Ex 1.1
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of December 10, 2004, between Avitar, Inc. (the "
Company"), a Delaware corporation, and Global Capital Funding Group, L.P.
("Purchaser"), a Delaware limited partnership.
R E C I T A L S:
WHEREAS, the Company wishes to issue and sell to the Purchaser and
Purchaser desires to purchase from the Company, for a purchase price of $1,000
per $1,000 in stated value, per share, an aggregate of up to 1,285 shares of the
Company's 15,000 authorized Series A Convertible Preferred Stock, 4% Cumulative
Dividend (the " Preferred Shares or "Preferred Stock"), of which 1,500 Preferred
Shares are presently issued and outstanding as of the date of this Agreement,
with terms and conditions as set forth in the Certificate of Designations dated
May 25, 2004, on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, the Preferred Shares will be convertible into shares of the
Company's common stock, $0.01 par value per share (the " Common Stock");
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as dividends under, and upon conversion of,
the Preferred Shares (the "Conversion Shares") as set forth in the Registration
Rights Agreement in the form attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Article 1. DEFINITIONS
1 Definitions Definitions . The following terms, as used herein, have the
following meanings:
"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.
"Amex" means the American Stock Exchange.
"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.
"Certificate of Designation" means the Certificate of Designation,
Preference and Rights of Series A Convertible Preferred Stock of Avitar, Inc.,
dated May 25, 2004 and amended by Certificate of Correction on June 9, 2004 (as
further described in Section 2.4).
"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 331/3% 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; or (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") pursuant to
Bloomberg's Historical Price ("HP") function key 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 first Business Day upon which all the conditions
set forth in Section 6 have been fulfilled or deemed to be fulfilled (or such
other date unanimously agreed by the parties), and upon which this Agreement
becomes unconditional.
"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 the common stock, $0.01 par value per share, of the
Company.
"Company" means Avitar, Inc., 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 Preferred Share by
the holder thereof to the Company as specified in the Certificate of
Designations.
"Conversion Price" has the meaning ("Preferred Conversion Price") set forth
in Section 1.9 of the Certificate of Designations.
"Conversion Shares" means the shares of common stock issuable upon
conversion of the Preferred Shares and the exercise of the Warrants.
"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 corporations 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.
"Formula Price" has the meaning set forth in Section 3.4 (a).
"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).
"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 Preferred Shares outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"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 Amex 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 shareholders 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 notice to be delivered by a holder of a
Preferred Share upon conversion of all or a portion thereof.
"Notice of Exercise" means the notice to be delivered by a holder of the
Warrant upon exercise of all or a portion thereof to the Company.
"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.
"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.
"Preferred Shares" or "Preferred Stock" means the Company's Series A
Convertible Preferred Stock, 4% Cumulative Dividend with the rights and
privileges set forth in the Certificate of Designations, substantially in the
form set forth as Exhibit A hereto.
"Preferred Stock Warrant" or "Preferred Stock Warrants" have the meanings
set forth in Section 2.3.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.1 hereof.
"Purchaser" means Global Capital Funding Group, L.P. and its successors and
assigns, including holders from time to time of the Preferred Shares.
"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(e).
"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" shall have the meaning set forth in Section 7.1(a).
"Securities" means the Preferred Shares, and, as applicable, the Conversion
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer 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 Preferred Shares 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" has the meaning set forth in Section 4.26.
"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 Nasdaq 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 Preferred Shares, the
Registration Rights Agreement, and the other agreements contemplated by this
Agreement.
"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 Shares" means shares of Common Stock of the Company issued upon
exercise of the Preferred Stock Warrant.
2 Accounting Terms and Determinations 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"). All references to
"dollars," "Dollars" or "$" are to United States dollars unless otherwise
indicated.
Article 2. PURCHASE AND SALE OF SECURITIES
1 Purchase and Sale of Preferred Shares. Subject to the terms hereof, the
Company agrees to issue and sell to Purchaser, and Purchaser hereby agrees to
purchase from the Company, One Thousand Two Hundred Eighty Five (1,285)
Preferred Shares, at a purchase price of One Thousand Dollars ($1,000.00) per
One Thousand Dollars ($1,000) in stated value per share. The Purchaser shall
acquire the Preferred Shares on the Closing Date in an aggregate principal
amount of One Million Two Hundred Eighty Five Thousand Dollars ($ 1,285,000)
(the "Purchase Price").
