RESTRICTIVE LEGENDS
ARTICLE 9.1 Restrictions on Transfer. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon
the conditions specified in this Article IX, which conditions are intended
to ensure compliance with the provisions of the Securities Act in respect of
the Transfer of any of such Securities or any interest therein. Purchaser
will use its best efforts to cause any proposed transferee of any Securities
held by it to agree to take and hold such Securities subject to the
provisions and upon the conditions specified in this Article IX.
ARTICLE 9.2 Legends. The Convertible Debentures and Warrants shall
bear restrictive legends in accordance with applicable securities laws. The
Conversion Shares, upon resale by the Purchaser pursuant to the Registration
Statement, shall be freely tradeable and unrestricted.
ARTICLE 9.3 Notice of Proposed Transfers. Prior to any proposed
Transfer of the Securities (other than a Transfer (i) registered or exempt
from registration under the Securities Act, (ii) to an affiliate of a
Purchaser which is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act, provided that any such transferee shall
agree to be bound by the terms of this Agreement and the Registration Rights
Agreement, or (iii) to be made in reliance on Rule 144 under the Securities
Act), the holder thereof shall give written notice to the Company of such
holder's intention to effect such Transfer, setting forth the manner and
circumstances of the proposed Transfer, which shall be accompanied by (a) an
opinion of counsel reasonably acceptable to the Company, confirming that
such transfer does not give rise to a violation of the Securities Act, (B)
representation letters in form and substance reasonably satisfactory to the
Company to ensure compliance with the provisions of the Securities Act and
(C) letters in form and substance reasonably satisfactory to the Company
from each such transferee stating such transferee's agreement to be bound by
the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received
such notice of transfer, opinion of counsel, representation letters and
other letters referred to in the immediately preceding sentence, whereupon
the holder of such Securities shall be entitled to Transfer such Securities
in accordance with the terms of the notice delivered by the holder to the
Company.
ARTICLE 10. ADDITIONAL AGREEMENTS AMONG THE PARTIES
ARTICLE 10.1 Liquidated Damages.
(a) The Company shall cause its transfer agent to, issue and
deliver shares of Common Stock consistent with Section 7.11 hereof
within three (3) New York Stock Exchange Trading Days of delivery of a
Notice of Conversion or Notice of Exercise, as applicable (the
"Deadline") to Purchaser (or any party receiving Securities by transfer
from Purchaser) at the address of Purchaser set forth in the Notice of
Conversion or Notice of Exercise, as the case may be. The Company
understands that a delay in the issuance of such certificates after the
Deadline could result in economic loss to Purchaser.
(b) Without in any way limiting Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company
agrees that if delivery of the Conversion Shares is more than one (1)
Business Day after the Deadline (other than a failure due to the
circumstances described in Section 4.3 of the Convertible Debentures,
which failure shall be governed by such Section) the Company shall pay
to Purchaser, as liquidated damages and not as a penalty, $500 for each
$100,000 of Convertible Debentures then outstanding per day in cash,
for each of the first ten (10) days beyond the Deadline, and $1,000 for
each $100,000 of Convertible Debentures then outstanding per day in
cash for each day thereafter that the Company fails to deliver such
Common Stock. Such cash amount shall be paid to Purchaser upon demand,
or at the option of Purchaser (by written notice to the Company by the
first day of the week following the week in which it has accrued),
shall be added to the principal amount of the Convertible Debenture (if
then outstanding) payable to Purchaser, in which event interest shall
accrue thereon in accordance with the terms of the Convertible
Debentures and such additional principal amount shall be convertible
into Common Stock in accordance with the terms of the Convertible
Debentures.
ARTICLE 10.2 Conversion Notice. The Company agrees that, in addition to
any other remedies which may be available to Purchaser, including, but not
limited to, the remedies available under Section 10.1, in the event the
Company fails for any reason (other than as a result of actions taken by a
Purchaser in breach of this Agreement) to effect delivery to a Purchaser of
certificates with or without restrictive legends as contemplated by Article
IX representing the shares of Common Stock on or prior to the Deadline after
conversion of any Convertible Debentures or exercise of the Warrants,
Purchaser will be entitled, if prior to the delivery of such certificates,
to revoke the Notice of Conversion or Notice of Exercise, as applicable, by
delivering a notice to such effect to the Company whereupon the Company and
Purchaser shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion or Notice of Exercise, as the
case may be.
