EXHIBIT 10.3
EPIC ENERGY RESOURCES, INC.
Schedule Required by Instruction 2 to
Item 601 of Regulation S-K
Name and Address Amount of Notes Number of Warrants
of Purchasers Purchased Purchased
- ---------------- --------------- ------------------
Shelter Island Opportunity Fund, LLC $1,000,000 787,878.79
1 East 52nd Street, 6th Floor
New York, NY 10022
William H. Wilson, Jr. $70,000 55,151.52
1717 St. James Place, Suite 400
Houston, TX 77056
H. Steven Walton $50,000 39,393.94
124 E. 4th Street
Tulsa, OK 74103
Peter Morin $65,000 51,212.12
5 Park Plaza, Suite 1100
Irvine, CA 92614
Todd M. Binet $65,000 51,512.12
11120 N. County Square
Houston, TX 77024
Cranshire Capital, L.P. $250,000 196,969.70
3100 Dundee Road, Suite 703
Northbrook, IL 60062
Midsummer Investment, Ltd. $4,500,000 3,545,454.55
c/o Midsummer Capital, LLC
295 Madison Ave., 38th Floor
New York, NY 10017
Fort Mason Master, L.P. $2,112,975 1,664,768.18
580 California Street, Suite 1925
San Francisco, CA 94104
Fort Mason Partners, L.P. $137,025 107,959.09
580 California Street, Suite 1925
San Francisco, CA 94104
Name and Address Amount of Notes Number of Warrants
of Purchasers Purchased Purchased
- ---------------- --------------- ------------------
Whitebox Convertible Arbitrage $5,500,000 4,333,333.33
Partners, LP
c/o Whitebox Advisors LLC
3033 Excelsior Blvd, Suite 300
Minneapolis, MN 55416-4675
Pandora Select Partners, LP $3,000,000 2,363,636.36
c/o Whitebox Advisors LLC
3033 Excelsior Blvd, Suite 300
Minneapolis, MN 55416-4675
Whitebox Special Opportunities $3,000,000 2,363,636.36
Partners Series B, LP
c/o Whitebox Advisors LLC
3033 Excelsior Blvd, Suite 300
Minneapolis, MN 55416-4675
Guggenheim Portfolio Company $500,000 393,939.39
XXXI, LLC
c/o Whitebox Advisors LLC
3033 Excelsior Blvd, Suite 300
Minneapolis, MN 55416-4675
Maturity date of notes: December 5, 2012
Issue date of warrants: December 5, 2007
Exercise price of warrants: $1.65
Expiration date of warrants: December 5, 2012
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is dated as of December 5, 2007
between Epic Energy Resources, Inc., a Colorado corporation (the "Company"), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings set forth in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 405 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except any Saturday, any Sunday, any
day which is a federal legal holiday in the United States or any day on
which banking institutions in the State of New York are authorized or
required by law or other governmental action to close.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the common stock of the Company, no par value
per share, and any other class of securities into which such securities
may hereafter be reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Common Stock Transaction" means the transactions contemplated
pursuant to that certain Securities Purchase Agreement of even date
herewith, among the Company and the investors signatory thereto, pursuant
to which the Company will be issuing common stock and warrants with gross
proceeds of not less than $5,000,000 and up to $10,000,000.
"Company Counsel" means Hart & Trinen LLP, with offices located at
1624 Washington St., Denver, CO 80203.
"Debentures" means the 10% Secured Debentures due, subject to the
terms therein, 5 years from their date of issuance, issued by the Company
to the Purchasers hereunder, in the form of Exhibit A attached hereto.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company or any
Subsidiary pursuant to any stock or option plan duly adopted for such
purpose by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise
or exchange of or conversion of any Securities issued hereunder or
pursuant to the Common Stock Transaction and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
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issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities, and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction
in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in
securities.
"FWS" means Feldman Weinstein & Smith LLP with offices located at
420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Greenshoe Security" shall have the meaning ascribed to such term in
Section 4.18.
"Indebtedness" shall have the meaning ascribed to such term in
Section 3.1(aa).
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term
in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"Participation Maximum" shall have the meaning ascribed to such term
in Section 4.12.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in Section
4.12.
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"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an informal investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
"Purchaser Greenshoe Rights" shall have the meaning ascribed to such
term in Section 4.18.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.10.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by each Purchaser as provided for in
the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or redemption in full of all Warrants and
Debentures, ignoring any conversion, redemption or exercise limits set
forth therein, and assuming that the Quarterly Conversion Price (as
defined in the Debentures) is at all times on and after the date of
determination 75% of the most recent Quarterly Conversion Price under the
Debentures on the Trading Day immediately prior to the date of
determination.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the Warrant Shares
and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of December 5, 2007, by and between the
Company and the Purchasers thereunder, relating to the issuance of not
less than $5,000,000 and up to $10,000,000 of Common Stock and Warrants.
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"Security Agreement" means the Security Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit E
attached hereto.
"Security Documents" shall mean the Security Agreement, the
Subsidiary Guarantees and any other documents and filing required
thereunder in order to grant the Purchasers a first priority perfected
security interest in all of the assets of the Company and the Subsidiaries
as provided in the Security Agreement, including all UCC-1 filing
receipts.
"Short Sales" means all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock).
"Subscription Amount" means, as to each Purchaser, the aggregate
amount to be paid for Debentures and Warrants purchased hereunder as
specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount," in United States
dollars and in immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.12.
"Subsequent Financing Notice" shall have the meaning ascribed to
such term in Section 4.12.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a) and shall, where applicable, include any direct or
indirect subsidiary of the Company formed or acquired after the date
hereof.
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated the
date hereof, by each Subsidiary in favor of the Purchasers, in the form of
Exhibit F attached hereto.
"Trading Day" means a day on which the New York Stock Exchange is
open for trading.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or
the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, the Security Agreement, the
Subsidiary Guarantee, the Securities Purchase Agreement, all exhibits and
schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Transfer Agent" means TranShare Corporation, the current transfer
agent of the Company with a mailing address of 5105 DTC Parkway, Suite
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325, Greenwood Village, CO 80111 and a facsimile number of (303) 662-1113,
and any successor transfer agent of the Company.
"Underlying Shares" means the shares of Common Stock issued and
issuable upon redemption of the Debentures and upon exercise of the
Warrants.
"Variable Rate Transaction" shall have the meaning ascribed to such
term in Section 4.13(b).
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time
to 4:02 p.m. New York City time); (b) if the OTC Bulletin Board is not a
Trading Market, the volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin Board; (c)
if the Common Stock is not then listed or quoted on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the "Pink Sheets"
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Purchasers of a
majority in interest of the Securities then outstanding and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by
the Company.
"Warrants" means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable immediately and have a
term of exercise equal to 5 years, in the form of Exhibit C attached
hereto.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, up to an
aggregate of $20,250,000 in principal amount of the Debentures. Each Purchaser
shall deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to its Subscription Amount and the Company
shall deliver to each Purchaser its respective Debenture and a Warrant, as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2 deliverable at the Closing.
Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the
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Closing shall occur at the offices of FWS or such other location as the parties
shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in substantially the
form of Exhibit D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(iv) a five-year Warrant registered in the name of such Purchaser
to purchase up to a number of shares of Common Stock equal to 130% of
such Purchaser's Subscription Amount divided by $1.65, with an
exercise price equal to $1.65, subject to adjustment therein;
(v) the Security Agreement, duly executed by the Company and each
Subsidiary, along with all of the Security Documents, including the
Subsidiary Guarantee, duly executed by the parties thereto;
(vi) the Registration Rights Agreement duly executed by the
Company; and
(vii) the Securities Purchase Agreement duly executed by the
Company and the Purchasers thereunder.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to the
account as specified in writing by the Company;
(iii) the Security Agreement duly executed by such Purchaser; and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
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(i) the accuracy in all material respects on the Closing Date of
the representations and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) the Common Stock Transaction shall close contemporaneous with
the Closing hereunder and the gross proceeds from the Common Stock
Transaction and the transaction contemplated under this Agreement, at
the Closing, shall not be less than $25,000,000, in the aggregate;
(vi) concurrently herewith, the Company shall have acquired Pearl
Investment Company, a Colorado corporation, as a wholly-owned
subsidiary, for a cash purchase price of $18.72 million and 1,186,240
shares of Common Stock; and
(vii) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or
New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case,
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in the reasonable judgment of each Purchaser, makes it impracticable
or inadvisable to purchase the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedules, which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations and
warranties to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them in
the Transaction Documents shall be disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
9
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, the Board of
Directors or the Company's stockholders in connection therewith other than
in connection with the Required Approvals. Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is
a party or by which any property or asset of the Company or any Subsidiary
is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii)
the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby, and
(iv) the filing of Form D with the Commission and such filings as are
required to be made under applicable state securities laws (collectively,
the "Required Approvals").
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(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Underlying
Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and
clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Company has
reserved from its duly authorized capital stock a number of shares of
Common Stock for issuance of the Underlying Shares at least equal to the
Required Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as set forth
on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of
shares of Common Stock owned beneficially, and of record, by Affiliates of
the Company as of the date hereof. The Company has not issued any capital
stock since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plans and
pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under
the Exchange Act. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or authorization
of any stockholder, the Board of Directors or others is required for the
issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
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required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any
such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the
periods involved ("GAAP"), ---- except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial position of the
Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof, (i)
there has been no event, occurrence or development that has had or that
could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting, (iv) the Company has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by this
Agreement or as set forth on Schedule 3.1(i), no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least one Trading Day
prior to the date that this representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
12
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued
any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect. None of the Company's or its Subsidiaries' employees is a
member of a union that relates to such employee's relationship with the
Company or such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the Company,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement
or any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each case
as could not have or reasonably be expected to result in a Material Adverse
Effect.
13
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not reasonably be expected to result
in a Material Adverse Effect ("Material Permits"), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good
and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in each case
free and clear of all Liens, except for Liens as do not materially affect
the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights and similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that any of the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights
of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage at least equal to $10
million. Neither the Company nor any Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a significant
increase in cost.
14
(q) Transactions with Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than for (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's 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. The Company
has established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. The Company's
certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by
the Company's most recently filed periodic report under the Exchange Act
(such date, the "Evaluation Date"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no changes in the Company's internal
control over financial reporting (as such term is defined in the Exchange
Act) that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
(s) Certain Fees. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for
15
fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.
(v) Registration Rights. Other than each of the Purchasers, no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(x) Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's certificate of incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the
16
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is true and correct and does not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The press
releases disseminated by the Company during the twelve months preceding the
date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state 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 and when made, not misleading.
The Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of (i) the Securities Act which
would require the registration of any such securities under the Securities
Act, or (ii) any applicable shareholder approval provisions of any Trading
Market on which any of the securities of the Company are listed or
designated. -
(aa) Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the Company's assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as they mature,
(ii) the Company's assets do not constitute unreasonably small capital to
carry on its business as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its liabilities when such amounts are required
to be paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company
has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing
Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" means (a) any liabilities for borrowed money
17
or amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be capitalized
in accordance with GAAP. Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of
a tax deficiency which has been asserted or threatened against the Company
or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the knowledge and belief of
the Company, such accounting firm (i) is a registered public accounting
firm as required by the Exchange Act and (ii) shall express its opinion
with respect to the financial statements to be included in the Company's
Annual Report for the year ending December 31, 2007.
(ff) Seniority. As of the Closing Date, no Indebtedness or other claim
against the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby)
and capital lease obligations (which is senior only as to the property
covered thereby).
18
(gg) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current
with respect to any fees owed to its accountants and lawyers which could
affect the Company's ability to perform any of its obligations under any of
the Transaction Documents.
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
(ii) Acknowledgment Regarding Purchasers' Trading Activity.
Notwithstanding anything in this Agreement or elsewhere herein to the
contrary (except for Sections 3.2(f) and 4.15 hereof), it is understood and
acknowledged by the Company that (i) none of the Purchasers has been asked
to agree by the Company, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term, (ii) past or future open market
or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or "derivative" transactions, before or after the
closing of this or future private placement transactions, may negatively
impact the market price of the Company's publicly-traded securities, (iii)
any Purchaser, and counter-parties in "derivative" transactions to which
any such Purchaser is a party, directly or indirectly, may presently have a
"short" position in the Common Stock, and (iv) each Purchaser shall not be
deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that (a) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Underlying Shares deliverable with respect to Securities are
being determined, and (b) such hedging activities (if any) could reduce the
value of the existing stockholders' equity interests in the Company at and
after the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a breach of any of the Transaction Documents.
(jj) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
19
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or paid any compensation for soliciting purchases of, any of the securities
of the Company, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company's placement agent in connection with the placement of
the Securities.
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser hereby, represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of the
Transaction Documents and performance by such Purchaser of the transactions
contemplated by the Transaction Documents have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute
or regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which
it exercises any Warrants it will be either: (i) an "accredited investor"
20
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than consummating the transactions contemplated hereunder, such Purchaser
has not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any purchases
or sales, including Short Sales, of the securities of the Company during
the period commencing from the time that such Purchaser first received a
term sheet (written or oral) from the Company or any other Person
representing the Company setting forth the material terms of the
transactions contemplated hereunder until the date hereof ("Discussion
Time"). Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than
to other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected
21
by the transferor and reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Securities in the following
form:
NEITHER THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES
ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
22
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act,
or (ii) following any sale of such Underlying Shares pursuant to Rule 144,
or (iii) if such Underlying Shares are eligible for sale under Rule 144(k),
or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company shall cause its counsel
to issue a legal opinion to the Transfer Agent promptly after the Effective
Date if required by the Transfer Agent to effect the removal of the legend
hereunder. If all or any portion of a Debenture or Warrant is redeemed or
exercised (as applicable) at a time when there is an effective registration
statement to cover the resale of the Underlying Shares, or if such
Underlying Shares may be sold under Rule 144(k) or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff
of the Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this Section 4.1(c), it
will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Transfer Agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive
legend (such third Trading Day, the "Legend ------- Removal Date"), deliver
or cause to be delivered to such Purchaser a certificate representing such
shares that is free from all restrictive and other legends. The Company may
not make any notation on its records or give instructions to the Transfer
Agent that enlarge the restrictions on transfer set forth in this Section.
Certificates for Underlying Shares subject to legend removal hereunder
shall be transmitted by the Transfer Agent to the Purchaser by crediting
the account of the Purchaser's prime broker with the Depository Trust
Company System as directed by such Purchaser.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Transfer Agent) delivered for removal of the restrictive legend and subject
to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5
Trading Days after such damages have begun to accrue) for each Trading Day
after the Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit such Purchaser's right to pursue actual
damages for the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that such Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and
that if Securities are sold pursuant to a Registration Statement, they will
be sold in compliance with the plan of distribution set forth therein, and
23
acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon
the Company's reliance upon this understanding.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. Until the time that no Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act. As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act within the
requirements of the exemption provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities to the Purchasers in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market.
4.5 Exercise Procedures. The form of Notice of Exercise included in the
Warrants sets forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants. No additional legal opinion or other information
or instructions shall be required of the Purchasers to exercise their Warrants.
The Company shall honor exercises of the Warrants and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
(New York City time) on the Trading Day following the date hereof, issue a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents as exhibits thereto.
The Company and each Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby, and
24
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with (A) any registration statement contemplated by
the Registration Rights Agreement and (B) the filing of final Transaction
Documents (including signature pages thereto) with the Commission and (ii) to
the extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf, will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and shall not use such proceeds for (a) the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
(b) the redemption of any Common Stock or Common Stock Equivalents, or (c) the
settlement of any outstanding litigation.
4.10 Indemnification of Purchasers. Subject to the provisions of this
Section 4.10, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
25
lack of such title or any other title) of such controlling person (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.
4.11 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum at such time, as soon as
possible and in any event not later than the 75th day after such date.
26
(c) The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a number
of shares of Common Stock at least equal to the Required Minimum on the
date of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on such Trading Market as
soon as possible thereafter, (iii) provide to the Purchasers evidence of
such listing, and (iv) maintain the listing of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market.
4.12 Participation in Future Financing.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to participate
in up to an amount of the Subsequent Financing equal to the greater of (i)
25% of the Subsequent Financing or (ii) an amount equal to the aggregate
Subscription Amount of all Purchasers hereunder (the "Participation
Maximum") on the same terms, conditions and price provided for in the
Subsequent Financing.
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for a Subsequent Financing Notice, the Company shall promptly, but no later
than 1 Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder and the Person or
Persons through or with whom such Subsequent Financing is proposed to be
effected and shall include a term sheet or similar document relating
thereto as an attachment.