2 Payment of Cash Purchase Price Exchange of Securities . Purchaser shall pay
the Purchase Price in cash to the Company by wire transfer of immediately
available funds, directed as follows:
Avitar, Inc.
Bank Name: Citizens Bank
ABA/Bank ID: 011500120
Acct Name: Avitar Technologies, Inc.
Account #: 110780-390-7
On the Closing Date, the Preferred Shares and Preferred Stock Warrant issuable
in consideration of the Purchase Price shall be issued by the Company following
the Company's receipt of such Purchase Price.
3 Preferred Stock Warrant. In consideration for, and as an inducement to,
Purchaser's purchase of the Preferred Shares hereunder, the Company will issue
to Purchaser upon Closing, in connection with and in addition to the applicable
number of Preferred Shares, a Warrant (in the form attached hereto as Exhibit E,
(the "Preferred Stock Warrant") to purchase 600,000 shares of the Company's
Common Stock.
4 Adoption of Certificate of Designation. The Company has adopted and filed of
record with the Delaware Secretary of State a Certificate of Designation,
Preference and Rights of Series A Convertible Preferred Stock of Avitar, Inc.
(the "Certificate of Designation"). The terms of the Certificate of Designation,
among other things, provides that upon consummation of a "Qualified Future
Financing" which contains a "Superior Right" (as each of those terms is defined
in the Certificate of Designation), the terms and conditions of such Superior
Right shall be automatically incorporated into the rights contained in the
Certificate of Designation and will supersede any provisions in the Certificate
of Designation relating to such Superior Right that would conflict with the
exercise or application of such Superior Right; provided, however, that any such
Superior Right may be waived by the holders of the Preferred Stock in accordance
with the applicable provisions of the Certificate of Designation. If the Company
provides any consideration to the holders of any equity or convertible debt
instrument issued in connection with such Qualified Future Financing that is in
addition to the consideration provided to the Purchaser (such as, for purposes
of illustration, a warrant agreement other than a warrant substantially
identical to the Warrants offered in this Agreement and issued in similar
denominations and for substantially identical consideration provided or a
registration rights agreement providing additional registration rights), then
the Company will take all lawful and reasonable steps necessary to ensure that
the Purchaser also receives such additional consideration; provided, however,
that any terms which provide for a conversion price that is, whether expressly
stated or calculated as a result of a formula, greater than or equal to the
conversion price then in place for the Series A Convertible Preferred Stock
shall not be deemed to be a Superior Right.
Article 3. PAYMENT TERMS OF CUMULATIVE CONVERTIBLE PREFERRED SHARES
1 Payment of Principal and Dividends; Payment Mechanics Payment of Principal and
Dividends; Payment Mechanics . The Company will pay all amounts due on each
Preferred Share by the method and at the address specified for such purpose by
Purchaser in writing, without the presentation or surrender of any Preferred
Share 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 Preferred Share, the holder shall surrender the
certificate representing the Preferred Share 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 Preferred Share, the
holder thereof will, at its election, either endorse thereon the amount of
principal paid thereon and the last date to which dividends have been paid
thereon or surrender the certificate representing the Preferred Share to the
Company in exchange for a new certificate. The Company will afford the benefits
of this Section 3.1 to any direct or indirect transferee of the Preferred Share
purchased under this Agreement and that has made the same agreement in writing
relating to the Preferred Shares as Purchaser has in this Agreement; provided
that such transferee is an "accredited investor" under Rule 501 of the
Securities Act.
2 Payment of Dividends Payment of Dividends . Dividends shall be cumulative and
payable in cash, in kind or Common Stock of the Company, at the election of the
Company, on each Preferred Share as of the date of issuance and shall be payable
in accordance with the Certificate of Designation and before the payment of any
dividend on the Common Stock.
(a) Intentionally Omitted .
(b) Mandatory Prepayments .
1) 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, (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"), or (iv) the occurrence of a
Registration Default which continues uncured for a period of forty-five (45)
days, then, in each case, the Company shall, upon request of the Purchaser,
redeem the Preferred Shares, subject to the provisions of Section 6 of the
Certificate of Designation. The redemption price payable upon any such
redemption shall be the Redemption Price in Section 6 of the Certificate of
Designation (referred to herein as the "Formula Price").