ARTICLE 10.3 Conversion Limit. Notwithstanding the conversion rights
under the Convertible Debentures, unless Purchaser delivers a waiver in
accordance with the immediately following sentence, in no event shall
Purchaser be entitled to convert any portion of the Convertible Debentures,
in excess of that portion of the Convertible Debentures, as applicable, of
which the sum of (i) the number of shares of Common Stock beneficially owned
by Purchaser and its Affiliates (other than shares of Common Stock which may
be deemed beneficially owned through the ownership of the unconverted
portion of the Convertible Debenture or other Derivative Securities
convertible into or exchangeable for shares of Common Stock which contain a
limitation similar to that set forth in this Section 10.3), and (ii) the
number of shares of Common Stock issuable upon the conversion of the portion
of the Convertible Debenture with respect to which this determination is
being made, would result in beneficial ownership by Purchaser and its
Affiliates of more than 4.99% of the outstanding shares of Common Stock.
For purposes of Section 10.3(i) beneficial ownership shall be determined in
accordance with Rule 13d-3 of the Exchange Act and Regulations 13 D-G
thereunder, except as otherwise provided in this Section 10.3. The
foregoing limitation shall not apply and shall be of no further force or
effect (i) immediately preceding and upon the occurrence of any voluntary or
mandatory redemption or repayment transaction described herein or in the
Convertible Debentures, (ii) immediately preceding and upon any Sale Event,
(iii) on the Maturity Date or (iv) following the occurrence of any Event of
Default which is not cured for a period of ten (10) calendar days.
ARTICLE 10.4 Registration Rights.
(a) The Company shall grant Purchaser registration rights
covering the Conversion Shares (the "Registrable Securities") on the
terms set forth in the Registration Rights Agreement and herein.
(b) The Company shall prepare and file within sixty (60) days
following the Closing Date (the "Filing Date") a registration statement
or amendment thereto (the "Registration Statement") covering the resale
of the Registrable Securities. The Company shall use its best efforts
to cause the Registration Statement to be declared effective by the
Commission and the necessary Listing Applications to be filed on the
earlier of (i) 180 days of the Closing Date, (ii) ten days following
the receipt of a "No Review" Letter from the Commission or (iii) the
first day following the day the Commission determines the Registration
Statement eligible to be declared effective (the "Required
Effectiveness Date"). The Company shall pay all expenses of
registration (other than underwriting fees and discounts, if any, in
respect of Registrable Securities offered and sold under each
registration statement by Purchaser).
(c) If the Registration Statement is not filed by the Filing
Date, the Company shall pay to Purchaser, as liquidated damages and not
as a penalty, an amount equal to two percent (2%) of the principal
amount of Convertible Debentures outstanding for each 30-day period
(prorated) until the Registration Statement is filed with the
Commission. If the Registration Statement is not declared effective by
the Commission by the Required Effectiveness Date, the Formula
Conversion Price (as defined in the Convertible Debenture) shall be
amended so that the percentage used in the denominator of the Formula
Conversion Price shall be reduced by ten percent (10%) for each 30-day
period the Registration Statement is not declared effective by the
Commission through the 360th day following the Closing Date. (By way
of example, if the Registration Statement is not declared effective by
the Commission on the 240th day following the Closing Date, the Formula
Conversion Price for the Convertible Debenture would be the formula
F/P, where:
F = Principal amount of the Convertible Debenture being converted,
together with the accrued and unpaid interest through the date of
conversion, and
P = 60% of the average of the 5 lowest volume weighted average
sales prices, as reported by Bloomberg LP, during the 20 Trading
Days immediately preceding the date of the related notice of
conversion.)
In the event the Company fails to obtain a valid registration statement by
the 360th day following the Closing Date, the Purchaser may require the
Company to redeem the Convertible Debentures and the Warrants as set forth
in Section 5 of the Convertible Debentures and Section 13 of the Warrants,
respectively. Additionally, the Company will grant to Purchaser first
priority piggyback registration rights in the event the Company proposes to
effect a registered offering of Common Stock or warrants or both prior to
the filing of the Registration Statement referenced above.
(d) Any such liquidated damages shall be paid in cash by the
Company to Purchaser by wire transfer in immediately available funds on
the last day of each calendar week following the event requiring its
payment.