(c) Any Purchaser desiring to participate in such Subsequent Financing
must provide written notice to the Company by not later than 5:30 p.m. (New
York City time) on the 5th Trading Day after all of the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser's participation, and that
the Purchaser has such funds ready, willing, and available for investment
on the terms set forth in the Subsequent Financing Notice. If the Company
receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not
elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day after
all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less
than the total amount of the Participation Maximum of such Subsequent
Financing, then the Company may effect the remaining portion of such
27
Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day after
all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to
purchase more than the aggregate amount of the Participation Maximum, each
such Purchaser shall have the right to purchase its Pro Rata Portion (as
defined below) of the Participation Maximum. "Pro Rata Portion" means the
ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date by a Purchaser participating under this Section 4.12 and (y) the sum
of the aggregate Subscription Amounts of Securities purchased on the
Closing Date by all Purchasers participating under this Section 4.12.
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.12, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.12 shall not apply
in respect of (i) an Exempt Issuance, or (ii) an underwritten public
offering of Common Stock.
4.13 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock
or Common Stock Equivalents; provided, however, the 90 day period set forth
in this Section 4.13 shall be extended for the number of Trading Days
during such period in which (i) trading in the Common Stock is suspended by
any Trading Market, or (ii) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the
Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds any of
the Securities, the Company shall be prohibited from effecting or entering
into an agreement to effect any Subsequent Financing involving a Variable
Rate Transaction. "Variable Rate Transaction" means a transaction in which
the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion,
exercise or exchange rate or other price that is based upon and/or varies
with the trading prices of or quotations for the shares of Common Stock at
any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly
or indirectly related to the business of the Company or the market for the
28
Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.
(c) From the date hereof until the Debentures and Warrants are no
longer outstanding, except with the consent of holders of Debentures and
Warrants constituting at least 51% in interest (based on the principal
amount then outstanding and aggregate Exercise Price of the outstanding
Warrants), neither the Company nor any Subsidiary shall issue warrants,
options or the like as a unit with the issuance of Common Stock or Common
Stock Equivalents if such warrants, options and the like have an effective
exercise price per shares of Common Stock of less than 130% of the average
of the 5 VWAPs immediately prior to the execution of definitive documents
as to such issuance and the consummation of such issuance.
(d) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
4.15 Short Sales and Confidentiality After The Date Hereof. Each Purchaser,
severally and not jointly with the other Purchasers, covenants that neither it,
nor any Affiliate acting on its behalf or pursuant to any understanding with it,
will execute any Short Sales during the period commencing at the Discussion Time
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
29
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.17 Capital Changes. Until the later of (i) the date that less than $5
million principal amount of Debentures, in the aggregate, remains outstanding
and (ii) one year from the date hereof, the Company shall not undertake a
reverse or forward stock split or reclassification of the Common Stock without
the prior written consent of the Purchasers holding a majority in principal
amount outstanding of the Debentures.
4.18 Additional Investment. From the date hereof until June 5, 2008, each
Purchaser may, in its sole determination, elect to purchase in one or more
closings, severally and not jointly with the other Purchasers, in the ratio of
such Purchaser's original Subscription Amount to the original aggregate
Subscription Amount of all Purchasers, additional debentures for an aggregate
principal amount of up to $_____________(1) and warrants to acquire shares of
Common Stock (such securities, the "Greenshoe Securities" and such right to
receive the Greenshoe Securities pursuant to this Section 4.18, the "Purchaser
Greenshoe Rights"). Any Purchaser Greenshoe Right exercised by a Purchaser shall
close within 5 Trading Days of a duly delivered exercise notice by the
exercising party. Any additional investment in the Greenshoe Securities shall be
on terms and prices identical to those issued pursuant to the Transaction
Documents, mutatis mutandis. In order to effectuate a purchase and sale of the
Greenshoe Securities, the Company and the Purchasers shall enter into the
following agreements: (x) a Securities Purchase Agreement identical to this
Agreement, mutatis mutandis and shall include updated disclosure schedules and
(y) a registration rights agreement identical to the Registration Rights
Agreement, mutatis mutandis and shall include updated disclosure schedules.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
December 5, 2007; provided, however, that such termination will not affect the
right of any party to sue for any breach by the other party (or parties).
1 50% of the aggregate Subscription Amount of all Purchasers.
30
5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers of at least 67% in
interest of the Securities still held by Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waived provision is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
31
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.10.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
5.10 Survival. The representations and warranties shall survive the Closing
and the delivery of the Securities for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
32
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of a redemption of a Debenture or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock delivered in connection with any such rescinded redemption or
exercise notice.
5.14 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
33
5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS
does not represent any of the Purchasers but only Rodman & Renshaw, the
placement agent for the transaction. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
34
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.
5.21 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
5.22 Waiver of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.
(Signature Pages Follow)
35
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
EPIC ENERGY RESOURCES, INC. Address for Notice:
-------------------
By:__________________________________________ Fax:
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
36
[PURCHASER SIGNATURE PAGES TO EPCC SECURITIES AGREEMENT [DEBENTURE]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: ___________________________
Name of Authorized Signatory: _____________________________________________
Title of Authorized Signatory: ____________________________________________
Email Address of Purchaser: _______________________________________________
Facsimile Number of Purchaser: ____________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: _____________
Warrant Shares: _________________
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
37
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS REDEEMABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON REDEMPTION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: December 5, 2007
$-------------
10% SECURED DEBENTURE
DUE DECEMBER 5, 2012
THIS DEBENTURE is one of a series of duly authorized and validly issued 10%
Secured Debentures of Epic Energy Resources, Inc., a Colorado corporation, (the
"Company"), having its principal place of business at 10655 Six Pines, Suite
210, The Woodlands, Texas, designated as its 10% Secured Debenture due December
5, 2012 (this debenture, the "Debenture" and, collectively with the other
debentures of such series, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "Holder"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ on December 5, 2012 (the
"Maturity Date") or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder, and to pay interest to the Holder on the
aggregate unredeemed and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:
1
"Bankruptcy Event" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any Significant Subsidiary
thereof; (b) there is commenced against the Company or any Significant
Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of
relief or other order approving any such case or proceeding is entered;
(d) the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property that is not discharged or stayed within 60 calendar days
after such appointment; (e) the Company or any Significant Subsidiary
thereof makes a general assignment for the benefit of creditors; (f) the
Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes
any corporate or other action for the purpose of effecting any of the
foregoing.
"Business Day" means any day except any Saturday, any Sunday, any
day which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or
required by law or other governmental action to close.
"Buy-In" shall have the meaning set forth in Section 4(e).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company
(other than by means of redemption or exercise of the Debentures and the
Securities issued together with the Debentures), or (ii) the Company
merges into or consolidates with any other Person, or any Person merges
into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own less than 66% of the aggregate voting power of the Company
or the successor entity immediately after such transaction, or (iii) the
Company sells or transfers all or substantially all of its assets to
another Person and the stockholders of the Company immediately prior to
such transaction own less than 66% of the aggregate voting power of the
acquiring entity immediately after the transaction, or (iv) a replacement
at one time or within a three year period of more than one-half of the
members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on
the date hereof (or by those individuals who are serving as members of the
board of directors on any date whose nomination to the board of directors
2
was approved by a majority of the members of the board of directors who
are members on the date hereof), or (v) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth in clauses (i) through (iv)
above.
"Debenture Register" shall have the meaning set forth in Section
2(b).
"Effectiveness Period" shall have the meaning set forth in the
Registration Rights Agreement.
"Equity Conditions" means, during the period in question, (i) the
Company shall have duly honored all redemptions scheduled to occur or
occurring, if any, (ii) the Company shall have paid all liquidated damages
and other amounts owing to the Holder in respect of this Debenture, (iii)
there is an effective Registration Statement pursuant to which the Holder
is permitted to utilize the prospectus thereunder to resell all of the
shares issuable pursuant to the Transaction Documents (and the Company
believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on a Trading Market and all of the shares issuable pursuant to the
Transaction Documents are listed or quoted for trading on such Trading
Market (and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance
of all of the shares issuable pursuant to the Transaction Documents, (vi)
there is no existing Event of Default or no existing event which, with the
passage of time or the giving of notice, would constitute an Event of
Default, (vii) the issuance of the shares in question to the Holder would
not violate the limitations set forth in Section 4(c) herein, (viii) there
has been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been consummated
and (ix) the Holder is not in possession of any information provided by
the Company that constitutes, or may constitute, material non-public
information.
"Event of Default" shall have the meaning set forth in Section 8.
"Fundamental Transaction" means any of the following transactions:
(A) the Company effects any merger, consolidation or combination of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one transaction or a series of
related transactions, (C) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property.
"Interest Payment Date" shall have the meaning set forth in Section
2(a).
3
"Late Fees" shall have the meaning set forth in Section 2(c).
"Mandatory Default Amount" means the sum of (i) the greater of (A)
130% of the outstanding principal amount of this Debenture, plus 100% of
accrued and unpaid interest hereon, or (B) the outstanding principal
amount of this Debenture, plus all accrued and unpaid interest hereon,
divided by the Quarterly Conversion Price on the date the Mandatory
Default Amount is either (a) demanded (if demand or notice is required to
create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Quarterly Conversion Price, multiplied by the VWAP
on the date the Mandatory Default Amount is either (x) demanded or
otherwise due or (y) paid in full, whichever has a higher VWAP, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect
of this Debenture.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Optional Redemption" shall have the meaning set forth in Section
6(a).
"Optional Redemption Amount" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Date" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set forth
in Section 6(a).
"Original Issue Date" means the date of the first issuance of the
Debentures, regardless of any transfers of any Debenture and regardless of
the number of instruments which may be issued to evidence such Debentures.
"Permitted Indebtedness" means (a) the indebtedness evidenced by the
Debentures, (b) the Indebtedness existing on the Original Issue Date and
set forth on Schedule 3.1(aa) attached to the Purchase Agreement, and (c)
lease obligations and purchase money indebtedness of up to $1 million, in
the aggregate, incurred in connection with the acquisition of capital
assets and lease obligations with respect to newly acquired or leased
assets.
"Permitted Lien" means the individual and collective reference to
the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company's business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other
similar Liens arising in the ordinary course of the Company's business,
and which (x) do not individually or in the aggregate materially detract
from the value of such property or assets or materially impair the use
4
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
for the foreseeable future the forfeiture or sale of the property or asset
subject to such Lien; (c) Liens incurred in connection with Permitted
Indebtedness under clause (a), thereunder; and (d) Liens incurred in
connection with Permitted Indebtedness under clause (c) thereunder,
provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of December 5, 2007, among the Company and the original Holders, as
amended, modified or supplemented from time to time in accordance with its
terms.
"Quarterly Conversion Period" shall have the meaning set forth in
Section 6(b) hereof.
"Quarterly Conversion Price" shall have the meaning set forth in
Section 6(b) hereof.
"Quarterly Redemption" means the redemption of this Debenture
pursuant to Section 6(b) hereof.
"Quarterly Redemption Amount" means, as to a Quarterly Redemption,
$_____(1), plus accrued but unpaid interest, liquidated damages and any
other amounts then owing to the Holder in respect of this Debenture.
"Quarterly Redemption Date" means each December 1, March 1, June 1
and September 1, commencing on December 1, 2008, and terminating upon the
full redemption of this Debenture.
"Quarterly Redemption Notice" shall have the meaning set forth in
Section 6(b) hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, among the
Company and the original Holders, as amended, modified or supplemented
from time to time in accordance with its terms.
"Registration Statement" means a registration statement that
registers the resale of all of shares of Common Stock issued and issuable
to the Holder upon the redemption hereof, names the Holder as a "selling
stockholder" therein, and meets the requirements of the Registration
Rights Agreement.
- --------------------------------------
1 1/16th of the original principal amount of this Debenture.
5
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning set forth in the Purchase
Agreement.
"Trading Day" means a day on which the New York Stock Exchange is
open for business.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or
the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted for trading as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New
York City time) to 4:02 p.m. (New York City time)); (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price
of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading
on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the "Pink Sheets" published by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(d) in all other cases, the fair market value of a share of Common Stock
as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.
Section 2. Interest.
--------- --------
a) Payment of Interest in Cash. The Company shall pay interest to the
Holder on the aggregate unredeemed and then outstanding principal amount of
this Debenture at the rate of 10% per annum, payable quarterly on January
1, April 1, July 1 and October 1, beginning on the first such date after
the Original Issue Date, on each Quarterly Redemption Date (as to that
principal amount then being redeemed), and on the Maturity Date (each such
date, an "Interest Payment Date") (if any Interest Payment Date is not a
Business Day, then the applicable payment shall be due on the next
succeeding Business Day), in cash.
b) Interest Calculations. Interest shall be calculated on the basis of
a 360-day year, consisting of twelve 30 calendar day periods, and shall
accrue daily commencing on the Original Issue Date until payment in full of
6
the outstanding principal, together with all accrued and unpaid interest,
liquidated damages and other amounts which may become due hereunder, has
been made. Interest shall cease to accrue with respect to any principal
amount redeemed, provided that, the Company actually pays the applicable
Quarterly Redemption Amount within the time period required herein.
Interest hereunder will be paid to the Person in whose name this Debenture
is registered on the records of the Company regarding registration and
transfers of this Debenture (the "Debenture Register").
c) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted by applicable law ("Late
Fees") which shall accrue daily from the date such interest is due
hereunder through and including the date of actual payment in full.
d) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
---------- ---------------------------------------
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be payable for such registration of exchange.
b) Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment for
transfer to the Company of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section 4. Certain Covenants.
---------- -----------------
a) [RESERVED].
b) [RESERVED].
7
c) Certain Limitations. The Company shall not be permitted to make
Quarterly Redemption payment in shares of Common Stock, to the extent that
after giving effect to the applicable payment, the Holder (together with
the Holder's Affiliates, and any other person or entity acting as a group
together with the Holder or any of the Holder's Affiliates) would
beneficially own in excess of the Beneficial Ownership Limitation (as
defined below). For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its Affiliates
shall include the number of shares of Common Stock issuable upon a
redemption of this Debenture with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock which
are issuable upon (A) redemption of the remaining, unredeemed principal
amount of this Debenture beneficially owned by the Holder or any of its
Affiliates, and (B) exercise or redemption of the unexercised or unredeemed
portion of any other securities of the Company subject to a limitation on
redemption or exercise analogous to the limitation contained herein
(including, without limitation, any other Debentures or the Warrants)
beneficially owned by the Holder or any of its Affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 4(c),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder.
To the extent that the limitation contained in this Section 4(c) applies,
the determination of whether this Debenture is redeemable (in relation to
other securities owned by the Holder together with any Affiliates) and of
which principal amount of this Debenture is redeemable shall be in the sole
discretion of the Holder, in each case subject to the Beneficial Ownership
Limitation. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For
purposes of this Section 4(c), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as stated in the most recent of the following: (A)
the Company's most recent periodic or annual report, as the case may be;
(B) a more recent public announcement by the Company; or (C) a more recent
notice by the Company or the Company's transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the redemption, conversion
or exercise of securities of the Company, including this Debenture, by the
Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The "Beneficial Ownership
Limitation" shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon redemption of this Debenture held by the Holder.
The Holder, upon not less than 61 days' prior notice to the Company, may
increase or decrease the Beneficial Ownership Limitation provisions of this
Section 4(c), provided that the Beneficial Ownership Limitation in no event
exceeds 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock
upon redemption of this Debenture held by the Holder and the provisions of
this Section 4(c) shall continue to apply. Any such increase or decrease
8
will not be effective until the 61st day after such notice is delivered to
the Company. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms
of this Section 4(c) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor holder
of this Debenture.
d) Failure to Deliver Certificates. If the Company has elected to pay
a Quarterly Redemption in shares of Common Stock, and fails for any reason
to deliver to the Holder such certificate or certificates by the applicable
Quarterly Redemption Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of principal
amount being redeemed, $10 per Trading Day (increasing to $20 per Trading
Day on the fifth (5th) Trading Day after such liquidated damages begin to
accrue) for each Trading Day after such Quarterly Redemption Date until
such certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages or declare an Event of Default pursuant to
Section 8 hereof for the Company's failure to deliver shares of Common
Stock within the period specified herein and the Holder shall have the
right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other Section hereof
or under applicable law.
e) Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Redemption. In addition to any other rights available to the Holder,
if the Company has elected to pay a Quarterly Redemption in shares of
Common Stock, and fails for any reason to deliver to the Holder such
certificate or certificates by the applicable Quarterly Redemption Date,
and if after such Quarterly Redemption Date the Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise), or
the Holder's brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the shares of Common
Stock which the Holder was entitled to receive upon the redemption relating
to such Quarterly Redemption Date (a "Buy-In"), then the Company shall (A)
pay in cash to the Holder (in addition to any other remedies available to
or elected by the Holder) the amount by which (x) the Holder's total
purchase price (including any brokerage commissions) for the Common Stock
so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that the Holder was entitled to receive from the redemption
at issue multiplied by (2) the actual sale price at which the sell order
giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if surrendered) this Debenture in a principal amount equal to the
principal amount of the attempted redemption or deliver to the Holder the
number of shares of Common Stock that would have been issued if the Company
had timely complied with its delivery requirements under Section 6(b). For
example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted redemption of
10
this Debenture with respect to which the actual sale price of the shares of
Common Stock (including any brokerage commissions) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and,
upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder's right to pursue any other remedies available
to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company's failure to timely deliver certificates representing shares of
Common Stock upon redemption of this Debenture as required pursuant to the
terms hereof.
f) Reservation of Shares for Redemption. The Company covenants that it
will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon
redemption of this Debenture, as herein provided, free from preemptive
rights or any other actual contingent purchase rights of Persons other than
the Holder (and the other holders of the Debentures), not less than such
aggregate number of shares of the Common Stock as shall (subject to the
terms and conditions set forth in the Purchase Agreement) be issuable
(taking into account the adjustments of Section 5) upon the redemption of
the outstanding principal amount of this Debenture. The Company covenants
that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid and nonassessable
and, if the Registration Statement is then effective under the Securities
Act, shall be registered for public sale in accordance with such
Registration Statement.
g) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the redemption of this Debenture. As
to any fraction of a share which Holder would otherwise be entitled to
receive upon such redemption, the Company shall at its election, either pay
a cash adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the applicable Quarterly Conversion Price or
round up to the next whole share.
h) Transfer Taxes. The issuance of certificates for shares of the
Common Stock on redemption of this Debenture shall be made without charge
to the Holder hereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificates, provided
that, the Company shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of any
such certificate upon a redemption in a name other than that of the Holder
of this Debenture and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
Section 5. [RESERVED].