(c) At the option of Purchaser, upon the consummation of one or more Financings
(other than Qualified Future Financing), 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 Preferred Shares.
(d) Upon the issuance of the Maximum Number of Shares and the failure within 40
days of such issuance to obtain shareholder approval to issue additional shares
of Common Stock (the " Redemption Event"), the Company shall redeem the
outstanding Preferred Share for the Formula Price.
(e) 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 Preferred
Shares 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 Preferred Shares.
Upon the failure within forty-five (45) days to register a sufficient number of
such shares, the Company shall redeem the Preferred Share for the Formula Price.
In addition, failure of the Company to register a sufficient number of such
shares to fully convert said Preferred Shares shall be a Registration Default
under Section 10.4(e) from the date of the Notice of Conversion to the date of
the earlier of (i) the redemption of the outstanding balance of the Preferred
Shares or (ii) full conversion of the Preferred Shares.
3 Redemption Procedures Redemption Procedures .
(a) Any redemption of the Preferred Shares pursuant to Sections 3.3 or 3.4 above
shall be deemed to be effective and consummated (for purposes of determining the
Formula Price and the time at which Purchaser shall thereafter not be entitled
to deliver a Notice of Conversion for the Preferred Shares) as follows: 1) A
prepayment pursuant to Section 3.3, the "redemption date" specified therein;
2) A redemption pursuant to Section 3.4(a), the date of consummation of the
applicable Sale Event or the Registration Default;
3) 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);
4) A redemption pursuant to Section 3.4(c), 40 days from the date of issuance of
the Maximum Number of Shares unless shareholder approval to issue additional
shares of Common Stock is obtained by the Company prior to the expiration of
said 40 days; and
5) A redemption pursuant to Section 3.4(d), three (3) Business Days following
the expiration of forty-five (45) days without registration of a sufficient
number of shares.
(b) On the effective date of a redemption of the Preferred Shares 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 Preferred Shares subject to
redemption. Should Purchaser not receive payment of any amounts due on
redemption of its Preferred Shares 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 the lesser of (I) the maximum lawful rate and (II) 18% per
annum, compounded at the end of each thirty (30) days, 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 Preferred Shares to be redeemed in any
redemption in which not all of the Preferred Shares are to be redeemed so that
the ratio of the Preferred Shares of each holder selected for redemption to the
total Preferred Shares owned by that holder shall be the same as the ratio of
all such Preferred Shares selected for redemption bears to the total of all then
outstanding Preferred Shares. Should any Preferred Shares required to be
redeemed under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Preferred Shares 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 effective date of a voluntary prepayment
pursuant to Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as
specified in Section 3.5(a) above), shall be honored by the Company and the
conversion of the Preferred Shares shall be deemed effected on the Conversion
Date. In addition, between the effective date of a mandatory prepayment 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.
Additionally, in the event the Company fails to make full payment of the
redemption price of the Preferred Shares being redeemed by the tenth (10) day
following the notice of redemption, then the Company waives its right to redeem
any of the remaining then outstanding Preferred Shares, unless such redemption
is approved by the Purchaser.
4 Payment of Additional Amounts Payment of Additional Amounts .
(a) Any and all payments by the Company hereunder or under the Preferred Shares
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
Preferred Shares (i) the holders of the Preferred Shares 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
Preferred Shares 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 dividends on the Preferred Shares by the Company or (y)
any gain recognized from the transfer of the Preferred Shares by the Purchaser
to a 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 (provided, however, the Company shall not be required to
indemnify or pay any taxes owed by Purchaser or any qualified assignee resulting
from (x) the payment of dividends on the Preferred Shares by the Company or (y)
any gain recognized from the transfer of the Preferred Shares by the Purchaser
to a qualified assignee) 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 therefore. A certificate as
to the amount of such Taxes or Other Taxes submitted to the Company by Purchaser
or qualified assignee shall be conclusive evidence of the amount due from the
Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the Company will
furnish to Purchaser the original or a certified copy of a receipt evidencing
payment thereof.
Article 4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser as of the Closing Date the
following:
1 Organization and Qualification 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 and each subsidiary 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.