(e) If, following the declaration of effectiveness of the
Registration Statement the Registration Statement (or any prospectus
or supplemental prospectus contained therein) shall cease to be
effective for any reason (including but not limited to the occurrence
of any event that results in any prospectus or supplemental prospectus
containing an untrue statement of a material fact or omitting a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading), the Company fails to file required
amendments to the Registration Statement in order to allow the
Purchaser to exercise its rights to receive unrestricted, unlegended,
freely tradeable shares of Common Stock, or if for any reason there are
insufficient shares of such shares of Common Stock registered under the
then current Registration Statement to effect full conversion of the
Convertible Debentures or exercise of the Warrants (each a
"Registration Default"), the Company shall immediately take all
necessary steps to cause the Registration Statement to be amended or
supplemented so as to cure the Registration Default. Failure to cure a
Registration Default within ten (10) Business Days shall result in the
Company paying to Purchaser liquidated damages at the rate of one
percent (1%) of the outstanding principal amount of Convertible
Debentures for each 30-day period (prorated) the Registration Default
remains uncured.
(f) In the event that there is an insufficient number of
authorized, issuable, unlegended and freely tradeable shares of Common
Stock registered under the Registration Statement filed by the Company
to fully convert the Convertible Debentures and exercise all Warrants
held by Purchaser and sell such shares issued thereon, then the Company
shall immediately file an amendment to the then current registration
statement to register a sufficient number of such shares to convert
said Convertible Debentures and Warrants. The failure of the Company
to register a sufficient number of such shares to fully convert said
Convertible Debentures and exercise such Warrants shall be a
Registration Default under Section 10.4(e) above from the date of the
Notice of Conversion to the date of the earlier of (i) the redemption
of the outstanding balance of the Convertible Debentures and exercise
of all such Warrants or (ii) full conversion of the Convertible
Debentures and exercise of all such Warrants
ARTICLE 11. ADJUSTMENT OF FIXED PRICE
ARTICLE 11.1 Reorganization. The Conversion Price and the exercise
price of the Warrants (collectively, the "Fixed Prices") shall be adjusted,
as applicable, as hereafter provided.
ARTICLE 11.2 Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock
or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in
each such case the applicable Fixed Price shall be adjusted, effective
immediately after the record date at which the holders of Common Stock are
determined for the purposes of the Share Reorganization or, if no record
date is fixed, the effective date of the Share Reorganization, by
multiplying the applicable Fixed Price in effect on such record or effective
date, as the case may be, by a fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to
the transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of
Common Stock that would have been outstanding if such securities had
been converted into or exchanged for Common Stock on such record or
effective date.
ARTICLE 11.3 Rights Offering. If and whenever the Company shall issue
to all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or,
in the case of securities convertible into or exchangeable for Common Stock,
at an exchange or conversion price per share at the date of issue of such
securities) of less than 95% of the Market Price of the Common Stock as of
the record date (any such event being herein called a "Rights Offering"),
then in each such case the applicable Fixed Price shall be adjusted,
effective immediately after the record date at which holders of Common Stock
are determined for the purposes of the Rights Offering, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price at which
such shares are so offered, or
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and
the conversion or exchange price of such securities, or, as the case
may be, by
(B) the Market Price of the Common Stock as of the record date;
and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities, the
maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
To the extent that such rights, options or warrants are not exercised prior
to the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price
which would then have been in effect upon the number of shares of Common
Stock (or Derivative Securities) actually delivered upon the exercise of
such rights, options or warrants.
ARTICLE 11.4 Special Distribution. If and whenever the Company
shall issue or distribute to all or substantially all the holders of Common
Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share
Reorganization or a Rights Offering (any such event being herein called a
"Special Distribution"), then in each such case the applicable Fixed Price
shall be adjusted, effective immediately after the record date at which the
holders of Common Stock are determined for purposes of the Special
Distribution, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(I) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock as of such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of
the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of
any consideration paid therefor by the holders of Common Stock), and
(II) the denominator shall be the product of the number of shares
of Common Stock outstanding on such record date and the Market Price of
the Common Stock as of such date.
ARTICLE 11.5 Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares,
other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with,
or into another body corporate; or
(iii) the transfer of all or substantially all of the assets
of the Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in
each such case the holder who exercises the right to convert Convertible
Debentures after the effective date of such Capital Reorganization shall be
entitled to receive and shall accept, upon the exercise of such right, in
lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or
of the body corporate resulting from such Capital Reorganization that such
holder would have been entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, such holders had been the
holder of the number of shares of Common Stock to which such holder was
theretofore entitled upon conversion; provided, however, that no such
Capital Reorganization shall be consummated in effect unless all necessary
steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company
or of the body corporate resulting from such Capital Reorganization, subject
to adjustment thereafter in accordance with provisions the same, as nearly
as may be possible, as those contained above.