10
Section 6. Redemption.
--------- ----------
a) Redemption at Election of Holder. In the event that the combined
cash and accounts receivable amounts reported on any Company balance sheet
included in a Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB filed after
the Original Issue Date ("Reported Amount") is less than $________(2) (the
Holder's pro-rata share (based on the principal amount of this Debenture
then outstanding and the principal amount of all Debentures then
outstanding) of the sum of (i) the difference between such amount and the
applicable Reported Amount, (ii) accrued but unpaid interest and (iii) all
liquidated damages and other amounts due in respect of the Debenture, being
the "Optional Redemption Amount"), the Holder shall have the right to
require the Company, by written notice to the Company delivered at any time
prior to the 10th Business Day following the date the Company files the
applicable Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB (or successor
forms) (the date such notice is delivered, the" Optional Redemption Notice
Date"), to redeem a portion of this Debenture (an "Optional Redemption"),
in cash, in an amount equal to such Holder's pro-rata portion of the
Optional Redemption Amount (based on the initial principal amounts of all
Debentures issued pursuant to the Purchase Agreement, increased ratably in
the event a Holder no longer holds any Debentures) payable on the 10th
Business Day following the Optional Redemption Notice Date (the "Optional
Redemption Date"). In the event that the Company fails to pay the Optional
Redemption Amount on or prior to the Optional Redemption Date, the interest
rate on this Debenture shall accrue at the rate of 18% per annum, or such
lower maximum amount of interest permitted to be charged under applicable
law, until the Optional Redemption Amount is paid in full. The Holder may
exercise its Optional Redemption right pursuant to this Section 6(a) as to
any period in which the Company has a Current Assets Failure, regardless of
whether or not it has elected to receive an Optional Redemption as to any
prior periods when the Company has a Current Assets Failure. In the event
that the Company is more than 30 days past the Commission deadline for
submitting any quarterly or annual SEC Report, then the Holder shall have
the right to exercise the Optional Redemption for such quarter period
(which right may not be rebutted by any subsequent SEC Report) and the
Optional Redemption Amount for such quarterly period shall equal 15% of the
then outstanding principal amount of this Debenture and the Optional
Redemption Notice Date shall be the date that is 30 days past such
reporting deadline.
b) Quarterly Redemption. On each Quarterly Redemption Date, the
Company shall redeem the Quarterly Redemption Amount (the "Quarterly
Redemption") in cash; provided, however, as to any Quarterly Redemption and
upon 30 Trading Days' prior written irrevocable notice (the "Quarterly
Redemption Notice"), in lieu of a cash redemption payment the Company may
elect to pay all or part of a Quarterly Redemption Amount in shares of
Common Stock (but only to the extent that the Quarterly Redemption Amount
to be paid in shares of Common Stock for any Quarterly Redemption shall not
- --------------------------------
2 Insert amount that is 90% of Cash and Accounts Receivable from the current
balance sheet as of the Original Issue Date and including the acquisition
and financing.
11
exceed, in the aggregate among all holders of Debentures, an amount equal
to 20% of the total dollar trading volume of the Common Stock over the 22
Trading Days immediately prior to the date of the applicable Quarterly
Redemption Notice, subtracting the highest and the lowest dollar trading
volumes during the applicable period) based on a conversion price equal to
90% of the average of the VWAPs for the 10 consecutive Trading Days ending
on the Trading Day that is immediately prior to the applicable Quarterly
Redemption Date (subject to adjustment for any stock dividend, stock split,
stock combination or other similar event affecting the Common Stock during
such 10 Trading Day period) (the price calculated during the 10 Trading Day
period immediately prior to the Quarterly Redemption Date, the "Quarterly
Conversion Price" and such 10 Trading Day period, the "Quarterly Conversion
Period"); provided, further, that the Company may not pay the Quarterly
Redemption Amount in shares of Common Stock unless (y) from the date the
Holder receives the duly delivered Quarterly Redemption Notice through and
until the date such Quarterly Redemption is paid in full, the Equity
Conditions have been satisfied, unless waived in writing by the Holder and
(z) as to such Quarterly Redemption, prior to such Quarterly Conversion
Period (but not more than 5 Trading Days prior to the commencement of the
Quarterly Conversion Period), the Company shall have delivered to the
Holder's account with The Depository Trust Company a number of shares of
Common Stock to be applied against such Quarterly Redemption Amount equal
to the quotient of (A) the applicable Quarterly Redemption Amount divided
by (B) 90% of the average of the 10 VWAPs during the period ending on the
3rd Trading Day immediately prior to the date of the Quarterly Redemption
Notice (the "Pre-Redemption Conversion Shares"). The Company's
determination to pay a Quarterly Redemption in cash, shares of Common Stock
or a combination thereof shall be applied ratably to all of the holders of
the then outstanding Debentures based on their (or their predecessor's)
initial purchases of Debentures pursuant to the Purchase Agreement. At any
time the Company delivers a notice to the Holder of its election to pay the
Quarterly Redemption Amount in shares of Common Stock, the Company shall
file a prospectus supplement pursuant to Rule 424 disclosing such election.
Notwithstanding anything herein to the contrary, in the event that the
Holder surrenders any principal amount of this Debenture to the exercise of
its Warrants during the quarter leading up to the Quarterly Redemption
Date, such principal amount shall reduce the Quarterly Redemption Amount on
such Quarterly Redemption Date unless, prior to the Quarterly Redemption
Date, the Holder notifies the Company in writing that it elects not to
offset such surrender against such Quarterly Redemption (in all or in
part).
c) Redemption Procedure. The payment of cash or issuance of Common
Stock, as applicable, pursuant to a Quarterly Redemption shall be payable
on the Quarterly Redemption Date. If any portion of the payment pursuant to
a Quarterly Redemption shall not be paid by the Company by the applicable
due date, interest shall accrue thereon at an interest rate equal to the
lesser of 18% per annum or the maximum rate permitted by applicable law
until such amount is paid in full. Notwithstanding anything herein
contained to the contrary, if any portion of the Quarterly Redemption
Amount remains unpaid after such date, the Holder may elect, by written
12
notice to the Company given at any time thereafter, to invalidate such
Quarterly Redemption. Notwithstanding anything to the contrary in this
Section 6, the Company's determination to redeem in cash or its elections
under Section 6(b) shall be applied ratably among the Holders of
Debentures.
Section 7. Negative Covenants. So long as Debentures with principal
amounts of at least, in the aggregate, $3 million are then outstanding, unless
the holders of at least 67% in principal amount of the then outstanding
Debentures shall have otherwise given prior written consent, the Company shall
not, and shall not permit any of its subsidiaries (whether or not a Subsidiary
on the Original Issue Date) to, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur,
assume, guarantee or suffer to exist any indebtedness for borrowed money of
any kind, including, but not limited to, a guarantee, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;
c) amend its charter documents, including, without limitation, its
articles or certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or
Common Stock Equivalents other than as to (a) shares of Common Stock upon
redemption hereof or Warrant Shares as permitted or required under the
Transaction Documents and (b) repurchases of Common Stock or Common Stock
Equivalents of departing officers and directors of the Company, provided
that such repurchases shall not exceed an aggregate of $100,000 for all
officers and directors during the term of this Debenture;
e) repay, repurchase or offer to repay, repurchase or otherwise
acquire any Indebtedness, other than the Debentures if on a pro-rata basis,
other than regularly scheduled principal and interest payments as such
terms are in effect as of the Original Issue Date;
f) pay cash dividends or distributions on any equity securities of the
Company;
g) enter into any transaction with any Affiliate of the Company which
would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm's-length basis and expressly
approved by a majority of the disinterested directors of the Company (even
if less than a quorum otherwise required for board approval); or
13
h) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
--------- -----------------
a) "Event of Default" means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
shall be voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any order, rule
or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any
Debenture or (B) interest, liquidated damages and other amounts owing
to a Holder on any Debenture, as and when the same shall become due
and payable (whether on a Quarterly Redemption Date or the Maturity
Date or by acceleration or otherwise) which default, solely in the
case of an interest payment or other default under clause (B) above,
is not cured within 3 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in the Debentures (other than a breach
by the Company of its obligations to deliver shares of Common Stock to
the Holder upon any redemption, which breach is addressed in clause
(xi) below) which failure is not cured, if possible to cure, within
the earlier to occur of (A) 5 Trading Days after notice of such
failure sent by the Holder or by any other Holder and (B) 10 Trading
Days after the Company has become or should have become aware of such
failure;
iii. a default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any
other material agreement, lease, document or instrument to which the
Company or any Subsidiary is obligated (and not covered by clause (vi)
below);
iv. any representation or warranty made in this Debenture, any
other Transaction Documents, any written statement pursuant hereto or
thereto or any other report, financial statement or certificate made
or delivered to the Holder or any other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed
made;
v. the Company or any Significant Subsidiary shall be subject to
a Bankruptcy Event;
vi. the Company or any Subsidiary shall default on any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
14
evidenced, any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists
or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for listing or
quotation for trading on a Trading Market and shall not be eligible to
resume listing or quotation for trading thereon within five Trading
Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction or shall agree to sell or
dispose of all or in excess of 33% of its assets in one transaction or
a series of related transactions (whether or not such sale would
constitute a Change of Control Transaction);
ix. the Initial Registration Statement (as defined in the
Registration Rights Agreement) shall not have been declared effective
by the Commission on or prior to the 180th calendar day after the
Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), either (a) the effectiveness of the
Registration Statement lapses for any reason or (b) the Holder shall
not be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement for a
period of more than 20 consecutive Trading Days or 30 non-consecutive
Trading Days during any 12 month period; provided, however, that if
the Company is negotiating a merger, consolidation, acquisition or
sale of all or substantially all of its assets or a similar
transaction and, in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include
information concerning such pending transaction(s) or the parties
thereto which information is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 10
consecutive Trading Days during any 12 month period pursuant to this
Section 8(a)(x);
xi. the Company shall fail for any reason to deliver certificates
to a Holder prior to the fifth Trading Day after a Quarterly
Redemption Date;
xii. Within 60 days of the date hereof, the Debtors (as defined
in the Security Agreement) shall have granted the Holder (or, for the
benefit of the Holder, the Agent (as defined in the Security
Agreement) a first priority security interest in all real property of
the Debtors and all interests of the Debtors in any oil, gas or
mineral properties, and the like; or
15
xiii. any monetary judgment, writ or similar final process shall
be entered or filed against the Company, any subsidiary or any of
their respective property or other assets for more than $50,000, and
such judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.
b) Remedies Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Debenture, plus accrued but unpaid
interest, liquidated damages and other amounts owing in respect thereof
through the date of acceleration, shall become, at the Holder's election,
immediately due and payable in cash at the Mandatory Default Amount.
Commencing 5 days after the occurrence of any Event of Default that results
in the eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at an interest rate equal to the lesser of 18% per
annum or the maximum rate permitted under applicable law. Upon the payment
in full of the Mandatory Default Amount, the Holder shall promptly
surrender this Debenture to or as directed by the Company. In connection
with such acceleration described herein, the Holder need not provide, and
the Company hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such acceleration
may be rescinded and annulled by Holder at any time prior to payment
hereunder and the Holder shall have all rights as a holder of the Debenture
until such time, if any, as the Holder receives full payment pursuant to
this Section 8(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
--------- -------------
a) Notices. Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth above,
or such other facsimile number or address as the Company may specify for
such purpose by notice to the Holder delivered in accordance with this
Section 9. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address
of the Holder appearing on the books of the Company, or if no such
facsimile number or address appears, at the principal place of business of
the Holder. Any notice or other communication or deliveries hereunder shall
be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section 9 prior to 5:30 p.m. (New
York City time), (ii) the date immediately following the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section 9 between 5:30 p.m. (New
York City time) and 11:59 p.m. (New York City time) on any date, (iii) the
second Business Day following the date of mailing, if sent by nationally
16
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
liquidated damages and accrued interest, as applicable, on this Debenture
at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter
issued under the terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
Debenture, a new Debenture for the principal amount of this Debenture so
mutilated, lost, stolen or destroyed, but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership
hereof, reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan (the "New York Courts"). Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If
either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees
17
and other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver by the Company or the Holder must be in
writing.
f) Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any Person or circumstance,
it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury,
the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable
law. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
or other law which would prohibit or forgive the Company from paying all or
any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this
indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impeded the
execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to limit
or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or any surviving entity in
a Fundamental Transaction shall (i) assume, prior to such Fundamental
Transaction, all of the obligations of the Company under this Debenture and
the other Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be unreasonably
withheld or delayed) and (ii) issue to the Holder a new debenture of such
successor entity evidenced by a written instrument substantially similar in
form and substance to this Debenture, including, without limitation, having
a principal amount and interest rate equal to the principal amount and the
18
interest rate of this Debenture and having similar ranking to this
Debenture, which shall be satisfactory to the Holder (any such approval not
to be unreasonably withheld or delayed). The provisions of this Section
9(i) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this
Debenture.
j) Secured Obligation. The obligations of the Company under this
Debenture are secured by all assets of the Company and each Subsidiary
pursuant to the Security Agreement, dated as of December 5, 2007, between
the Company, the Subsidiaries of the Company and the Secured Parties (as
defined therein).
*********************
19
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
EPIC ENERGY RESOURCES, INC.
By:__________________________________________
Name:
Title:
Facsimile No. for delivery of Notices:____________
20
Schedule 1
REDEMPTION SCHEDULE
The 10% Secured Debentures due on December 5, 2012 in the aggregate principal
amount of $____________ are issued by Epic Energy Resources, Inc. This
Redemption Schedule reflects redemptions made under Section 6 of the above
referenced Debenture.
Dated:
====================== ----------------- ============== ---------------------
Aggregate
Principal
Amount
Remaining
Date of Redemption Subsequent
(or for first entry, to
Original Issue Date) Amount of Redemption
Redemption (or original Company Attest
Principal
Amount)
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
- ---------------------- ----------------- -------------- ---------------------
====================== ================= ============== ---------------------
21
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of December 5, 2007, between Epic Energy Resources, Inc., a Colorado
corporation (the "Company") and each of the several purchasers signatory hereto
(each such purchaser, a "Purchaser" and, collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof, between the Company and each Purchaser (the "Purchase
Agreement").
The Company and each Purchaser hereby agrees as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are defined in
the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the Initial Registration
Statement required to be filed hereunder, the 90th calendar day following
the Filing Date and with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 90th calendar day
following the date on which an additional Registration Statement is
required to be filed hereunder; provided, however, that in the event the
Company is notified by the Commission that one or more of the above
Registration Statements will not be reviewed or is no longer subject to
further review and comments, the Effectiveness Date as to such
Registration Statement shall be the fifth Trading Day following the date
on which the Company is so notified if such date precedes the dates
otherwise required above.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the Initial Registration
Statement required hereunder, June 5, 2008 and, with respect to any
additional Registration Statements which may be required pursuant to
Section 3(c), the earliest practical date on which the Company is
permitted by SEC Guidance to file such additional Registration Statement
related to the Registrable Securities.
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"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Initial Registration Statement" means the initial Registration
Statement filed pursuant to this Agreement.