2 Authorization and Execution Authorization and Execution .
(a) The Company and each Subsidiary, as applicable, 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 and each Subsidiary,
as applicable, of each Transaction Agreement and the issuance by the Company of
the Securities, have been duly and validly authorized by the Board of Directors
of the Company and each Subsidiary, as applicable, and no further consent or
authorization of the Company or its Subsidiaries, their Board of Directors or
the Company's 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 and each Subsidiary, as applicable, in each case
enforceable against the Company and each Subsidiary, as applicable, in
accordance with its respective terms, subject to (i) applicable bankruptcy,
insolvency or similar laws affecting the enforceability of creditors rights
generally and (ii) equitable principles of general applicability.
3 Capitalization 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
shareholders 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 Securities. 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.
4 Governmental Authorization 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 and
(d) the filing of a "Form D" as described in Section 7.13 below.
5 Issuance of Shares Issuance of Shares . Upon conversion in accordance with the
terms of the Preferred Shares, 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 other than those created by
Purchaser and shall not be subject to preemptive rights or similar rights of any
other shareholders 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 shareholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other shareholders of the Company.
6 No Conflicts 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 known by the
Company to be applicable to it, (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 except those created by the Transaction Agreements. 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.
7 Financial Information Financial Information . Since June 30, 2004 (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 to the knowledge
of the Company no fact or condition exists or is contemplated or threatened
which might cause such a change in the future. The audited consolidated balance
sheets of the Company and its Subsidiaries for the period ending December 31,
2001, 2002 and 2003, and the related consolidated statements of income, changes
in shareholders' 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 contingency required to be reflected
therein.
8 Litigation 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 be reasonably expected to have a
Material Adverse Effect or which challenges the validity of any Transaction
Agreements.
9 Compliance with ERISA and other Benefit Plans 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.
10 Environmental Matters 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.
11 Taxes 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.
12 Investments, Joint Ventures Investments, Joint Ventures . Other than as set
forth in Schedule 4.12, the Company has no 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.
13 Not an Investment Company 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.
14 Full Disclosure 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.
15 No Solicitation; No Integration with Other Offerings 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. 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.
16 Permits 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, except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.
17 Leases Leases . Neither the Company nor any Subsidiary is a party to any
capital lease obligation with a value greater than $100,000 or to any operating
lease with an aggregate annual rental greater than $500,000 during the life of
such lease.
18 Absence of Any Undisclosed Liabilities or Capital Calls 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.
19 Public Utility Holding Company 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.
20 Intellectual Property Rights Intellectual Property Rights . Each of the
Company and its Subsidiaries owns, or is licensed under, and has the rights to
use, all material to the knowledge of the Company, 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.
21 Insurance 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.
22 Title to Properties Title to Properties . The Company and its Subsidiaries
have good and marketable title to all their respective properties reflected on
the financial statements referred to in Section 4.7, free and clear of all
Liens.
23 Internal Accounting Controls 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.
24 Brokers Brokers . Except as set forth on Schedule 4.24, the Company has no
contract, arrangement or understanding with any broker, finder of similar agent
with respect to the transactions contemplated by this Agreement.
25 Foreign Practices 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.
26 Subsidiaries Subsidiaries . Except for the directly and indirectly owned
subsidiaries of the Company as set forth on Schedule 4.26 (the "Subsidiaries"),
the Company does not own or hold any shares of stock or any other security or
interest in any other equity, or any rights to acquire any such security or
interest. Except for the Subsidiaries disclosed on Schedule 4.26, the Company
has never had any subsidiary corporation of which the securities having a
majority of voting power in electing the board of directors or representing a
majority of the economic interests were, at the time as of which any
determination was made, owned by the Company either directly or indirectly. The
number of authorized, issued and outstanding shares of capital stock of the
Subsidiaries is as set forth on Schedule 4.26. All outstanding shares of the
Subsidiaries capital stock are validly issued, fully paid and nonassessable, are
free from, and were not issued in violation of any preemptive rights, and are
owned of record and beneficially by the Company.