ARTICLE 11.6 Purchase Price Adjustments. In case at any time and from
time to time the Company shall issue any shares of Common Stock or
Derivative Securities convertible or exercisable for shares of Common Stock
(the number of shares so issued, or issuable upon conversion or exercise of
such Derivative Securities, as applicable, being referred to as "Additional
Shares of Common Stock") for consideration less than the then Market Price
as of the date of issuance of such shares of Common Stock or such Derivative
Securities, in each such case the Conversion Price shall, concurrently with
such issuance, be adjusted by multiplying the Conversion Price immediately
prior to such event by a fraction: (i) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus the number of shares
of Common Stock that the aggregate consideration received by the Company for
the total number of such Additional Shares of Common Stock so issued would
purchase at the Market Price and (ii) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance of Additional Shares of Common Stock plus the number of such
Additional Shares of Common Stock so issued or sold.
ARTICLE 11.7 Adjustment Rules. The following rules and procedures shall
be applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(b) if any event occurs of the type contemplated by the
adjustment provisions of this Article XI but not expressly provided for
by such provisions, the Company will give notice of such event as
provided herein, and the Company's board of directors will make an
appropriate adjustment in the Fixed Price so that the rights of the
holders of the applicable Security shall not be diminished by such
event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered
accountants selected by the Directors and any such determination shall
be binding upon the Company and Purchaser.
ARTICLE 11.8 Certificate as to Adjustment. The Company shall from time
to time promptly after the occurrence of any event which requires an
adjustment in the applicable Fixed Price deliver to Purchaser a certificate
specifying the nature of the event requiring the adjustment, the amount of
the adjustment necessitated thereby, the applicable Fixed Price after giving
effect to such adjustment and setting forth, in reasonable detail, the
method of calculation and the facts upon which such calculation is based.
ARTICLE 11.9 Notice to Holders. If the Company shall fix a record date
for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE 12. EVENTS OF DEFAULT
ARTICLE 12.1 Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any
part of the principal on any of the Convertible Debentures (whether by
virtue of the agreements specified in this Agreement or the Convertible
Debentures);
(b) failure by the Company to pay (i) within five (5) Business
Days of the due date thereof any interest on any Convertible Debentures
or (ii) within five (5) Business Days following the delivery of notice
to the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this
Agreement or any other Transaction Agreement;
(c) reserved;
(d) failure on the part of the Company to observe or perform any
covenant contained in Article VIII of this Agreement;
(e) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other
than those covered by clauses (a), (b), (c), or (d) above) for 30 days
from the date of such occurrence;
(f) the trading in the Common Stock shall have been suspended by
the Commission, OTC Bulletin Board or any National Market (except for
any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except
if, at the time there is any suspension on any National Market, the
Common Stock is then listed and approved for trading on another
National Market within ten (10) Trading Days thereof);
(g) reserved;
(h) the Company shall have its Common Stock delisted from the OTC
Bulletin Board or a National Market for at least ten (10) consecutive
Trading Days and is unable to obtain a listing on a National Market
within such ten (10) Trading Days;
(i) the effectiveness of the Registration Statement shall not be
maintained for the Registration Maintenance Period, which results in
the Company incurring the liquidated damages or a default fee for a
period in excess of 30 days;
(j) the Company or any Subsidiary has commenced a voluntary case
or other proceeding seeking liquidation, winding-up, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or has made a general assignment
for the benefit of creditors, or has failed generally to pay its debts
as they become due, or has taken any corporate action to authorize any
of the foregoing;
(k) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days, or an order for relief has been entered against the Company or
any Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(l) default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in
excess of $500,000, which has not been cured within any applicable
period of grace associated therewith;
(m) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days; or
(n) any representation, warranty, certification or statement made
by the Company in any Transaction Agreement or which is contained in
any certificate, document or financial or other statement furnished at
any time under or in connection with any Transaction Agreement shall
prove to have been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event
of Default specified in paragraphs (a) or (b), and the Majority Holders may,
with respect to any other Event of Default, by notice to the Company,
declare the Convertible Debentures to be, and the Convertible Debentures
shall thereon become immediately due and payable; provided that in the case
of any of the Events of Default specified in paragraph (j) or (k) above with
respect to the Company or any Subsidiary, then, without any notice to the
Company or any other act by Purchaser, the entire amount of the Convertible
Debentures shall become immediately due and payable, provided, further, if
any Event of Default has occurred and is continuing, and irrespective of
whether any Convertible Debenture has been declared immediately due and
payable hereunder, any Purchaser of Convertible Debentures may proceed to
protect and enforce the rights of Purchaser by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance
of any agreement contained herein or in any Convertible Debenture, or for an
injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default, the
amount declared due and payable on the Convertible Debentures shall be the
Formula Price.