"Initial Shares" means a number of Registrable Securities equal to
the lesser of (i) the total number of Registrable Securities and (ii)
one-third of the number of issued and outstanding shares of Common Stock
that are held by non-affiliates of the Company on the day immediately
prior to the filing date of the Initial Registration Statement.
"Losses" shall have the meaning set forth in Section 5(a).
"Plan of Distribution" shall have the meaning set forth in Section
2(a).
"Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated by
the Commission pursuant to the Securities Act), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means (i) all of the shares of Common Stock
issuable as interest or principal on the Debentures assuming all
permissible interest and principal payments are made in shares of Common
Stock and the Debentures are held until maturity (without regard to any
redemption limitations therein), (ii) all Warrant Shares (assuming on the
date of determination the Warrants are exercised in full without regard to
any exercise limitations therein), (iii) any additional shares of Common
Stock issuable in connection with any anti-dilution provisions in the
Debentures or the Warrants (in each case, without giving effect to any
limitations on conversion set forth in the Debentures or limitations on
exercise set forth in the Warrants) and (iv) any securities issued or
issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.
"Registration Statement" means the registration statement required
to be filed hereunder and any additional registration statements
contemplated by Section 3(c), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and
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all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such Rule.
"Selling Shareholder Questionnaire" shall have the meaning set forth
in Section 3(a).
"SEC Guidance" means (i) any publicly-available written or oral
guidance, comments, requirements or requests of the Commission staff and
(ii) the Securities Act.
2. Shelf Registration
(a) On or prior to each Filing Date, the Company shall prepare and
file with the Commission a Registration Statement covering the resale of
all or such maximum portion of the Registrable Securities as permitted by
SEC Guidance (provided that, the Company shall use diligent efforts to
advocate with the Commission for the registration of all of the Registrable
Securities in accordance with the SEC Guidance, including without
limitation, the Manual of Publicly Available Telephone Interpretations
D.29) that are not then registered on an effective Registration Statement
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 (except if the Company is not
then eligible to register for resale the Registrable Securities on Form
S-3, in which case such registration shall be on another appropriate form
in accordance herewith) and shall contain (unless otherwise directed by at
least an 67% majority in interest of the Holders) substantially the "Plan
of Distribution" attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best efforts to cause a Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the applicable
Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act
until all Registrable Securities covered by such Registration Statement
have been sold, or may be sold without volume restrictions pursuant to Rule
144(k), as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Transfer
Agent and the affected Holders (the "Effectiveness Period"). The Company
shall telephonically request effectiveness of a Registration Statement as
of 5:00 p.m. New York City time on a Trading Day. The Company shall
immediately notify the Holders via facsimile or by e-mail of the
effectiveness of a Registration Statement on the same Trading Day that the
Company telephonically confirms effectiveness with the Commission, which
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shall be the date requested for effectiveness of such Registration
Statement. The Company shall, by 9:30 a.m. New York City time on the
Trading Day after the effective date of such Registration Statement, file a
final Prospectus with the Commission as required by Rule 424. Failure to so
notify the Holder within 1 Trading Day of such notification of
effectiveness or failure to file a final Prospectus as foresaid shall be
deemed an Event under Section 2(b). Notwithstanding any other provision of
this Agreement and subject to the payment of liquidated damages pursuant to
Section 2(b), if any SEC Guidance sets forth a limitation on the number of
Registrable Securities permitted to be registered on a particular
Registration Statement (and notwithstanding that the Company used diligent
efforts to advocate with the Commission for the registration of all or a
greater portion of Registrable Securities), unless otherwise directed in
writing by a Holder as to its Registrable Securities, the number of
Registrable Securities to be registered on such Registration Statement will
first be reduced by Registrable Securities represented by Warrant Shares
(applied, in the case that some Warrant Shares may be registered, to the
Holders on a pro rata basis based on the total number of unregistered
Warrant Shares held by such Holders), and second by Registrable Securities
represented by the Conversion Shares (applied, in the case that some
Conversion Shares may be registered, to the Holders on a pro rata basis
based on the total number of unregistered Conversion Shares held by such
Holders).
(b) If: (i) the Initial Registration Statement is not filed on or
prior to its Filing Date (if the Company files the Initial Registration
Statement without affording the Holders the opportunity to review and
comment on the same as required by Section 3(a) herein, the Company shall
be deemed to have not satisfied this clause (i)), or (ii) the Company fails
to file with the Commission a request for acceleration of a Registration
Statement in accordance with Rule 461 promulgated by the Commission
pursuant to the Securities Act, within five Trading Days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that such Registration Statement will not be "reviewed" or will
not be subject to further review, or (iii) prior to the effective date of a
Registration Statement, the Company fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the Commission in
respect of such Registration Statement within 10 calendar days after the
receipt of comments by or notice from the Commission that such amendment is
required in order for such Registration Statement to be declared effective,
or (iv) as to, in the aggregate among all Holders on a pro-rata basis based
on their purchase of the Securities pursuant to the Purchase Agreement, a
Registration Statement registering for resale all of the Initial Shares is
not declared effective by the Commission by the Effectiveness Date of the
Initial Registration Statement, or (v) all of the Registrable Securities
are not registered for resale pursuant to one or more effective
Registration Statements on or before June 1, 2008, or (vi) after the
effective date of a Registration Statement, such Registration Statement
ceases for any reason to remain continuously effective as to all
Registrable Securities included in such Registration Statement, or the
Holders are otherwise not permitted to utilize the Prospectus therein to
resell such Registrable Securities, for more than 10 consecutive calendar
days or more than an aggregate of 15 calendar days (which need not be
consecutive calendar days) during any 12-month period (any such failure or
breach being referred to as an "Event", and for purposes of clause (i),
(iv) and (v) the date on which such Event occurs, and for purpose of clause
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(ii) the date on which such five Trading Day period is exceeded, and for
purpose of clause (iii) the date which such 10 calendar day period is
exceeded, and for purpose of clause (vi) the date on which such 10 or 15
calendar day period, as applicable, is exceeded being referred to as "Event
Date"), then, in addition to any other rights the Holders may have
hereunder or under applicable law, on each such Event Date and on each
monthly anniversary of each such Event Date (if the applicable Event shall
not have been cured by such date) until the applicable Event is cured, the
Company shall pay to each Holder an amount in cash, as partial liquidated
damages and not as a penalty, equal to 2% of the aggregate purchase price
paid by such Holder pursuant to the Purchase Agreement for any unregistered
Registrable Securities then held by such Holder. The parties agree that the
Company shall not be liable for liquidated damages under this Agreement
with respect to any Warrants or Warrant Shares. If the Company fails to pay
any partial liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest thereon at
a rate of 18% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such
partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full. The partial liquidated damages pursuant
to the terms hereof shall apply on a daily pro rata basis for any portion
of a month prior to the cure of an Event.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Not less than five (5) Trading Days prior to the filing of each
Registration Statement and not less than one (1) Trading Day prior to the
filing of any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference)
will be subject to the review of such Holders, and (ii) cause its officers
and directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion
of respective counsel to each Holder, to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file a
Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the
Company is notified of such objection in writing no later than five (5)
Trading Days after the Holders have been so furnished copies of a
Registration Statement or one (1) Trading Day after the Holders have been
so furnished copies of any related Prospectus or amendments or supplements
thereto. Each Holder agrees to furnish to the Company a completed
questionnaire in the form attached to this Agreement as Annex B (a "Selling
Shareholder Questionnaire") not less than two (2) Trading Days prior to the
Filing Date or by the end of the fourth (4th) Trading Day following the
date on which such Holder receives draft materials in accordance with this
Section.
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(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by any required Prospectus supplement (subject to the terms of this
Agreement), and, as so supplemented or amended, to be filed pursuant to
Rule 424; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to a Registration Statement or
any amendment thereto and provide as promptly as reasonably possible to the
Holders true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement (provided that, the Company
may excise any information contained therein which would constitute
material non-public information as to any Holder which has not executed a
confidentiality agreement with the Company); and (iv) comply in all
material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended
methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 100% of the number of shares of Common Stock
then registered in a Registration Statement, then the Company shall file as
soon as reasonably practicable, but in any case prior to the applicable
Filing Date, an additional Registration Statement covering the resale by
the Holders of not less than the number of such Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied
by an instruction to suspend the use of the Prospectus until the requisite
changes have been made) as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than one Trading Day prior to such filing)
and (if requested by any such Person) confirm such notice in writing no
later than one Trading Day following the day (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement;
and (C) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other federal or state governmental authority for
amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission or any
other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
6
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible
for inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires any
revisions to a Registration Statement, Prospectus or other documents so
that, in the case of a Registration Statement or the Prospectus, as the
case may be, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; and (vi) of the occurrence or existence of
any pending corporate development with respect to the Company that the
Company believes may be material and that, in the determination of the
Company, makes it not in the best interest of the Company to allow
continued availability of a Registration Statement or Prospectus, provided
that, any and all of such information shall remain confidential to each
Holder until such information otherwise becomes public, unless disclosure
by a Holder is required by law; provided, further, that notwithstanding
each Holder's agreement to keep such information confidential, each such
Holder makes no acknowledgement that any such information is material,
non-public information.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order stopping or suspending the
effectiveness of a Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable
moment.
(f) Furnish to each Holder, without charge, at least one conformed
copy of each such Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference to the extent requested by
such Person, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission; provided,
that any such item which is available on the EDGAR system need not be
furnished in physical form.
(g) Subject to the terms of this Agreement, the Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto, except after the giving of any notice
pursuant to Section 3(d).
(h) The Company shall cooperate with any broker-dealer through which a
Holder proposes to resell its Registrable Securities in effecting a filing
with the FINRA Corporate Financing Department pursuant to NASD Rule 2710,
as requested by any such Holder, and the Company shall pay the filing fee
required by such filing within two (2) Business Days of request therefor.
7
(i) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with
the selling Holders in connection with the registration or qualification
(or exemption from the Registration or qualification) of such Registrable
Securities for the resale by the Holder under the securities or Blue Sky
laws of such jurisdictions within the United States as any Holder
reasonably requests in writing, to keep each registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to
do any and all other acts or things reasonably necessary to enable the
disposition in such jurisdictions of the Registrable Securities covered by
each Registration Statement; provided, that, the Company shall not be
required to qualify generally to do business in any jurisdiction where it
is not then so qualified, subject the Company to any material tax in any
such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(j) If requested by a Holder, cooperate with such Holders to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and
registered in such names as any such Holder may request.
(k) Upon the occurrence of any event contemplated by Section 3(d), as
promptly as reasonably possible under the circumstances taking into account
the Company's good faith assessment of any adverse consequences to the
Company and its stockholders of the premature disclosure of such event,
prepare a supplement or amendment, including a post-effective amendment, to
a Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered,
neither a Registration Statement nor such Prospectus will contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with clauses (iii) through (vi)
of Section 3(d) above to suspend the use of any Prospectus until the
requisite changes to such Prospectus have been made, then the Holders shall
suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right under this
Section 3(k) to suspend the availability of a Registration Statement and
Prospectus, subject to the payment of partial liquidated damages otherwise
required pursuant to Section 2(b), for a period not to exceed 60 calendar
days (which need not be consecutive days) in any 12 month period.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the
8
natural persons thereof that have voting and dispositive control over the
shares. During any periods that the Company is unable to meet its
obligations hereunder with respect to the registration of the Registrable
Securities solely because any Holder fails to furnish such information
within three Trading Days of the Company's request, any liquidated damages
that are accruing at such time as to such Holder only shall be tolled and
any Event that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is delivered to
the Company.
4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses of the Company's counsel and
auditors) (A) with respect to filings made with the Commission, (B) with respect
to filings required to be made with any Trading Market on which the Common Stock
is then listed for trading, (C) in compliance with applicable state securities
or Blue Sky laws reasonably agreed to by the Company in writing (including,
without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities) and (D) if not previously paid by the Company in connection with an
Issuer Filing, with respect to any filing that may be required to be made by any
broker through which a Holder intends to make sales of Registrable Securities
with the FINRA pursuant to NASD Rule 2710, so long as the broker is receiving no
more than a customary brokerage commission in connection with such sale, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit and the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder. In no event shall the Company be responsible for any broker
or similar commissions of any Holder or, except to the extent provided for in
the Transaction Documents, any legal fees or other costs of the Holders.
5. Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder,
the officers, directors, members, partners, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result
of a pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees (and any other Persons with a
functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each of them,
9
each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, shareholders, partners, agents and employees (and any
other Persons with a functionally equivalent role of a Person holding such
titles, notwithstanding a lack of such title or any other title) of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to (1)
any untrue or alleged untrue statement of a material fact contained in a
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading or
(2) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act or any state securities law, or any rule or
regulation thereunder, in connection with the performance of its
obligations under this Agreement, except to the extent, but only to the
extent, that (i) such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by
such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration
Statement, such Prospectus or in any amendment or supplement thereto (it
being understood that the Holder has approved Annex A hereto for this
purpose) or (ii) in the case of an occurrence of an event of the type
specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated
or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d). The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the
transactions contemplated by this Agreement of which the Company is aware.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from and
against all Losses, as incurred, to the extent arising out of or based
solely upon: (x) such Holder's failure to comply with the prospectus
delivery requirements of the Securities Act or (y) any untrue or alleged
untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or in any amendment or supplement thereto or in
any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading (i) to the extent,
but only to the extent, that such untrue statement or omission is contained
in any information so furnished in writing by such Holder to the Company
specifically for inclusion in such Registration Statement or such
Prospectus or (ii) to the extent that such information relates to such
Holder's proposed method of distribution of Registrable Securities and was
10
reviewed and expressly approved in writing by such Holder expressly for use
in a Registration Statement (it being understood that the Holder has
approved Annex A hereto for this purpose), such Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing,
and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that, the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have prejudiced the Indemnifying
Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense thereof and the reasonable fees and expenses of no more
than one separate counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of
any such Proceeding effected without its written consent, which consent
shall not be unreasonably withheld or delayed. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional release
of such Indemnified Party from all liability on claims that are the subject
matter of such Proceeding.
11
Subject to the terms of this Agreement, all reasonable fees and
expenses of the Indemnified Party (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section)
shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party; provided, that,
the Indemnified Party shall promptly reimburse the Indemnifying Party for
that portion of such fees and expenses applicable to such actions for which
such Indemnified Party is judicially determined not to be entitled to
indemnification hereunder.
(d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified
Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
of a material fact, has been taken or made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable
attorneys' or other fees or expenses incurred by such party in connection
with any Proceeding to the extent such party would have been indemnified
for such fees or expenses if the indemnification provided for in this
Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5(d),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the net proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties.
6. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder of any
of their respective obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
12
rights granted by law and under this Agreement, including recovery of damages,
shall be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall not
assert or shall waive the defense that a remedy at law would be adequate.
(b) No Piggyback on Registrations; Prohibition on Filing Other Registration
Statements. Except for shares of Common Stock issued and issuable pursuant to
the Common Stock Transaction, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in any Registration Statements other than the
Registrable Securities. Other than with respect to registration statement(s)
required to be filed in connection with the Common Stock Transaction, the
Company shall not file any other registration statements until all Registrable
Securities are registered pursuant to a Registration Statement that is declared
effective by the Commission, provided that this Section 6(b) shall not prohibit
the Company from filing amendments to registration statements filed prior to the
date of this Agreement.
(c) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to a Registration
Statement.
(d) Discontinued Disposition. By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(d)(iii) through (vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus (as it may
have been supplemented or amended) may be resumed. The Company will use its best
efforts to ensure that the use of the Prospectus may be resumed as promptly as
is practicable. The Company agrees and acknowledges that any periods during
which the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section 2(b).
(e) Piggy-Back Registrations. If, at any time during the Effectiveness
Period, there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the Company's stock option or
other employee benefit plans, then the Company shall deliver to each Holder a
written notice of such determination and, if within fifteen days after the date
of the delivery of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered; provided, however,
13
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
144(k) promulgated by the Commission pursuant to the Securities Act or that are
the subject of a then effective Registration Statement.
(f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
a majority of the then outstanding Registrable Securities (including, for this
purpose any Registrable Securities issuable upon exercise or conversion of any
Security). If a Registration Statement does not register all of the Registrable
Securities pursuant to a waiver or amendment done in compliance with the
previous sentence, then the number of Registrable Securities to be registered
for each Holder shall be reduced pro rata among all Holders and each Holder
shall have the right to designate which of its Registrable Securities shall be
omitted from such Registration Statement. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of a Holder or some Holders and that does
not directly or indirectly affect the rights of other Holders may be given by
such Holder or Holders of all of the Registrable Securities to which such waiver
or consent relates; provided, however, that the provisions of this sentence may
not be amended, modified, or supplemented except in accordance with the
provisions of the first sentence of this Section 6(f).
(g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign
(except by merger) its rights or obligations hereunder without the prior written
consent of all of the Holders of the then outstanding Registrable Securities.
