Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
dated as of
January 28, 2002
by and between
Dial-Thru International Corporation
as the Issuer,
and
GCA Strategic Investment Fund Limited
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 19
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 20
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 25
Section 7.1 Information 25
Section 7.2 Payment of Obligations 26
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 27
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 30
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 35
Section 11.3 Rights Offering 36
Section 11.4 Special Distribution 37
Section 11.5 Capital Reorganization 38
Section 11.6 Purchase Price Adjustments 38
Section 11.7 Adjustment Rules 39
Section 11.8 Certificate as to Adjustment 39
Section 11.9 Notice to Holders 39
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 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 January 28, 2002, between Dial-Thru
International Corporation (the "Company") and GCA Strategic Investment Fund
Limited ("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 $550,000 principal amount of
the Company's 6% Convertible Debentures due January 28, 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 50,000 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 I. DEFINITIONS
Section 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 33 % 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.
"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 $550,000 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 January 28, 2003
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.
Section 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 II. PURCHASE AND SALE OF SECURITIES
Section 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 Five Hundred and Fifty
Thousand Dollars ($550,000.00).
(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 50,000 shares of Common Stock.
Section 2.2 Purchase Price. The purchase price (the "Purchase Price")
for the Convertible Debenture and the Warrants on the Closing Date shall be
$522,500.00 or 95% of the principal amount of the Convertible Debenture.
Section 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 III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
Section 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.
Section 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.
Section 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 5 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.
Section 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, 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.
Section 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.
Section 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 IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing
Date, the following:
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 4.19 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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 V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 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;
(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;
(j) Purchaser is not a U.S. Person as such term is defined in
Rule 902 of the Securities Act of 1933, as amended; and
(k) Purchaser agrees to comply with Rules 901 - 905, inclusive,
of the Securities Act of 1933, as amended with respect to the resale of the
Securities.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 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;
(r) The Registration Statement required to be filed pursuant to
that certain Registration Rights Agreement between the Company and Global
Capital Funding Group, L.P. dated as of April 11, 2001 shall have been
declared effective by the Commission and shall continue to be effective as
of the Closing Date.
Section 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 VII. 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:
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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 VIII. 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:
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 8.6 Restrictions on Issuances of Securities.
(a) From the Closing Date and continuing until 180 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 180-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.
Section 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 IX. RESTRICTIVE LEGENDS
Section 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.
Section 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.
Section 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 X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 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.
Section 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.
Section 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.
Section 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 fifteen (15) 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) 60 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"); provided, however, in the
event the Company is not eligible to use Form S-3 for the Registration
Statement, the Filing Date shall be extended for 30 days and the Required
Effectiveness Date shall be extended for 30 days. 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 one percent (1%) 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 Company shall pay to Purchaser, as
liquidated damages and not as a penalty, an amount equal to 2% of the
outstanding principal amount of the Convertible Debentures, prorated, for
each 30-day period the Registration period is not declared effective by the
Commission. The liquidated damages will increase to 3% of the outstanding
principal amount of the Convertible Debentures in the event the Registration
Statement is not declared effective by the 90th day following the Closing
Date. In the event the Registration Statement is not declared effective by
the 150th day following the Closing Date, Purchaser shall have the right to
require the Company to redeem the Convertible Debentures and Warrants.
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 $1,000 for each day 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 XI. ADJUSTMENT OF FIXED PRICE
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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.
Section 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 XII. EVENTS OF DEFAULT
Section 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) failure by the Company to timely comply with the requirements
of Section 7.11 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(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) failure of the Company to file the required Listing
Applications, if any, within twenty (20) Business Days of the Closing Date,
which failure is not cured within five (5) Business Days of such failure;
(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 providedfurther, in the case of any Event of Default, the
amount declared due and payable on the Convertible Debentures shall be the
Formula Price.
Section 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 XIII. MISCELLANEOUS
Section 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.
Section 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.
Section 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.
Section 13.4 Expenses: Documentary Taxes. The Company agrees to pay
to Global Capital Advisors, LLC, 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.
Section 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.).
Section 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.
Section 13.7 Brokers. 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.
Section 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.
Section 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 supercedes 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.
Section 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.
Section 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.
Section 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.
Section 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:
Name: ________________________________
Title: ________________________________
Address: Dial-Thru International Corporation
700 South Flower
Suite 2950
Los Angeles, CA 90017
Fax: (323) 210-2091
Telephone: (213) 627-7599
GCA STRATEGIC INVESTMENT FUND LIMITED
By:
Name: Lewis N. Lester
Title: Director
Address: c\o Prime Management
Mechanics Building
12 Church Street
Hamilton, Bermuda HM11
Fax: 441-295-3926
Tel.: 441-295-0329