Article 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
1 Purchaser 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; provided that the disposition of Purchaser's property shall at
all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and the exchange
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;
(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 has previously invested in securities similar to
the Securities and fully understands the limitations on transfer described
herein; Purchaser has been afforded access to information about the Company and
the financial condition, results of operations, property, management and
prospects of the Company sufficient to enable it to evaluate its investment in
the Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
Purchaser concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall not
limit Purchaser's ability to rely thereon; and
(i) no part of the source of funds used by Purchaser to acquire the Securities
constitutes assets allocated to any separate account maintained by Purchaser in
which any employee benefit plan (or its related trust) has any interest.
Article 6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
1 Conditions Precedent to Purchaser's Obligations to Purchase Conditions
Precedent to Purchaseris Obligations to Purchase . The obligation of Purchaser
hereunder to exchange the Secured Note 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 and each Subsidiary, as required, shall have duly executed this
Agreement, the Registration Rights Agreement, and all other required agreements
, and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser a duly executed certificate
representing the Preferred Share in accordance with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company and its Subsidiaries
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 and its Subsidiaries 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 them
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 and Subsidiary 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) 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 exchange 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 exchange 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 on or prior to the
Closing Date shall have been paid;
(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 November 30, 2004;
(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 Preferred Shares to be
issued, duly executed by the Company in the denominations 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) As of the Closing Date, no Default or Event of Default shall have occurred
and be continuing; and
2 Conditions to the Company's Obligations Conditions to the Companyis
Obligations . The obligations of the Company to issue and exchange the
Securities to Purchaser pursuant to this Agreement are subject to the
satisfaction, at or prior to any 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 exchange 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 and
the Registration Rights Agreement signed by Purchaser; (d) The Company shall
have received payment of the Purchase Price, less the applicable application
fee, discount fees, broker fees and Expense Reimbursement Fee, as applicable.
Article 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long as
any Preferred Shares remain outstanding and for the benefit of Purchaser:
Section 7.01 Information . The Company will deliver to each holder of the
Preferred Shares:
(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 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 five (5) Business Days prior to the consummation of any Financing
or other event requiring a redemption of the Preferred Shares 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 $100,000 or more and not
covered by insurance or in which injunctive or similar relief is sought.
2 Payment of Obligations 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.
3 Maintenance of Property; Insurance 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.
4 Maintenance of Existence 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.
5 Compliance with Laws 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.
6 Inspection of Property, Books and Records 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's
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.
7 Investment Company Act 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.
8 Use of Proceeds. The proceeds from the issuance and sale of the Preferred
Shares by the Company shall be used in accordance with Schedule 7.08 attached
hereto. None of the proceeds from the issuance and sale of the Preferred Shares
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. Reserved.
9 Compliance with Terms and Conditions of Material Contracts 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.
10 Reserved Shares and Listings 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 Preferred Shares and issuance of the
Conversion Shares based on the conversion price of the Preferred Shares in
effect from time to time (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 Preferred Shares), 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 Preferred Shares, 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 Preferred Shares contemplated in Section 3.4(c) hereof.
(b) The Company will maintain the listing and trading of its Common Stock on the
Amex. 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 from Nasdaq regarding the continued eligibility of the
Common Stock for listing on the Amex or any National Market, as applicable.
11 Transfer Agent Instructions Transfer Agent Instructions . Upon receipt of a
Notice of Conversion, 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 Preferred Shares.
Upon conversion of any Preferred Shares 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. 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 Preferred Shares 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.
12 Maintenance of Reporting Status; Supplemental Information 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.
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 exchange with
Purchaser at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.
Article 8. NEGATIVE COVENANTS
The Company hereby agrees that from and after the date hereof for so long as any
Preferred Shares remain outstanding and for the benefit of Purchaser:
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) (i) any Debt except (x) Debt incurred in a Permitted
Financing (hereinafter defined), (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 and (ii) any equity securities (including Derivative Securities) (other
than those securities that are issuable (x) under or pursuant to stock option
plans, warrants or other rights programs that exist as of the date hereof, (z)
in connection with the acquisition (including by merger) of a business or of
assets otherwise permitted under this Agreement), unless the Company complies
with the mandatory prepayment terms of Section 3.4(b) hereof.
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.
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.
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.
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.