Each Holder may assign their respective rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(i) No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its Subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except as set forth on Schedule 6(i),
neither the Company nor any of its Subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
14
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
(k) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any other remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience only, do
not constitute a part of the Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
(o) Independent Nature of Holders' Obligations and Rights. The obligations
of each Holder hereunder are several and not joint with the obligations of any
other Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.
********************
15
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
EPIC ENERGY RESOURCES, INC.
By:_____________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
16
[SIGNATURE PAGE OF HOLDERS TO EPCC RRA]
Name of Holder: __________________________
Signature of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
17
Annex A
-------
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common stock
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of common stock on the OTC Bulletin
Board or any other stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o a combination of any such methods of sale; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
18
in compliance with FINRA NASD Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with NASD IM-2440.
In connection with the sale of the common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the
Company incident to the registration of the shares. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
19
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
20
Annex B
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EPIC ENERGY RESOURCES, INC.
Selling Securityholder Notice and Questionnaire
The undersigned beneficial owner of common stock (the "Registrable
Securities") of Epic Energy Resources, Inc., a Colorado corporation (the
"Company"), understands that the Company has filed or intends to file with the
Securities and Exchange Commission (the "Commission") a registration statement
(the "Registration Statement") for the registration and resale under Rule 415 of
the Securities Act of 1933, as amended (the "Securities Act"), of the
Registrable Securities, in accordance with the terms of the Registration Rights
Agreement (the "Registration Rights Agreement") to which this document is
annexed. A copy of the Registration Rights Agreement is available from the
Company upon request at the address set forth below. All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it in the Registration Statement.
21
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. Name.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities are held:
--------------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a natural
person who directly or indirectly alone or with others has power to
vote or dispose of the securities covered by this Questionnaire):
--------------------------------------------------------------------
2. Address for Notices to Selling Securityholder:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone: ____________________________________________________________________
Fax: __________________________________________________________________________
Contact Person: _______________________________________________________________
3. Broker-Dealer Status:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 3(a), did you receive your Registrable
Securities as compensation for investment banking services to the
Company?
Yes [ ] No [ ]
Note: If "no" to Section 3(b), the Commission's staff has indicated
that you should be identified as an underwriter in the
Registration Statement.
22
(c) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(d) If you are an affiliate of a broker-dealer, do you certify that you
purchased the Registrable Securities in the ordinary course of
business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings,
directly or indirectly, with any person to distribute the
Registrable Securities?
Yes [ ] No [ ]
Note: If "no" to Section 3(d), the Commission's staff has indicated
that you should be identified as an underwriter in the
Registration Statement.
4. Beneficial Ownership of Securities of the Company Owned by the Selling
Securityholder.
Except as set forth below in this Item 4, the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the securities issuable pursuant to the Purchase Agreement.
(a) Type and Amount of other securities beneficially owned by the
Selling Securityholder:
-------------------------------------------------------------------
-------------------------------------------------------------------
23
5. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of 5%
of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or
its predecessors or affiliates) during the past three years.
State any exceptions here:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof at any time while the Registration Statement remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 5 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Date: Beneficial Owner:
------------------------ -----------------------
By:______________________________________
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
24
EXHIBIT C
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
EPIC ENERGY RESOURCES, INC.
Warrant Shares: [_______ Initial Exercise Date: December 5, 2007
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for
value received, _____________ (the "Holder") is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date hereof (the "Initial Exercise Date") and on or
prior to the close of business on the 5 year anniversary of the Initial Exercise
Date (the "Termination Date") but not thereafter, to subscribe for and purchase
from Epic Energy Resources, Inc., a Colorado corporation (the "Company"), up to
______ shares (the "Warrant Shares") of Common Stock. The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated December 5, 2007, among the Company
and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
1
Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the
address of the Holder appearing on the books of the Company); and, within 3
Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by either, at the sole option of the
Holder, (i) wire transfer or cashier's check drawn on a United States bank
or (ii) reduction or cancellation of any amounts owed to the Holder under
any then outstanding Debenture (with all outstanding accrued and unpaid
interest hereon and other amounts, costs, expenses and liquidated damages
owed to the Holder applied first and a principal amount of this Debenture
equal to the balance of the aggregate Exercise Price applicable to such
exercise applied last (such principal amount, the "Applied Principal")),
with such reduction equal to the difference between (a) the aggregate
Exercise Price of the shares of Common Stock issuable hereunder and (b) the
present value of all remaining interest payments that would otherwise
accrue on the Applied Principal if not for the application hereunder
between the date of such Notice of Exercise and the Maturity Date (as
defined in the Debentures), assuming for such purposes that the Applied
Principal is held by such Holder until the Maturity Date, discounted based
on the one-year Treasury Rate in effect at the time of such exercise.
Notwithstanding anything herein to the contrary, the Holder shall not be
required to physically surrender this Warrant to the Company until the
Holder has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within 3 Trading
Days of the date the final Notice of Exercise is delivered to the Company.
Partial exercises of this Warrant resulting in purchases of a portion of
the total number of Warrant Shares available hereunder shall have the
effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased. The Holder and the Company shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases. The
Company shall deliver any objection to any Notice of Exercise Form within 1
Business Day of receipt of such notice. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be $1.65, subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. If at any time after the earlier of (i) the one
year anniversary of the date of the Purchase Agreement and (ii) the
completion of the then-applicable holding period required by Rule 144, or
any successor provision then in effect, there is no effective Registration
Statement registering, or no current prospectus available for, the resale
of the Warrant Shares by the Holder, then this Warrant may also be
exercised at such time by means of a "cashless exercise" in which the
2
Holder shall be entitled to receive a certificate for the number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the VWAP for the Trading Day immediately preceding the date
of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
d) Holder's Restrictions. The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion
of this Warrant, pursuant to Section 2 or otherwise, to the extent that
after giving effect to such issuance after exercise as set forth on the
applicable Notice of Exercise, the Holder (together with the Holder's
Affiliates, and any other person or entity acting as a group together with
the Holder or any of the Holder's Affiliates), would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below). For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant
with respect to which such determination is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon (A)
exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Common
Stock Equivalents) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the
Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder, it being acknowledged by the
Holder that the Company is not representing to the Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and the
Holder is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation contained in this
Section 2(d) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together
with any Affiliates) and of which portion of this Warrant is exercisable
shall be in the sole discretion of the Holder, and the submission of a
Notice of Exercise shall be deemed to be the Holder's determination of
whether this Warrant is exercisable (in relation to other securities owned
by the Holder together with any Affiliates) and of which portion of this
Warrant is exercisable, in each case subject to the Beneficial Ownership
Limitation, and the Company shall have no obligation to verify or confirm
the accuracy of such determination. In addition, a determination as to any
group status as contemplated above shall be determined in accordance with
3
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most
recent periodic or annual report, as the case may be, (y) a more recent
public announcement by the Company or (z) any other notice by the Company
or the Company's Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of a Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates since the date as
of which such number of outstanding shares of Common Stock was reported.
The "Beneficial Ownership Limitation" shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock issuable upon exercise of this
Warrant. The Holder, upon not less than 61 days' prior notice to the
Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2(d), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon exercise of this Warrant held by the Holder and the
provisions of this Section 2(d) shall continue to apply. Any such increase
or decrease will not be effective until the 61st day after such notice is
delivered to the Company. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity
with the terms of this Section 2(d) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.
e) Mechanics of Exercise.
i. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent
of the Company to the Holder by crediting the account of the Holder's
prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission ("DWAC") system if the Company is a
participant in such system and there is an effective Registration
Statement permitting the resale of the Warrant Shares by the Holder,
and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within 3 Trading Days from the
delivery to the Company of the Notice of Exercise Form, surrender of
this Warrant (if required) and payment of the aggregate Exercise Price
as set forth above ("Warrant Share Delivery Date"). This Warrant shall
be deemed to have been exercised on the date the Exercise Price is
received by the Company. The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such
4
shares for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price (including through
cancellation or reduction of amounts owed under the Debentures or by
cashless exercise) and all taxes required to be paid by the Holder, if
any, pursuant to Section 2(e)(vi) prior to the issuance of such
shares, have been paid. If the Company fails for any reason to deliver
to the Holder certificates evidencing the Warrant Shares subject to a
Notice of Exercise by the Warrant Share Delivery Date, the Company
shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, for each $1,000 of Warrant Shares subject to such exercise
(based on the VWAP of the Common Stock on the date of the applicable
Notice of Exercise), $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after such Warrant Share
Delivery Date until such certificates are delivered.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall
have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
iii. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(i) by
the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its
broker to purchase (in an open market transaction or otherwise) or the
Holder's brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares
which the Holder anticipated receiving upon such exercise (a
"Buy-In"), then the Company shall (1) pay in cash to the Holder the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to
the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate
5
the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company's failure to
timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the
Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
vii. Closing of Books. The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
Section 3. Certain Adjustments.
--------- -------------------
a) Stock Dividends and Splits. If the Company, at any time while
this Warrant is outstanding: (A) pays a stock dividend or otherwise
6
make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of
Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon exercise of this
Warrant), (B) subdivides outstanding shares of Common Stock into a
larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number
of shares, or (D) issues by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then in each case
the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares
issuable upon exercise of this Warrant shall be proportionately
adjusted such that the aggregate Exercise Price of this Warrant shall
remain unchanged. Any adjustment made pursuant to this Section 3(a)
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while this Warrant is outstanding,
shall sell or grant any option to purchase, or sell or grant any right
to reprice, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the
then Exercise Price (such lower price, the "Base Share Price" and such
issuances collectively, a "Dilutive Issuance") (if the holder of the
Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due
to warrants, options or rights per share which are issued in
connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Exercise
Price, such issuance shall be deemed to have occurred for less than
the Exercise Price on such date of the Dilutive Issuance), then the
Exercise Price shall be reduced and only reduced to equal the Base
Share Price and the number of Warrant Shares issuable hereunder shall
be increased such that the aggregate Exercise Price payable hereunder,
after taking into account the decrease in the Exercise Price, shall be
equal to the aggregate Exercise Price prior to such adjustment. Such
adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustments
shall be made, paid or issued under this Section 3(b) in respect of an
Exempt Issuance. The Company shall notify the Holder in writing, no
later than the Trading Day following the issuance of any Common Stock
or Common Stock Equivalents subject to this Section 3(b), indicating
therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice
the "Dilutive Issuance Notice"). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 3(b), upon the occurrence of any Dilutive
Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base
7
Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.
c) Subsequent Rights Offerings. If the Company, at any time while
the Warrant is outstanding, shall issue rights, options or warrants to
all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share
less than the 5 day average VWAP at the record date mentioned below,
then the Exercise Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus
the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered
(assuming receipt by the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at
such VWAP. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive
such rights, options or warrants.
d) Pro Rata Distributions. If the Company, at any time while this
Warrant is outstanding, shall distribute to all holders of Common
Stock (and not to Holders of the Warrants) evidences of its
indebtedness or assets (including cash and cash dividends) or rights
or warrants to subscribe for or purchase any security other than the
Common Stock (which shall be subject to Section 3(b)), then in each
such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the 5 day
average VWAP determined as of the record date mentioned above, and of
which the numerator shall be such 5 day average VWAP on such record
date less the then per share fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined
by the Board of Directors in good faith and the number of Warrant
Shares issuable hereunder shall be increased such that the aggregate
Exercise Price payable hereunder, after taking into account the
decrease in the Exercise Price, shall be equal to the aggregate
Exercise Price prior to such adjustment. In either case the
adjustments shall be described in a statement provided to the Holder
of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
e) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger, consolidation or
combination of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in
one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
8
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (each "Fundamental Transaction"), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental
Transaction, the number of shares of Common Stock of the successor or
acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the "Alternate
Consideration") receivable as a result of such merger, consolidation
or disposition of assets by a holder of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
event. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the
Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall agree to be
bound by the terms and conditions of this Warrant and shall issue to
the Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of
this Section 3(e) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction. Notwithstanding
anything to the contrary, in the event of a Fundamental Transaction
that is (1) a cash transaction in which the cash component is at least
33% of the total consideration provided to the majority of
shareholders, (2) a "Rule 13e-3 transaction" as defined in Rule 13e-3
under the Securities Exchange Act of 1934, as amended, or (3) a
Fundamental Transaction involving a person or entity not traded on a
national securities exchange, the Nasdaq Global Select Market, the
Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any
successor entity shall pay at the Holder's option, exercisable at any
time concurrently with or within 30 days after the consummation of the
Fundamental Transaction, an amount of cash equal to the value of this
Warrant as determined in accordance with the Black Scholes Option
Pricing Model obtained from the "OV" function on Bloomberg L.P. using
(i) a price per share of Common Stock equal to the 5 day average VWAP
of the Common Stock for the Trading Day immediately preceding the date
of consummation of the applicable Fundamental Transaction, (ii) a
risk-free interest rate corresponding to the U.S. Treasury rate for a
period equal to the remaining term of this Warrant as of the date of
consummation of the applicable Fundamental Transaction and (iii) an
expected volatility equal to the greater of (a) 40% or (b) the 100 day
volatility obtained from the "HVT" function on Bloomberg L.P.
determined as of the Trading Day immediately following the public
announcement of the applicable Fundamental Transaction.
9
f) Calculations. All calculations under this Section 3 shall be
made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
g) Voluntary Adjustment By Company. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the
Board of Directors of the Company.
h) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price
is adjusted pursuant to any provision of this Section 3, the
Company shall promptly mail to the Holder a notice setting forth
the Exercise Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. If the
Company enters into a Variable Rate Transaction (as defined in
the Purchase Agreement), despite the prohibition thereon in the
Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be
converted or exercised.
ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever
form) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common
Stock, any consolidation, merger or combination to which the
Company is a party, any sale or transfer of all or substantially
all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up
of the affairs of the Company; then, in each case, the Company
shall cause to be mailed to the Holder at its last address as it
shall appear upon the Warrant Register of the Company, at least
20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger,
combination, sale, transfer or share exchange is expected to
10
become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, combination, sale,
transfer or share exchange; provided that the failure to mail
such notice or any defect therein or in the mailing thereof shall
not affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to exercise this
Warrant during the period commencing on the date of such notice
to the effective date of the event triggering such notice.
Section 4. Transfer of Warrant.
--------- -------------------
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice. All
Warrants issued on transfers or exchanges shall be dated the Initial
Exercise Date and shall be identical with this Warrant except as to the
number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
11
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee of this Warrant, as the case may
be, comply with the provisions of Section 5.7 of the Purchase Agreement;
provided, however, that notwithstanding the foregoing, the Holder may
transfer this Warrant and any shares of Common Stock issuable upon exercise
of this Warrant to any affiliate(s) of the Holder.
Section 5. Miscellaneous.
--------- -------------
a) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof as set forth in Section 2(e)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the
Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which
the Common Stock may be listed. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the
12
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary
or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise
of this Warrant, and (c) use commercially reasonable efforts to
obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under
this Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
13
h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first above
indicated.
EPIC ENERGY RESOURCES, INC.
By:____________________________________
Name:
Title:
15
NOTICE OF EXERCISE
TO: EPIC ENERGY RESOURCES, INC.
(1)___The undersigned hereby elects to purchase ________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2)___Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] through the cancellation of $___________ principal
amount owed to the Holder under the Debenture dated
________, 2007; or
[ ] [if permitted] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set forth
in subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3)___Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
-------------------------------------
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
-------------------------------------
-------------------------------------
-------------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ___________________________________________________
Signature of Authorized Signatory of Investing Entity: ______________________
Name of Authorized Signatory: _______________________________________________
Title of Authorized Signatory: ______________________________________________
Date: _______________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and
supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT D
FORM OF LEGAL OPINION
[List of Purchasers]
Ladies and Gentlemen:
We have acted as counsel to Epic Energy Resources, Inc., a Colorado
corporation (the "Company"), in connection with the execution and delivery by
the Company of the Securities Purchase Agreement, dated as of November __, 2007
(the "Agreement"), by and among the Company and the purchasers identified on the
signature pages thereto (the "Purchasers"). This opinion is given to you
pursuant to Section 2.2(a) of the Agreement. (Capitalized terms not otherwise
defined herein are defined as set forth in the Agreement.)
We have participated in the preparation and negotiation of the Agreement
and the Exhibits and Schedules thereto, and the other documents referred to
therein. We also have examined such certificates of public officials, corporate
documents and records and other certificates, opinions, agreements and
instruments and have made such other investigations as we have deemed necessary
in connection with the opinions hereinafter set forth.
Based on the foregoing and upon such investigation as we have deemed
necessary, we give you our opinion as follows:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of Colorado. The Company has all requisite power
and authority, and all material governmental licenses, authorizations, consents
and approvals, that are required to own and operate its properties and assets
and to carry on its business as now conducted and as proposed to be conducted
(all as described in the Company's SEC Reports filed in the last 12 months). The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to qualify could have a Material Adverse
Effect on the Company.