ARTICLE 12.2 Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy. Every power and remedy given by the
Convertible Debentures or by law may be exercised from time to time, and as
often as shall be deemed expedient, by Purchaser.
ARTICLE 13. MISCELLANEOUS
ARTICLE 13.1 Notices. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified on the signature
page hereof, (ii) if given by mail, four days after such communication is
deposited in the mail with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the
address specified in or pursuant to this Section.
ARTICLE 13.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising
any right, power or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented
or waived if, but only if, such amendment, supplement or waiver is in
writing and is signed by the Company and the Majority Holders;
provided, that without the consent of each holder of any Convertible
Debenture affected thereby, an amendment or waiver may not (a) reduce
the aggregate principal amount of Convertible Debentures whose holders
must consent to an amendment or waiver, (b) reduce the rate or extend
the time for payment of interest on any Convertible Debenture, (c)
reduce the principal amount of or extend the stated maturity of any
Convertible Debenture or (d) make any Convertible Debenture payable in
money or property other than as stated in such Convertible Debenture.
In determining whether the holders of the requisite principal amount of
Convertible Debentures have concurred in any direction, consent, or
waiver as provided in any Transaction Agreement, Convertible Debentures
which are owned by the Company or any other obligor on or guarantor of
the convertible Debentures, or by any Person Controlling, Controlled
by, or under common Control with any of the foregoing, shall be
disregarded and deemed not to be outstanding for the purpose of any
such determination; and provided further that no such amendment,
supplement or waiver which affects the rights of Purchaser and their
affiliates otherwise than solely in their capacities as holders of
Convertible Debentures shall be effective with respect to them without
their prior written consent.
ARTICLE 13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless Purchaser,
its Affiliates, and each Person, if any, who controls Purchaser, or any
of its Affiliates, within the meaning of the Securities Act or the
Exchange Act (each, a "Controlling Person"), and the respective
partners, agents, employees, officers and Directors of Purchaser, their
Affiliates and any such Controlling Person (each an "Indemnified
Party") and collectively, the "Indemnified Parties"), from and against
any and all losses, claims, damages, liabilities and expenses
(including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether
or not such Indemnified Party is a party thereto, provided that the
Company shall not be obligated to advance such costs to any Indemnified
Party other than Purchaser unless it has received from such Indemnified
Party an undertaking to repay to the Company the costs so advanced if
it should be determined by final judgment of a court of competent
jurisdiction that such Indemnified Party was not entitled to
indemnification hereunder with respect to such costs) which may be
incurred by such Indemnified Party in connection with any
investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection with
any activities contemplated by any Transaction Agreement or any other
services rendered in connection herewith; provided that the Company
will not be responsible for any claims, liabilities, losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party
with respect to which indemnity may be sought against the Company under
this Agreement, such Indemnified Party shall promptly notify the
Company in writing and the Company, at its option, may, assume the
defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party
under this Agreement or otherwise unless the Company is materially
adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party, unless (i) the Company has
failed to assume the defense and employ counsel or (ii) the named
parties to any such action (including any impleaded parties) include
such Indemnified Party and the Company, and such Indemnified Party
shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified
Party notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be responsible hereunder for the reasonable fees and
expenses of more than one such firm of separate counsel, in addition to
any local counsel, which counsel shall be designated by Purchaser. The
Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability
by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of Purchaser, settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, liabilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and by Purchaser on the other from the transactions contemplated by
this Agreement or (ii) if the allocation provided by clause (i) is not
permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Company on the
one hand and Purchaser on the other, but also the relative fault of the
Company and Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 13.3,
the aggregate contribution of all Indemnified Parties shall not exceed
the amount of interest and fees actually received by Purchaser pursuant
to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state
a material fact related to information supplied by the Company or by
Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to
any liability the Company may have to any Indemnified Party at common
law or otherwise; (ii) shall survive the termination of this Agreement
and the other Transaction Agreements and the payment in full of the
Convertible Debentures and (iii) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf
of Purchaser or any other Indemnified Party.