6 Prohibition on Discounted Equity Offerings .
(a) In addition to and not in lieu of the covenant specified in Section 8.1
above, beginning on the Closing Date and continuing until 180 days following the
date on which the Registration Statement is declared effective by the Commission
(the "Effective Date") or until such time as all of the Preferred Shares have
been either redeemed or converted into Conversion Shares in full, whichever is
later to occur, the Company agrees that it will not, without the written consent
of the Purchaser or Majority Holders, 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 so long as such conversion is not below the Market Price on the
date of issuance (each such event, a "Discounted Equity Offering"). 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. 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) Beginning on the Closing Date and continuing until 180 days following the
Effective Date or until such time as all of the Preferred Shares have been
either redeemed or converted into Conversion Shares in full, whichever is later
to occur, the Company agrees it will not, without the written consent of the
Purchaser or Majority Holders, 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 by virtue of contractual
restrictions imposed by the Company or otherwise, in each case prior to twelve
(12) months following the date of issuance of such securities.
(c) 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
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this Agreement,
(ii) stock option or other compensatory plans, (iii) the Securities Purchase
Agreement dated May 14, 2004 between the Company and GCA Strategic Investment
Fund Limited or (iv) Qualified Future Financing (hereafter defined).
7 Limitation on Stock Repurchases . Except as otherwise set forth in the
Preferred Shares, the Company shall not, without the written consent of the
Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or
in exchange for property or other securities or otherwise) any shares of capital
stock of the Company or any warrants, rights or options to purchase or acquire
any such shares.
Article 9. RESTRICTIVE LEGENDS
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. Each 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.
2 Legends . The Preferred Shares shall bear a restrictive legend 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.
3 Notice of Proposed Transfers . Prior to any proposed Transfer of the
Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
Article 10. ADDITIONAL AGREEMENTS AMONG THE PARTIES
1 Liquidated Damages .
(a) The Company shall, and shall use its best efforts to 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 (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, 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, the Company shall pay to Purchaser, as liquidated damages and not as a
penalty, $500 for each $100,000 principal amount of Preferred Shares then
outstanding per day in cash, for each of the first ten days following the
Deadline that the Company fails to deliver such Common Stock, and $1,000 for
each $100,000 principal amount of Preferred Shares then outstanding per day in
cash, for each day thereafter the Company fails to deliver such Common Stock.
Such cash amount shall be paid to Purchaser by the last day of the calendar week
following the week in which it has accrued 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 Preferred
Share (if then outstanding) payable to Purchaser, in which event dividends shall
accrue thereon in accordance with the terms of the Preferred Shares and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of the Preferred Shares.
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 Preferred
Shares, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion, 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.
3 Conversion Limit . Notwithstanding the conversion rights under the Preferred
Shares, 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 Preferred Shares, in excess of that portion of the Preferred
Shares, 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 Preferred Shares 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
Preferred Shares 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 Certificate of Designation, (ii) immediately preceding and upon any Sale
Event, or (iii) following the occurrence of any Event of Default which is not
cured for a period of ten (10) calendar days. Furthermore, in no event shall
Purchaser be entitled to convert any portion of the Preferred Shares in excess
of that portion of Preferred Shares of which the number of shares of Common
Stock to be issued is in excess of 19.9% of the Common Stock outstanding
immediately prior to the Closing Date without the approval of the shareholders
of the Company in accordance with AMEX rules.
4 Registration Rights . 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.
(a) The Company shall prepare and file within thirty (30) days of the Closing
Date (the "Filing Date"), a registration statement (the "Registration
Statement") to register a sufficient number of Common Stock to cover 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 on the
earlier of (i) 90 days following the Filing Date or (ii) ten days following the
receipt of a "no review" or similar letter from the Commission or (iii) the
first (1st) business day following the day the Commission determines the
Registration Statement eligible to be declared effective (the "Required
Effectiveness Date"). The Company shall pay all expenses of registration (other
than underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such registration statement by Purchaser). The
Company agrees to file an initial written response to the Commission within ten
(10) calendar days of receipt of any comments by the Commission relating to the
Registration Statement and provide the Purchaser with a copy of the formal
response. If the Company fails to file the Registration Statement by the Filing
Date, the Company will pay to the Fund liquidated damages in the amount of 1% of
the principal amount of the then outstanding Preferred Shares for each 30-day
period, prorated, until the Registration Statement has been filed.