2. Each of the following subsidiaries of the Company (the "Subsidiaries")
is a corporation, duly organized and in good standing under the laws of its
state of organization, as noted: [ ].
3. The Company has all requisite power and authority (i) to execute,
deliver and perform the Transaction Documents, (ii) to issue, sell and deliver
the Debentures, the Warrants and the Underlying Shares pursuant to the
Transaction Documents and (iii) to carry out and perform its obligations under,
and to consummate the transactions contemplated by, the Transaction Documents.
4. All action on the part of the Company, its directors and its
stockholders necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Debentures and the Warrants pursuant to the Agreement, the
issuance and delivery the Underlying Shares and the consummation by the Company
of the transactions contemplated by the Transaction Documents has been duly
taken. The Transaction Documents have been duly and validly executed and
delivered by the Company and constitute the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with their terms,
except that (a) such enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general and
(b) the remedies of specific performance and injunctive and other forms of
injunctive relief may be subject to equitable defenses.
5. After giving effect to the transactions contemplated by the Agreement,
and immediately after the Closing, the authorized capital stock of the Company
will consist of: an aggregate of _________ shares of Common Stock, of which
shares will be issued and outstanding and _________ shares will be reserved for
issuance upon conversion of issued and outstanding options, warrants and other
derivative securities, __________ shares will be reserved for issuance to
employees, officers and directors under the Company's [ _ Stock Incentive Plan],
of which __________ shares are subject to currently outstanding incentive stock
option grants and __________ shares are subject to currently outstanding
non-qualified stock option grants, and __________ shares will be reserved for
issuance upon exercise of Warrants, and _____ shares will be reserved for
issuance upon redemption of the Debentures. All presently issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable and free of any preemptive or similar rights, and
have been issued in compliance with applicable securities laws and regulations.
The Debentures and Warrants which are being issued on the date hereof pursuant
to the Agreement have been duly authorized and validly issued and are fully paid
and nonassessable and free of preemptive or similar rights, and have been issued
in compliance with applicable securities laws, rules and regulations. The
Underlying Shares have been duly and validly authorized and reserved for
issuance, and when issued upon redemption of the Debenture or the exercise of
the Warrants in accordance with the respective terms therein, will be validly
issued, fully paid and nonassessable, and free of any preemptive or similar
rights. To our knowledge, except for rights described in Schedule [3.1(g) of the
Agreement, there are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire from the Company
any capital stock or other securities of the Company, or any other agreements to
issue any such securities or rights. The rights, privileges and preferences of
the Common Stock are as stated in the Company's [_______________](1).
6. To our knowledge, the Company has filed all reports (the "SEC Reports")
required to be filed by it under Sections 13(a) and 15(d) of the Exchange Act of
1934, as amended (the "Exchange Act"). As of their respective filing dates, the
SEC Reports complied in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations of the Commission promulgated
thereunder.
- ------------------------------------
1 Insert appropriate organizational document.
2
7. Based in part upon the representations of the Purchasers contained in
the Agreement, the Debentures, the Warrants and the Underlying Shares may be
issued to the Purchasers without registration under the Securities Act of 1933,
as amended.
8. The execution, delivery and performance by the Company of, and the
compliance by the Company with the terms of, the Transaction Documents and the
issuance, sale and delivery of the Debentures, the Warrants and the Underlying
Shares pursuant to the Agreement do not (a) conflict with or result in a
violation of any provision of law, rule or regulation applicable to the Company
or its Subsidiaries or of the certificate of incorporation or by-laws or other
similar organizational documents of the Company or its Subsidiaries, (b)
conflict with, result in a breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or result in
or permit the termination or modification of, any agreement, instrument, order,
writ, judgment or decree known to us to which the Company of its Subsidiaries is
a party or is subject or (c) result in the creation or imposition of any lien,
claim or encumbrance on any of the assets or properties of the Company or its
Subsidiaries'.
9. To our knowledge, except as set forth in the Disclosure Schedule to the
Agreement, there is no claim, action, suit, proceeding, arbitration,
investigation or inquiry, pending or threatened, before any court or
governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or its Subsidiaries, or any of the officers,
directors or employees (in connection with the discharge of their duties as
officers, directors and employees) of the Company or its Subsidiaries, or
affecting any of its properties or assets.
10. In connection with the valid execution, delivery and performance by the
Company of the Transaction Documents, or the offer, sale, issuance or delivery
of the Debentures, the Warrants and the Underlying Shares or the consummation of
the transactions contemplated thereby, no consent, license, permit, waiver,
approval or authorization of, or designation, declaration, registration or
filing with, any court, governmental or regulatory authority, or self-regulatory
organization, is required.
11. The Company is not, and after the consummation of the transactions
contemplated by the Transaction Documents shall not be, an Investment Company
within the meaning of the Investment Company Act of 1940, as amended.
12. The Security Agreement is sufficient to grant the Purchasers a security
interest in all of the Company's and Subsidiaries' assets, and upon filing the
UCC-1 in the office of the Secretary of States of Colorado and __________, such
security interest shall be perfected as to those items of collateral which can
be perfected by the filing of such UCC-1.
Very truly yours,
3
EXHIBIT E
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of December 5, 2007 (this
"Agreement"), is among Epic Energy Resources, Inc., a Colorado corporation (the
"Company"), all of the Subsidiaries of the Company (such subsidiaries, the
"Guarantors" and together with the Company, the "Debtors") and the holders of
the Company's 10% Secured Debentures due December 5, 2012 and issued on December
5, 2007 in the original aggregate principal amount of $[_____ (collectively, the
"Debentures") signatory hereto, their endorsees, transferees and assigns
(collectively, the "Secured Parties").
W I T N E S S E T H:
WHEREAS, pursuant to the Purchase Agreement (as defined in the
Debentures), the Secured Parties have severally agreed to extend the loans to
the Company evidenced by the Debentures;
WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the
date hereof (the "Guarantee"), the Guarantors have jointly and severally agreed
to guarantee and act as surety for payment of such Debentures; and
WHEREAS, in order to induce the Secured Parties to extend the loans
evidenced by the Debentures, each Debtor has agreed to execute and deliver to
the Secured Parties this Agreement and to grant the Secured Parties, pari passu
with each other Secured Party and through the Agent, a security interest in
certain property of such Debtor to secure the prompt payment, performance and
discharge in full of all of the Company's obligations under the Debentures and
the Guarantors' obligations under the Guarantee.
NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC.
(a) "Collateral" means the collateral in which the Secured Parties
are granted a security interest by this Agreement and which shall include
the following personal property of the Debtors, whether presently owned or
existing or hereafter acquired or coming into existence, wherever
situated, and all additions and accessions thereto and all substitutions
and replacements thereof, and all proceeds, products and accounts thereof,
1
including, without limitation, all proceeds from the sale or transfer of
the Collateral and of insurance covering the same and of any tort claims
in connection therewith, and all dividends, interest, cash, notes,
securities, equity interest or other property at any time and from time to
time acquired, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Securities (as defined below):
(i) All goods, including, without limitation, (A) all
machinery, equipment, computers, motor vehicles, trucks, tanks,
boats, ships, appliances, furniture, special and general tools,
fixtures, test and quality control devices and other equipment of
every kind and nature and wherever situated, together with all
documents of title and documents representing the same, all
additions and accessions thereto, replacements therefor, all parts
therefor, and all substitutes for any of the foregoing and all other
items used and useful in connection with any Debtor's businesses and
all improvements thereto; and (B) all inventory;
(ii) All contract rights and other general intangibles,
including, without limitation, all partnership interests, membership
interests, stock or other securities, rights under any of the
Organizational Documents, agreements related to the Pledged
Securities, licenses, distribution and other agreements, computer
software (whether "off-the-shelf", licensed from any third party or
developed by any Debtor), computer software development rights,
leases, franchises, customer lists, quality control procedures,
grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, and
income tax refunds;
(iii) All accounts, together with all instruments, all
documents of title representing any of the foregoing, all rights in
any merchandising, goods, equipment, motor vehicles and trucks which
any of the same may represent, and all right, title, security and
guaranties with respect to each account, including any right of
stoppage in transit;
(iv) All documents, letter-of-credit rights, instruments and
chattel paper;
(v) All commercial tort claims;
(vi) All deposit accounts and all cash (whether or not
deposited in such deposit accounts);
(vii) All investment property;
(viii) All supporting obligations; and
(ix) All files, records, books of account, business papers,
and computer programs; and
2
(x) the products and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(ix) above.
Without limiting the generality of the foregoing, the
"Collateral" shall include all investment property and general
intangibles respecting ownership and/or other equity interests in
each Guarantor, including, without limitation, the shares of capital
stock and the other equity interests listed on Schedule H hereto (as
the same may be modified from time to time pursuant to the terms
hereof), and any other shares of capital stock and/or other equity
interests of any other direct or indirect subsidiary of any Debtor
obtained in the future, and, in each case, all certificates
representing such shares and/or equity interests and, in each case,
all rights, options, warrants, stock, other securities and/or equity
interests that may hereafter be received, receivable or distributed
in respect of, or exchanged for, any of the foregoing and all rights
arising under or in connection with the Pledged Securities,
including, but not limited to, all dividends, interest and cash.
Notwithstanding the foregoing, nothing herein shall be deemed
to constitute an assignment of any asset which, in the event of an
assignment, becomes void by operation of applicable law or the
assignment of which is otherwise prohibited by applicable law (in
each case to the extent that such applicable law is not overridden
by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar
applicable law); provided, however, that to the extent permitted by
applicable law, this Agreement shall create a valid security
interest in such asset and, to the extent permitted by applicable
law, this Agreement shall create a valid security interest in the
proceeds of such asset.
(b) "Intellectual Property" means the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, (i) all copyrights arising under
the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether
published or unpublished, all registrations and recordings thereof, and
all applications in connection therewith, including, without limitation,
all registrations, recordings and applications in the United States
Copyright Office, (ii) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof, and all applications for letters patent of the United States or
any other country and all divisions, continuations and
continuations-in-part thereof, (iii) all trademarks, trade names,
corporate names, company names, business names, fictitious business names,
trade dress, service marks, logos, domain names and other source or
business identifiers, and all goodwill associated therewith, now existing
or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or any
political subdivision thereof, or otherwise, and all common law rights
related thereto, (iv) all trade secrets arising under the laws of the
United States, any other country or any political subdivision thereof, (v)
all rights to obtain any reissues, renewals or extensions of the
3
foregoing, (vi) all licenses for any of the foregoing, and (vii) all
causes of action for infringement of the foregoing.
(c) "Majority in Interest" means, at any time of determination, the
majority in interest (based on then-outstanding principal amounts of
Debentures at the time of such determination) of the Secured Parties.
(d) "Necessary Endorsement" means undated stock powers endorsed in
blank or other proper instruments of assignment duly executed and such
other instruments or documents as the Agent (as that term is defined
below) may reasonably request.
(e) "Obligations" means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, or
owing to, of any Debtor to the Secured Parties, including, without
limitation, all obligations under this Agreement, the Debentures, the
Guarantee and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith, in each
case, whether now or hereafter existing, voluntary or involuntary, direct
or indirect, absolute or contingent, liquidated or unliquidated, whether
or not jointly owed with others, and whether or not from time to time
decreased or extinguished and later increased, created or incurred, and
all or any portion of such obligations or liabilities that are paid, to
the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Secured Parties as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time. Without
limiting the generality of the foregoing, the term "Obligations" shall
include, without limitation: (i) principal of, and interest on the
Debentures and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from
time to time under or in connection with this Agreement, the Debentures,
the Guarantee and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith; and (iii)
all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding
involving any Debtor.
(f) "Organizational Documents" means with respect to any Debtor, the
documents by which such Debtor was organized (such as a certificate of
incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of
designation for preferred stock or other forms of preferred equity) and
which relate to the internal governance of such Debtor (such as bylaws, a
partnership agreement or an operating, limited liability or members
agreement).
(g) "Pledged Interests" shall have the meaning ascribed to such
term in Section 4(j).
4
(h) "Pledged Securities" shall have the meaning ascribed to such
term in Section 4(i).
(i) "UCC" means the Uniform Commercial Code of the State of New York
and or any other applicable law of any state or states which has
jurisdiction with respect to all, or any portion of, the Collateral or
this Agreement, from time to time. It is the intent of the parties that
defined terms in the UCC should be construed in their broadest sense so
that the term "Collateral" will be construed in its broadest sense.
Accordingly if there are, from time to time, changes to defined terms in
the UCC that broaden the definitions, they are incorporated herein and if
existing definitions in the UCC are broader than the amended definitions,
the existing ones shall be controlling.
2. Grant of Security Interest in Collateral. As an inducement for the
Secured Parties to extend the loans as evidenced by the Debentures and to secure
the complete and timely payment, performance and discharge in full, as the case
may be, of all of the Obligations, each Debtor hereby unconditionally and
irrevocably pledges, grants and hypothecates to the Secured Parties a security
interest in and to, a lien upon and a right of set-off against all of their
respective right, title and interest of whatsoever kind and nature in and to,
the Collateral (a "Security Interest" and, collectively, the "Security
Interests").
3. Delivery of Certain Collateral. Contemporaneously or prior to the
execution of this Agreement, each Debtor shall deliver or cause to be delivered
to the Agent (a) any and all certificates and other instruments representing or
evidencing the Pledged Securities, and (b) any and all certificates and other
instruments or documents representing any of the other Collateral, in each case,
together with all Necessary Endorsements. The Debtors are, contemporaneously
with the execution hereof, delivering to Agent, or have previously delivered to
Agent, a true and correct copy of each Organizational Document governing any of
the Pledged Securities.
4. Representations, Warranties, Covenants and Agreements of the Debtors.
Except as set forth under the corresponding section of the disclosure schedules
delivered to the Secured Parties concurrently herewith (the "Disclosure
Schedules"), which Disclosure Schedules shall be deemed a part hereof, each
Debtor represents and warrants to, and covenants and agrees with, the Secured
Parties as follows:
(a) Each Debtor has the requisite corporate, partnership, limited
liability company or other power and authority to enter into this
Agreement and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by each Debtor of this Agreement and
the filings contemplated therein have been duly authorized by all
necessary action on the part of such Debtor and no further action is
required by such Debtor. This Agreement has been duly executed by each
Debtor. This Agreement constitutes the legal, valid and binding obligation
of each Debtor, enforceable against each Debtor in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors
and by general principles of equity.
5
(b) The Debtors have no place of business or offices where their
respective books of account and records are kept (other than temporarily
at the offices of its attorneys or accountants) or places where Collateral
is stored or located, except as set forth on Schedule A attached hereto.
Except as specifically set forth on Schedule A, each Debtor is the record
owner of the real property where such Collateral is located, and there
exist no mortgages or other liens on any such real property except for
Permitted Liens (as defined in the Debentures). Except as disclosed on
Schedule A, none of such Collateral is in the possession of any consignee,
bailee, warehouseman, agent or processor. All real property of the Company
and all interests of the Company in any oil, gas or mineral properties,
and the like, are as set forth on Schedule A attached hereto. Within 60
days of the date hereof, the Debtors shall have granted the Secured
Parties a first priority security interest in all real property of the
Debtors and all interests of the Debtors in any oil, gas or mineral
properties, and the like. The Company shall reimburse the Agent for all
fees and expenses, including but not limited to legal fees and expenses,
incurred in connection with ensuring that the obligations of the Debtors
under this Section 4(b) are complied with.
(c) Except for Permitted Liens (as defined in the Debentures) and
except as set forth on Schedule B attached hereto, the Debtors are the
sole owner of the Collateral (except for non-exclusive licenses granted by
any Debtor in the ordinary course of business), free and clear of any
liens, security interests, encumbrances, rights or claims, and are fully
authorized to grant the Security Interests. Except as set forth on
Schedule B attached hereto, there is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any of
the foregoing (other than those that will be filed in favor of the Secured
Parties pursuant to this Agreement) covering or affecting any of the
Collateral. Except as set forth on Schedule B attached hereto and except
pursuant to this Agreement, as long as this Agreement shall be in effect,
the Debtors shall not execute and shall not knowingly permit to be on file
in any such office or agency any other financing statement or other
document or instrument (except to the extent filed or recorded in favor of
the Secured Parties pursuant to the terms of this Agreement).
(d) No written claim has been received that any Collateral or any
Debtor's use of any Collateral violates the rights of any third party.
There has been no adverse decision to any Debtor's claim of ownership
rights in or exclusive rights to use the Collateral in any jurisdiction or
to any Debtor's right to keep and maintain such Collateral in full force
and effect, and there is no proceeding involving said rights pending or,
to the best knowledge of any Debtor, threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other
governmental authority.