ARTICLE 13.4 Expenses: Documentary Taxes. The Company agrees to pay to
Global Capital Advisors, Ltd., on the Closing Date, a fee of $40,000.00 (the
"Transaction Fee") in full satisfaction of all obligations of the Company to
Purchaser and its agents in connection with the negotiation and preparation
of the Transaction Agreements, relevant due diligence, and fees and
disbursements of legal counsel. In addition, the Company agrees to pay any
and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any Transaction
Agreement or the issuance of the Securities to Purchaser, excluding their
assigns.
ARTICLE 13.5 Payment. The Company agrees that, so long as Purchaser
shall own any Convertible Debentures purchased by it from the Company
hereunder, the Company will make payments to Purchaser of all amounts due
thereon by wire transfer by 4:00 P.M. (E.S.T.).
ARTICLE 13.6 Successors and Assigns. This Agreement shall be binding
upon the Company and upon Purchaser and its respective successors and
assigns; provided that the Company shall not assign or otherwise transfer
its rights or obligations under this Agreement to any other Person without
the prior written consent of the Majority Holders. All provisions hereunder
purporting to give rights to Purchaser and its affiliates or to holders of
Securities are for the express benefit of such Persons and their successors
and assigns.
ARTICLE 13.7 Brokers. The Closing, the Company represents and warrants
that it has not employed any broker, finder, financial advisor or investment
banker who would be entitled to any brokerage, finder's or other fee or
commission payable by the Company or Purchaser in connection with the sale
of the Securities.
ARTICLE 13.8 Delaware Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. EACH
PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR DELAWARE AND OF ANY FEDERAL DISTRICT COURT SITTING
IN DELAWARE FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS
SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES ITS
RIGHT TO A TRIAL BY JURY.
ARTICLE 13.9 Entire Agreement. This Agreement, the Exhibits or
Schedules hereto, which include, but are not limited to the Convertible
Debenture, the Warrant, the Registration Rights Agreement and the Security
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits and Schedules to this Agreement are
incorporated herein by this reference and shall constitute part of this
Agreement as is fully set forth herein.
ARTICLE 13.10 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it
materially changes the economic benefit of this Agreement to any party.
ARTICLE 13.11 Title and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
ARTICLE 13.12 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement and all Exhibits shall be Bloomberg, L.P. or any successor
thereto. The written mutual consent of the Purchaser and the Company shall
be required to employ any other reporting entity.
ARTICLE 13.13 Publicity. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other parties, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law, in which
such case the disclosing party shall provide the other parties with prior
notice of such public statement. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of Purchaser without the prior written
consent of Purchaser, except to the extent required by law, in which case
the Company shall provide Purchaser with prior written notice of such public
disclosure.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
DIAL-THRU INTERNATIONAL CORPORATION
By: John A. Jenkins /S/
-------------------
Name: John A. Jenkins
Title: President
Address: Dial-Thru International Corporation
700 South Flower
Suite 2950
Los Angeles, CA 90017
Fax: (323) 210-2091
Telephone: (213) 627-7599
GLOBAL CAPITAL FUNDING GROUP, L.P.
By its General Partner, Global Capital
Management Services, Inc.
By: Lewis N Lester /S/
------------------
Name: Lewis N. Lester
Title: President
Address: 106 Colony Park Drive
Suite 900
Cumming, Georgia 30040
Fax: 678-947-6499
Tel.: 678-947-0028
Schedule 2.2
Allocation of Purchase Price
1. $1,000,000 Principal Amount 6% Convertible Debentures for a
purchase price equal to $990,000.00
2. Warrant to purchase 100,000 shares of Common Stock of the Company
for a purchase price equal to $10,000.00
Schedule 7.8
Use of Proceeds
VolP Equipment - 5 Cities 25%
Build out Facilities - 5 Cities 35%
Switch Upgrade 10%
SS-7 Signal Upgrade 10%
Software Upgrade 7.5%
Hardware Upgrade 7.5%
Marketing of Dial Around Svc. 5%
________________________________________________________
100%