(b) 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 1% of the
outstanding principal amount of the Preferred Shares, prorated, for each 30 day
period the Registration Statement is not declared effective by the Commission.
In the event the Company fails to obtain an effective registration statement by
the 360th day following the Closing Date, the Company will redeem the Preferred
Shares as set forth in Section 6.2 of the Certificate of Designation.
Additionally, the Company will grant to Purchaser certain 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.
(c) 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.
(d) If, following the declaration of effectiveness of the Registration
Statement, such 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) for the period required in the
Registration Rights Agreement (the "Registration Maintenance Period"), 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 Preferred Shares
(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 such Registration Default. Failure to cure a
Registration Default within ten (10) business days shall result in the Company
paying to Purchaser liquidated damages in an amount equal to 1% of the principal
amount of the Preferred shares then outstanding, prorated, for each 30-day
period of such Registration Default until the Registration Default is cured.
5 Restriction on Issuance of Securities . Beginning on the Closing Date and
continuing for a period of 180 days following the Effective Date or until the
Preferred Shares have been fully converted into shares of Common Stock,
whichever is later to occur, the Company will not sell, or offer to sell, any
securities (including credit facilities which are convertible into securities
which may be issued at a discount to the then current Market Price) other than
borrowings that provide for the payment of the Preferred Shares, borrowings
under conventional credit facilities existing as of the date hereof, stock
issued or credit facilities to be established in connection with acquisitions,
employee and director stock options of the Company, existing rights and warrants
of the Company and securities issued under the Preferred Shares and Qualified
Future Financing as defined and set forth in the Certificate of Designation. In
addition, the Company shall not issue any 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
Preferred Shares. 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 Common Stock to be received by Purchaser as a result of
the conversion of the Preferred Shares held by the Purchaser to the extent there
is not an effective Registration Statement for the sale of the Conversion Shares
in place at the time of such offering; and (4) other financing transactions
specifically consented to in writing by the Purchaser. Until such time as all of
the Preferred Shares have been either redeemed or converted into Conversion
Shares in full, the Company 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" provided, however, this
sentence shall not apply to the above mentioned Qualified Future Financing.
"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.
Article 11. ADJUSTMENT OF FIXED PRICE
1 Reorganization . The Conversion Price the ("Fixed Price") shall be adjusted,
as applicable, as hereafter provided.
2 Share Reorganization . If and whenever the Company shall:
(a) subdivide the outstanding shares of Common Stock into a greater number of
shares;
(b) consolidate the outstanding shares of Common Stock into a smaller number of
shares;
(c) 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
(d) 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 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 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.
2 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 on such record date (any such event being
herein called a "Rights Offering"), then in each such case the 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 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 on such 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 Fixed Price shall be readjusted effective
immediately after such expiry time to the 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.
3 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;
(i) rights, options or warrants; or
(ii) 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 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
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 on 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 therefore
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
on such date.
Section 11.05 Capital Reorganization . If and whenever there shall occur:
(1) 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;
(2) a consolidation, merger or amalgamation of the Company with, or into another
body corporate; or
(3) 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 Preferred Shares 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 11.06 Intentionally Omitted.