(e) Each Debtor shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on Schedule A attached hereto
and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Parties at least 30 days
prior to such relocation (i) written notice of such relocation and the new
location thereof (which must be within the United States) and (ii)
evidence that appropriate financing statements under the UCC and other
6
necessary documents have been filed and recorded and other steps have been
taken to perfect the Security Interests to create in favor of the Secured
Parties a valid, perfected and continuing perfected first priority lien in
the Collateral.
(f) This Agreement creates in favor of the Secured Parties a valid
security interest in the Collateral, subject only to Permitted Liens (as
defined in the Debentures) securing the payment and performance of the
Obligations. Upon making the filings described in the immediately
following paragraph, all security interests created hereunder in any
Collateral which may be perfected by filing Uniform Commercial Code
financing statements shall have been duly perfected. Except for the filing
of the Uniform Commercial Code financing statements referred to in the
immediately following paragraph, the recordation of the Intellectual
Property Security Agreement (as defined below) with respect to copyrights
and copyright applications in the United States Copyright Office referred
to in paragraph (m), the execution and delivery of deposit account control
agreements satisfying the requirements of Section 9-104(a)(2) of the UCC
with respect to each deposit account of the Debtors, and the delivery of
the certificates and other instruments provided in Section 3, no action is
necessary to create, perfect or protect the security interests created
hereunder. Without limiting the generality of the foregoing, except for
the filing of said financing statements, the recordation of said
Intellectual Property Security Agreement, and the execution and delivery
of said deposit account control agreements, no consent of any third
parties and no authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required for (i) the execution, delivery and performance of this
Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral or (iii) the enforcement of the rights
of the Agent and the Secured Parties hereunder.
(g) Each Debtor hereby authorizes the Agent to file one or more
financing statements under the UCC, with respect to the Security
Interests, with the proper filing and recording agencies in any
jurisdiction deemed proper by it.
(h) The execution, delivery and performance of this Agreement by
the Debtors does not (i) violate any of the provisions of any
Organizational Documents of any Debtor or any judgment, decree, order or
award of any court, governmental body or arbitrator or any applicable law,
rule or regulation applicable to any Debtor or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing any Debtor's debt or otherwise) or other
understanding to which any Debtor is a party or by which any property or
asset of any Debtor is bound or affected. If any, all required consents
(including, without limitation, from stockholders or creditors of any
Debtor) necessary for any Debtor to enter into and perform its obligations
hereunder have been obtained.
7
(i) The capital stock and other equity interests listed on Schedule
H hereto (the "Pledged Securities") represent all of the capital stock and
other equity interests of the Guarantors, and represent all capital stock
and other equity interests owned, directly or indirectly, by the Company.
All of the Pledged Securities are validly issued, fully paid and
nonassessable, and the Company is the legal and beneficial owner of the
Pledged Securities, free and clear of any lien, security interest or other
encumbrance except for the security interests created by this Agreement
and other Permitted Liens (as defined in the Debentures).
(j) The ownership and other equity interests in partnerships and
limited liability companies (if any) included in the Collateral (the
"Pledged Interests") by their express terms do not provide that they are
securities governed by Article 8 of the UCC and are not held in a
securities account or by any financial intermediary.
(k) Except for Permitted Liens (as defined in the Debentures), each
Debtor shall at all times maintain the liens and Security Interests
provided for hereunder as valid and perfected first priority liens and
security interests in the Collateral in favor of the Secured Parties until
this Agreement and the Security Interest hereunder shall be terminated
pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the
same against the claims of any and all persons and entities. Each Debtor
shall safeguard and protect all Collateral for the account of the Secured
Parties. At the request of the Agent, each Debtor will sign and deliver to
the Agent on behalf of the Secured Parties at any time or from time to
time one or more financing statements pursuant to the UCC in form
reasonably satisfactory to the Agent and will pay the cost of filing the
same in all public offices wherever filing is, or is deemed by the Agent
to be, necessary or desirable to effect the rights and obligations
provided for herein. Without limiting the generality of the foregoing,
each Debtor shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interests hereunder, and each
Debtor shall obtain and furnish to the Agent from time to time, upon
demand, such releases and/or subordinations of claims and liens which may
be required to maintain the priority of the Security Interests hereunder.
(l) No Debtor will transfer, pledge, hypothecate, encumber, license,
sell or otherwise dispose of any of the Collateral (except for
non-exclusive licenses granted by a Debtor in its ordinary course of
business and sales of inventory by a Debtor in its ordinary course of
business) without the prior written consent of a Majority in Interest.
(m) Each Debtor shall keep and preserve its equipment, inventory and
other tangible Collateral in good condition, repair and order and shall
not operate or locate any such Collateral (or cause to be operated or
located) in any area excluded from insurance coverage.
(n) Each Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral, including Collateral
hereafter acquired, against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having
similar properties similarly situated and in such amounts as are
8
customarily carried under similar circumstances by other such entities and
otherwise as is prudent for entities engaged in similar businesses but in
any event sufficient to cover the full replacement cost thereof. Each
Debtor shall cause each insurance policy issued in connection herewith to
provide, and the insurer issuing such policy to certify to the Agent, that
(a) the Agent will be named as lender loss payee and additional insured
under each such insurance policy; (b) if such insurance be proposed to be
cancelled or materially changed for any reason whatsoever, such insurer
will promptly notify the Agent and such cancellation or change shall not
be effective as to the Agent for at least thirty (30) days after receipt
by the Agent of such notice, unless the effect of such change is to extend
or increase coverage under the policy; and (c) the Agent will have the
right (but no obligation) at its election to remedy any default in the
payment of premiums within thirty (30) days of notice from the insurer of
such default. If no Event of Default (as defined in the Debentures) exists
and if the proceeds arising out of any claim or series of related claims
do not exceed $100,000, loss payments in each instance will be applied by
the applicable Debtor to the repair and/or replacement of property with
respect to which the loss was incurred to the extent reasonably feasible,
and any loss payments or the balance thereof remaining, to the extent not
so applied, shall be payable to the applicable Debtor; provided, however,
that payments received by any Debtor after an Event of Default occurs and
is continuing or in excess of $100,000 for any occurrence or series of
related occurrences shall be paid to the Agent on behalf of the Secured
Parties and, if received by such Debtor, shall be held in trust for the
Secured Parties and immediately paid over to the Agent unless otherwise
directed in writing by the Agent. Copies of such policies or the related
certificates, in each case, naming the Agent as lender loss payee and
additional insured shall be delivered to the Agent at least annually and
at the time any new policy of insurance is issued.
(o) Each Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Parties promptly, in sufficient detail, of any
material adverse change in the Collateral, and of the occurrence of any
event which would have a material adverse effect on the value of the
Collateral or on the Secured Parties' security interest, through the
Agent, therein.
(p) Each Debtor shall promptly execute and deliver to the Agent
such further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances
and take such further action as the Agent may from time to time request
and may in its sole discretion deem necessary to perfect, protect or
enforce the Secured Parties' security interest in the Collateral
including, without limitation, if applicable, the execution and delivery
of a separate security agreement with respect to each Debtor's
Intellectual Property ("Intellectual Property Security Agreement") in
which the Secured Parties have been granted a security interest hereunder,
substantially in a form reasonably acceptable to the Agent, which
Intellectual Property Security Agreement, other than as stated therein,
shall be subject to all of the terms and conditions hereof.
(q) Each Debtor shall permit the Agent and its representatives and
agents to inspect the Collateral during normal business hours and upon
9
reasonable prior notice, and to make copies of records pertaining to the
Collateral as may be reasonably requested by the Agent from time to time.
(r) Each Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Collateral.
(s) Each Debtor shall promptly notify the Secured Parties in
sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and of any
other information received by such Debtor that may materially affect the
value of the Collateral, the Security Interest or the rights and remedies
of the Secured Parties hereunder.
(t) All information heretofore, herein or hereafter supplied to the
Secured Parties by or on behalf of any Debtor with respect to the
Collateral is accurate and complete in all material respects as of the
date furnished.
(u) The Debtors shall at all times preserve and keep in full force
and effect their respective valid existence and good standing and any
rights and franchises material to its business.
(v) No Debtor will change its name, type of organization,
jurisdiction of organization, organizational identification number (if it
has one), legal or corporate structure, or identity, or add any new
fictitious name unless it provides at least 30 days prior written notice
to the Secured Parties of such change and, at the time of such written
notification, such Debtor provides any financing statements or fixture
filings necessary to perfect and continue the perfection of the Security
Interests granted and evidenced by this Agreement.
(w) Except in the ordinary course of business, no Debtor may consign
any of its inventory or sell any of its inventory on bill and hold, sale
or return, sale on approval, or other conditional terms of sale without
the consent of the Agent which shall not be unreasonably withheld.
(x) No Debtor may relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to
the Secured Parties and so long as, at the time of such written
notification, such Debtor provides any financing statements or fixture
filings necessary to perfect and continue the perfection of the Security
Interests granted and evidenced by this Agreement.
(y) Each Debtor was organized and remains organized solely under
the laws of the state set forth next to such Debtor's name in Schedule D
attached hereto, which Schedule D sets forth each Debtor's organizational
identification number or, if any Debtor does not have one, states that one
does not exist.
10
(z) (i) The actual name of each Debtor is the name set forth in
Schedule D attached hereto; (ii) no Debtor has any trade names except as
set forth on Schedule E attached hereto; (iii) no Debtor has used any name
other than that stated in the preamble hereto or as set forth on Schedule
E for the preceding five years; and (iv) no entity has merged into any
Debtor or been acquired by any Debtor within the past five years except as
set forth on Schedule E.
(aa) At any time and from time to time that any Collateral consists
of instruments, certificated securities or other items that require or
permit possession by the secured party to perfect the security interest
created hereby, the applicable Debtor shall deliver such Collateral to the
Agent.
(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply
with any and all orders and instructions of Agent regarding the Pledged
Interests consistent with the terms of this Agreement without the further
consent of any Debtor as contemplated by Section 8-106 (or any successor
section) of the UCC. Further, each Debtor agrees that it shall not enter
into a similar agreement (or one that would confer "control" within the
meaning of Article 8 of the UCC) with any other person or entity.
(cc) Each Debtor shall cause all tangible chattel paper constituting
Collateral to be delivered to the Agent, or, if such delivery is not
possible, then to cause such tangible chattel paper to contain a legend
noting that it is subject to the security interest created by this
Agreement. To the extent that any Collateral consists of electronic
chattel paper, the applicable Debtor shall cause the underlying chattel
paper to be "marked" within the meaning of Section 9-105 of the UCC (or
successor section thereto).
(dd) If there is any investment property or deposit account included
as Collateral that can be perfected by "control" through an account
control agreement, the applicable Debtor shall cause such an account
control agreement, in form and substance in each case satisfactory to the
Agent, to be entered into and delivered to the Agent for the benefit of
the Secured Parties.
(ee) To the extent that any Collateral consists of letter-of-credit
rights, the applicable Debtor shall cause the issuer of each underlying
letter of credit to consent to an assignment of the proceeds thereof to
the Secured Parties.
(ff) To the extent that any Collateral is in the possession of any
third party, the applicable Debtor shall join with the Agent in notifying
such third party of the Secured Parties' security interest in such
Collateral and shall use its best efforts to obtain an acknowledgement and
agreement from such third party with respect to the Collateral, in form
and substance reasonably satisfactory to the Agent.
(gg) If any Debtor shall at any time hold or acquire a commercial
tort claim, such Debtor shall promptly notify the Secured Parties in a
writing signed by such Debtor of the particulars thereof and grant to the
Secured Parties in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing
to be in form and substance satisfactory to the Agent.
11
(hh) Each Debtor shall immediately provide written notice to the
Secured Parties of any and all accounts which arise out of contracts with
any governmental authority and, to the extent necessary to perfect or
continue the perfected status of the Security Interests in such accounts
and proceeds thereof, shall execute and deliver to the Agent an assignment
of claims for such accounts and cooperate with the Agent in taking any
other steps required, in its judgment, under the Federal Assignment of
Claims Act or any similar federal, state or local statute or rule to
perfect or continue the perfected status of the Security Interests in such
accounts and proceeds thereof.
(ii) Each Debtor shall cause each subsidiary of such Debtor to
immediately become a party hereto (an "Additional Debtor"), by executing
and delivering an Additional Debtor Joinder in substantially the form of
Annex A attached hereto and comply with the provisions hereof applicable
to the Debtors. Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to (or
referred to in) this Agreement, as applicable, which replacement schedules
shall supersede, or supplements shall modify, the Schedules then in
effect. The Additional Debtor shall also deliver such opinions of counsel,
authorizing resolutions, good standing certificates, incumbency
certificates, organizational documents, financing statements and other
information and documentation as the Agent may reasonably request. Upon
delivery of the foregoing to the Agent, the Additional Debtor shall be and
become a party to this Agreement with the same rights and obligations as
the Debtors, for all purposes hereof as fully and to the same extent as if
it were an original signatory hereto and shall be deemed to have made the
representations, warranties and covenants set forth herein as of the date
of execution and delivery of such Additional Debtor Joinder, and all
references herein to the "Debtors" shall be deemed to include each
Additional Debtor.
(jj) Each Debtor shall vote the Pledged Securities to comply with
the covenants and agreements set forth herein and in the Debentures.
(kk) Each Debtor shall register the pledge of the applicable Pledged
Securities on the books of such Debtor. Each Debtor shall notify each
issuer of Pledged Securities to register the pledge of the applicable
Pledged Securities in the name of the Secured Parties on the books of such
issuer. Further, except with respect to certificated securities delivered
to the Agent, the applicable Debtor shall deliver to Agent an
acknowledgement of pledge (which, where appropriate, shall comply with the
requirements of the relevant UCC with respect to perfection by
registration) signed by the issuer of the applicable Pledged Securities,
which acknowledgement shall confirm that: (a) it has registered the pledge
on its books and records; and (b) at any time directed by Agent during the
continuation of an Event of Default, such issuer will transfer the record
ownership of such Pledged Securities into the name of any designee of
Agent, will take such steps as may be necessary to effect the transfer,
and will comply with all other instructions of Agent regarding such
Pledged Securities without the further consent of the applicable Debtor.
12
(ll) In the event that, upon an occurrence of an Event of Default,
Agent shall sell all or any of the Pledged Securities to another party or
parties (herein called the "Transferee") or shall purchase or retain all
or any of the Pledged Securities, each Debtor shall, to the extent
applicable: (i) deliver to Agent or the Transferee, as the case may be,
the articles of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements, evidences
of indebtedness, books of account, financial records and all other
Organizational Documents and records of the Debtors and their direct and
indirect subsidiaries; (ii) use its best efforts to obtain resignations of
the persons then serving as officers and directors of the Debtors and
their direct and indirect subsidiaries, if so requested; and (iii) use its
best efforts to obtain any approvals that are required by any governmental
or regulatory body in order to permit the sale of the Pledged Securities
to the Transferee or the purchase or retention of the Pledged Securities
by Agent and allow the Transferee or Agent to continue the business of the
Debtors and their direct and indirect subsidiaries.
(mm) Without limiting the generality of the other obligations of the
Debtors hereunder, each Debtor shall promptly (i) cause to be registered
at the United States Copyright Office all of its material copyrights, (ii)
cause the security interest contemplated hereby with respect to all
Intellectual Property registered at the United States Copyright Office or
United States Patent and Trademark Office to be duly recorded at the
applicable office, and (iii) give the Agent notice whenever it acquires
(whether absolutely or by license) or creates any additional material
Intellectual Property.
(nn) Each Debtor will from time to time, at the joint and several
expense of the Debtors, promptly execute and deliver all such further
instruments and documents, and take all such further action as may be
necessary or desirable, or as the Agent may reasonably request, in order
to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Parties to exercise and enforce
their rights and remedies hereunder and with respect to any Collateral or
to otherwise carry out the purposes of this Agreement.
(oo) Schedule F attached hereto lists all of the patents, patent
applications, trademarks, trademark applications, registered copyrights,
and domain names owned by any of the Debtors as of the date hereof.
Schedule F lists all material licenses in favor of any Debtor for the use
of any patents, trademarks, copyrights and domain names as of the date
hereof. All material patents and trademarks of the Debtors have been duly
recorded at the United States Patent and Trademark Office and all material
copyrights of the Debtors have been duly recorded at the United States
Copyright Office.
(pp) Except as set forth on Schedule G attached hereto, none of the
account debtors or other persons or entities obligated on any of the
Collateral is a governmental authority covered by the Federal Assignment of
Claims Act or any similar federal, state or local statute or rule in
respect of such Collateral.