Section 11.07 Adjustment Rules . The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) etc no adjustment in the Fixed Price shall be required unless such
adjustment would result in a change of at least 1% in the 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;
ii. 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
iii. if a dispute shall at any time arise with respect to any adjustment of the
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 11.08 Certificate as to Adjustment . The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
Fixed Price deliver to Purchaser a certificate specifying the nature of the
event requiring the adjustment, the amount of the adjustment necessitated
thereby, the 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 11.09 Notice to Holders . If the Company shall fix a record date for:
(a) etc 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),
iv. any Rights Offering,
v. any Special Distribution,
vi. any Capital Reorganization (other than a reclassification or redesignation
of the Common Stock into other shares),
vii. Sale Event; or
viii. any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
Article 12. EVENTS OF DEFAULT
5 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 within five (5) Business Days following the
delivery of notice to the Company of any fees or any other amount payable by the
Company under this Agreement or any other Transaction Agreement;
(b) 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;
(c) failure on the part of the Company to observe or perform any covenant
contained in Section 7.10 or Article VIII of this Agreement, which failure is
not cured within five business days of such failure;
(d) failure on the part of the Company to observe or perform any covenant or
agreement contained in any Transaction Agreement for 30 days from the date of
such occurrence;
(e) the trading in the Common Stock shall have been suspended by the Commission,
any National Market or the Amex (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 or the Amex, the Common Stock is then listed and approved for trading on
another National Market within ten (10) Trading Days thereof);
(f) failure of the Company to file the Listing Applications required to be filed
within twenty (20) Business Days of the Closing Date, which failure is not cured
within five (5) Business Days of such failure;
(g) the Company shall have its Common Stock delisted from a National Market or
the Amex for at least ten (10) consecutive Trading Days and is unable to obtain
a listing on a National Market or the Amex within such ten (10) Trading Days;
(h) the Registration Statement shall not have been declared effective by the
Commission by the Required Effectiveness Date, or such effectiveness shall not
be maintained for the Registration Maintenance Period, in each case which
results in the Company incurring the Default Fee for a continuous period in
excess of 30 days;
(i) 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;
(j) 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;
(k) 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;
(l) judgments or orders for the payment of money which in the aggregate at any
one time exceed $500,000 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;
(m) 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; or
(n) any event of default under the Securities Purchase Agreement and related
documents dated May 14, 2004 between the Company and GCA Strategic Investment
Fund Limited;
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
Preferred Shares to be, and the Preferred Shares 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 Preferred Shares shall become immediately
due and payable, provided, further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Preferred Share has been declared
immediately due and payable hereunder, any Purchaser of Preferred Shares 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 Preferred Share, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise,
and provided further, in the case of any Event of Default, the amount declared
due and payable on the Preferred Shares shall be the Formula Price thereof.
6 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 Preferred Shares or by law may be exercised from time to
time, and as often as shall be deemed expedient, by Purchaser (unless the
provisions of this Agreement shall expressly condition such right or remedy upon
prior approval of the Majority Holders).
Article 13. MISCELLANEOUS
5 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.
6 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) Unless specifically noted to the contrary, any provision of this Agreement
may be amended, supplemented or waived after the Closing if, but only if, such
amendment, supplement or waiver is in writing and is signed by the Company and
the Purchaser.
7 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 the
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 the Purchaser on the other,
but also the relative fault of the Company and the 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 the Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and the 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 the 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 Preferred Shares 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.
8 Fees and Expenses. The Company has incurred an application fee of $19,275.00
which shall be payable to Global Capital Management Services, Inc. and a legal,
documentary and due diligence fee of $15,000.00 (the "Expense Reimbursement
Fee") which shall be payable at Closing to Global Capital Advisors, LLC. 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.
9 Payment . The Company agrees that, so long as Purchaser shall own any
Preferred Shares 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.).
10 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.
11 Reserved .
12 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 THE STATE OF
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.
13 Entire Agreement . This Agreement, the Exhibits or Schedules hereto, which
include, but are not limited to the Certificate of Designation, the Registration
Rights Agreement and the Preferred Shares, 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.
14 Survival; Severability. The representations, warranties, covenants and
agreements of the parties hereto shall survive (a) the Closing hereunder and (b)
with respect to any Purchaser, the death, disability, incompetency, termination,
bankruptcy, insolvency or dissolution of such Purchaser. 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.
15 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.
16 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.
17 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.
18 Counterparts. This Agreement may be executed by telecopy signatures and in
any number of counterparts each of which shall be an original with the same
effect as if the signatures thereto and hereto were upon the same instrument.
Signatures on Following Page
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.
AVITAR, INC.
By: Name: Peter P. Phildius Title:
President
Address: Avitar, Inc.
65 Dan Road Canton, MA 02021
Fax: 781-821-4458
Tel.: 781-821-2440
GLOBAL CAPITAL
FUNDING GROUP, L.P.
By its General Partner: Global Capital Management Services, Inc.
By: Name: Lewis N. Lester
Title: President
Address: 106 Colony Park Drive
Suite 900 Cumming, GA 30040
Fax: 678-947-6499
Tel.: 678-947-0028
Securities Purchase Agreement
LIST OF SCHEDULES
Schedule 1.1 Secured Note
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 4.27 Subsidiaries
Schedule 7.08 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Warrant