(qq) Notwithstanding anything herein to the contrary, in no event
shall the Security Interest attach to, or the terms Collateral or Pledged
Collateral be deemed to include, any of the outstanding Equity Interests in
a Foreign Subsidiary (a) in excess of 65% of the voting power of all
13
classes of equity interests of such Foreign Subsidiary entitled to vote in
the election of directors or other similar body of such Foreign Subsidiary
or (b) to the extent that the pledge thereof is prohibited by the laws of
the jurisdiction of such Foreign Subsidiary. "Foreign Subsidiary" shall
mean any corporation that is a foreign corporation, as defined in Section
7701(a)(5) of the Internal Revenue Code of 1986, more than 50 percent of
(i) the total combined voting power of all classes of stock of such
corporation entitled to vote, or (ii) the total value of the stock of such
corporation, is directly or indirectly owned by the Debtor.
5. Effect of Pledge on Certain Rights. If any of the Collateral subject to
this Agreement consists of nonvoting equity or ownership interests (regardless
of class, designation, preference or rights) that may be converted into voting
equity or ownership interests upon the occurrence of certain events (including,
without limitation, upon the transfer of all or any of the other stock or assets
of the issuer), it is agreed that the pledge of such equity or ownership
interests pursuant to this Agreement or the enforcement of any of Agent's rights
hereunder shall not be deemed to be the type of event which would trigger such
conversion rights notwithstanding any provisions in the Organizational Documents
or agreements to which any Debtor is subject or to which any Debtor is party.
6. Defaults. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default (as defined in the
Debentures) under the Debentures;
(b) Any representation or warranty of any Debtor in this Agreement
shall prove to have been incorrect in any material respect when made;
(c) The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor of
notice of such failure by or on behalf of a Secured Party unless such
default is capable of cure but cannot be cured within such time frame and
such Debtor is using best efforts to cure same in a timely fashion; or
(d) If any provision of this Agreement shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any Debtor, or a proceeding shall be
commenced by any Debtor, or by any governmental authority having
jurisdiction over any Debtor, seeking to establish the invalidity or
unenforceability thereof, or any Debtor shall deny that any Debtor has any
liability or obligation purported to be created under this Agreement.
7. Duty To Hold In Trust.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, each Debtor shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the Security Interests,
whether payable pursuant to the Debentures or otherwise, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation
14
to pay any such sum, hold the same in trust for the Secured Parties and
shall forthwith endorse and transfer any such sums or instruments, or
both, to the Secured Parties, pro-rata in proportion to their respective
then-currently outstanding principal amount of Debentures for application
to the satisfaction of the Obligations (and if any Debenture is not
outstanding, pro-rata in proportion to the initial purchases of the
remaining Debentures).
(b) If any Debtor shall become entitled to receive or shall receive
any securities or other property (including, without limitation, shares of
Pledged Securities or instruments representing Pledged Securities acquired
after the date hereof, or any options, warrants, rights or other similar
property or certificates representing a dividend, or any distribution in
connection with any recapitalization, reclassification or increase or
reduction of capital, or issued in connection with any reorganization of
such Debtor or any of its direct or indirect subsidiaries) in respect of
the Pledged Securities (whether as an addition to, in substitution of, or
in exchange for, such Pledged Securities or otherwise), such Debtor agrees
to (i) accept the same as the agent of the Secured Parties; (ii) hold the
same in trust on behalf of and for the benefit of the Secured Parties; and
(iii) to deliver any and all certificates or instruments evidencing the
same to Agent on or before the close of business on the fifth business day
following the receipt thereof by such Debtor, in the exact form received
together with the Necessary Endorsements, to be held by Agent subject to
the terms of this Agreement as Collateral.
8. Rights and Remedies Upon Default.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Parties, acting through the Agent, shall have the
right to exercise all of the remedies conferred hereunder and under the
Debentures, and the Secured Parties shall have all the rights and remedies
of a secured party under the UCC. Without limitation, the Agent, for the
benefit of the Secured Parties, shall have the following rights and
powers:
(i) The Agent shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance
of any person, any premises where the Collateral, or any part
thereof, is or may be placed and remove the same, and each Debtor
shall assemble the Collateral and make it available to the Agent at
places which the Agent shall reasonably select, whether at such
Debtor's premises or elsewhere, and make available to the Agent,
without rent, all of such Debtor's respective premises and
facilities for the purpose of the Agent taking possession of,
removing or putting the Collateral in saleable or disposable form.
(ii) Upon notice to the Debtors by Agent, all rights of each
Debtor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise and all rights of each
Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease. Upon
such notice, Agent shall have the right to receive, for the benefit
of the Secured Parties, any interest, cash dividends or other
payments on the Collateral and, at the option of Agent, to exercise
15
in such Agent's discretion all voting rights pertaining thereto.
Without limiting the generality of the foregoing, Agent shall have
the right (but not the obligation) to exercise all rights with
respect to the Collateral as it were the sole and absolute owner
thereof, including, without limitation, to vote and/or to exchange,
at its sole discretion, any or all of the Collateral in connection
with a merger, reorganization, consolidation, recapitalization or
other readjustment concerning or involving the Collateral or any
Debtor or any of its direct or indirect subsidiaries.
(iii) The Agent shall have the right to operate the business
of each Debtor using the Collateral and shall have the right to
assign, sell, lease or otherwise dispose of and deliver all or any
part of the Collateral, at public or private sale or otherwise,
either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and
at such time or times and at such place or places, and upon such
terms and conditions as the Agent may deem commercially reasonable,
all without (except as shall be required by applicable statute and
cannot be waived) advertisement or demand upon or notice to any
Debtor or right of redemption of a Debtor, which are hereby
expressly waived. Upon each such sale, lease, assignment or other
transfer of Collateral, the Agent, for the benefit of the Secured
Parties, may, unless prohibited by applicable law which cannot be
waived, purchase all or any part of the Collateral being sold, free
from and discharged of all trusts, claims, right of redemption and
equities of any Debtor, which are hereby waived and released.
(iv) The Agent shall have the right (but not the obligation)
to notify any account debtors and any obligors under instruments or
accounts to make payments directly to the Agent, on behalf of the
Secured Parties, and to enforce the Debtors' rights against such
account debtors and obligors.
(v) The Agent, for the benefit of the Secured Parties, may
(but is not obligated to) direct any financial intermediary or any
other person or entity holding any investment property to transfer
the same to the Agent, on behalf of the Secured Parties, or its
designee.
(vi) The Agent may (but is not obligated to) transfer any or
all Intellectual Property registered in the name of any Debtor at
the United States Patent and Trademark Office and/or Copyright
Office into the name of the Secured Parties or any designee or any
purchaser of any Collateral.
(b) The Agent shall comply with any applicable law in connection
with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any sale
of the Collateral. The Agent may sell the Collateral without giving any
warranties and may specifically disclaim such warranties. If the Agent
sells any of the Collateral on credit, the Debtors will only be credited
with payments actually made by the purchaser. In addition, each Debtor
waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Agent's rights and remedies
16
hereunder, including, without limitation, its right following an Event of
Default to take immediate possession of the Collateral and to exercise its
rights and remedies with respect thereto.
(c) For the purpose of enabling the Agent to further exercise rights
and remedies under this Section 8 or elsewhere provided by agreement or
applicable law, each Debtor hereby grants to the Agent, for the benefit of
the Agent and the Secured Parties, an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to such
Debtor) to use, license or sublicense following an Event of Default, any
Intellectual Property now owned or hereafter acquired by such Debtor, and
wherever the same may be located, and including in such license access to
all media in which any of the licensed items may be recorded or stored and
to all computer software and programs used for the compilation or printout
thereof.
9. Applications of Proceeds. The proceeds of any such sale, lease or other
disposition of the Collateral hereunder or from payments made on account of any
insurance policy insuring any portion of the Collateral shall be applied first,
to the expenses of retaking, holding, storing, processing and preparing for
sale, selling, and the like (including, without limitation, any taxes, fees and
other costs incurred in connection therewith) of the Collateral, to the
reasonable attorneys' fees and expenses incurred by the Agent in enforcing the
Secured Parties' rights hereunder and in connection with collecting, storing and
disposing of the Collateral, and then to satisfaction of the Obligations pro
rata among the Secured Parties (based on then-outstanding principal amounts of
Debentures at the time of any such determination), and to the payment of any
other amounts required by applicable law, after which the Secured Parties shall
pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Parties are legally entitled, the Debtors
will be liable for the deficiency, together with interest thereon, at the rate
of 18% per annum or the lesser amount permitted by applicable law (the "Default
Rate"), and the reasonable fees of any attorneys employed by the Secured Parties
to collect such deficiency. To the extent permitted by applicable law, each
Debtor waives all claims, damages and demands against the Secured Parties
arising out of the repossession, removal, retention or sale of the Collateral,
unless due solely to the gross negligence or willful misconduct of the Secured
Parties as determined by a final judgment (not subject to further appeal) of a
court of competent jurisdiction.
10. Securities Law Provision. Each Debtor recognizes that Agent may be
limited in its ability to effect a sale to the public of all or part of the
Pledged Securities by reason of certain prohibitions in the Securities Act of
1933, as amended, or other federal or state securities laws (collectively, the
"Securities Laws"), and may be compelled to resort to one or more sales to a
restricted group of purchasers who may be required to agree to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof. Each Debtor agrees that sales so made may be
at prices and on terms less favorable than if the Pledged Securities were sold
to the public, and that Agent has no obligation to delay the sale of any Pledged
Securities for the period of time necessary to register the Pledged Securities
for sale to the public under the Securities Laws. Each Debtor shall cooperate
with Agent in its attempt to satisfy any requirements under the Securities Laws
(including, without limitation, registration thereunder if requested by Agent)
applicable to the sale of the Pledged Securities by Agent.
17
11. Costs and Expenses. Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Agent. The Debtors shall also pay all other claims
and charges which in the reasonable opinion of the Agent is reasonably likely to
prejudice, imperil or otherwise affect the Collateral or the Security Interests
therein. The Debtors will also, upon demand, pay to the Agent the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Agent, for the benefit of the
Secured Parties, may incur in connection with the creation, perfection,
protection, satisfaction, foreclosure, collection or enforcement of the Security
Interest and the preparation, administration, continuance, amendment or
enforcement of this Agreement and pay to the Agent the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, which the Agent, for the benefit of the Secured
Parties, and the Secured Parties may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Collateral, or (iii)
the exercise or enforcement of any of the rights of the Secured Parties under
the Debentures. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Debentures and shall bear interest at the Default Rate.
12. Responsibility for Collateral. The Debtors assume all liabilities and
responsibility in connection with all Collateral, and the Obligations shall in
no way be affected or diminished by reason of the loss, destruction, damage or
theft of any of the Collateral or its unavailability for any reason. Without
limiting the generality of the foregoing, (a) neither the Agent nor any Secured
Party (i) has any duty (either before or after an Event of Default) to collect
any amounts in respect of the Collateral or to preserve any rights relating to
the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the
Collateral for sale, and (b) each Debtor shall remain obligated and liable under
each contract or agreement included in the Collateral to be observed or
performed by such Debtor thereunder. Neither the Agent nor any Secured Party
shall have any obligation or liability under any such contract or agreement by
reason of or arising out of this Agreement or the receipt by the Agent or any
Secured Party of any payment relating to any of the Collateral, nor shall the
Agent or any Secured Party be obligated in any manner to perform any of the
obligations of any Debtor under or pursuant to any such contract or agreement,
to make inquiry as to the nature or sufficiency of any payment received by the
Agent or any Secured Party in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or agreement, to present
or file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to the Agent or to which
the Agent or any Secured Party may be entitled at any time or times.
13. Security Interests Absolute. All rights of the Secured Parties and all
obligations of the Debtors hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures or any agreement entered into in connection with the foregoing,
or any portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
18
from the Debentures or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guarantee, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to a Debtor, or a
discharge of all or any part of the Security Interests granted hereby. Until the
Obligations shall have been paid and performed in full, the rights of the
Secured Parties shall continue even if the Obligations are barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy. Each Debtor expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise due to any party other than the Secured Parties, then, in any such
event, each Debtor's obligations hereunder shall survive cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof. Each
Debtor waives all right to require the Secured Parties to proceed against any
other person or entity or to apply any Collateral which the Secured Parties may
hold at any time, or to marshal assets, or to pursue any other remedy. Each
Debtor waives any defense arising by reason of the application of the statute of
limitations to any obligation secured hereby.
14. Term of Agreement. This Agreement and the Security Interests shall
terminate on the date on which all payments under the Debentures have been
indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Debtors contained in
this Agreement (including, without limitation, Annex B hereto) shall survive and
remain operative and in full force and effect regardless of the termination of
this Agreement.
15. Power of Attorney; Further Assurances.
(a) Each Debtor authorizes the Agent, and does hereby make,
constitute and appoint the Agent and its officers, agents, successors or
assigns with full power of substitution, as such Debtor's true and lawful
attorney-in-fact, with power, in the name of the Agent or such Debtor, to,
after the occurrence and during the continuance of an Event of Default,
(i) endorse any note, checks, drafts, money orders or other instruments of
payment (including payments payable under or in respect of any policy of
insurance) in respect of the Collateral that may come into possession of
the Agent; (ii) to sign and endorse any financing statement pursuant to
the UCC or any invoice, freight or express bill, bill of lading, storage
or warehouse receipts, drafts against debtors, assignments, verifications
and notices in connection with accounts, and other documents relating to
the Collateral; (iii) to pay or discharge taxes, liens, security interests
or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) to demand, collect, receipt for, compromise,
settle and sue for monies due in respect of the Collateral; (v) to
19
transfer any Intellectual Property or provide licenses respecting any
Intellectual Property; and (vi) generally, at the option of the Agent, and
at the expense of the Debtors, at any time, or from time to time, to
execute and deliver any and all documents and instruments and to do all
acts and things which the Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted therein in
order to effect the intent of this Agreement and the Debentures all as
fully and effectually as the Debtors might or could do; and each Debtor
hereby ratifies all that said attorney shall lawfully do or cause to be
done by virtue hereof. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Agreement and thereafter as
long as any of the Obligations shall be outstanding. The designation set
forth herein shall be deemed to amend and supersede any inconsistent
provision in the Organizational Documents or other documents or agreements
to which any Debtor is subject or to which any Debtor is a party. Without
limiting the generality of the foregoing, after the occurrence and during
the continuance of an Event of Default, each Secured Party is specifically
authorized to execute and file any applications for or instruments of
transfer and assignment of any patents, trademarks, copyrights or other
Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.
(b) On a continuing basis, each Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the proper
filing and recording agencies in any jurisdiction, including, without
limitation, the jurisdictions indicated on Schedule C attached hereto, all
such instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the Agent, to
perfect the Security Interests granted hereunder and otherwise to carry
out the intent and purposes of this Agreement, or for assuring and
confirming to the Agent the grant or perfection of a perfected security
interest in all the Collateral under the UCC.
(c) Each Debtor hereby irrevocably appoints the Agent as such
Debtor's attorney-in-fact, with full authority in the place and instead of
such Debtor and in the name of such Debtor, from time to time in the
Agent's discretion, to take any action and to execute any instrument which
the Agent may deem necessary or advisable to accomplish the purposes of
this Agreement, including the filing, in its sole discretion, of one or
more financing or continuation statements and amendments thereto, relative
to any of the Collateral without the signature of such Debtor where
permitted by law, which financing statements may (but need not) describe
the Collateral as "all assets" or "all personal property" or words of like
import, and ratifies all such actions taken by the Agent. This power of
attorney is coupled with an interest and shall be irrevocable for the term
of this Agreement and thereafter as long as any of the Obligations shall
be outstanding.
16. Notices. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement (as
such term is defined in the Debentures).
20
17. Other Security. To the extent that the Obligations are now or hereafter
secured by property other than the Collateral or by the guarantee, endorsement
or property of any other person, firm, corporation or other entity, then the
Agent shall have the right, in its sole discretion, to pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of the Secured Parties' rights and remedies
hereunder.
18. Appointment of Agent. The Secured Parties hereby appoint [_____ to act
as their agent ("[_____" or "Agent") for purposes of exercising any and all
rights and remedies of the Secured Parties hereunder. Such appointment shall
continue until revoked in writing by a Majority in Interest, at which time a
Majority in Interest shall appoint a new Agent, provided that [_____ may not be
removed as Agent unless [______ shall then hold less than $_____ in principal
amount of Debentures; provided, further, that such removal may occur only if
each of the other Secured Parties shall then hold not less than an aggregate of
$______ in principal amount of Debentures. The Agent shall have the rights,
responsibilities and immunities set forth in Annex B hereto.
19. Miscellaneous.
(a) No course of dealing between the Debtors and the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on the
part of the Secured Parties, any right, power or privilege hereunder or
under the Debentures shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
(b) All of the rights and remedies of the Secured Parties with
respect to the Collateral, whether established hereby or by the Debentures
or by any other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or concurrently.
(c) This Agreement, together with the exhibits and schedules hereto,
contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into this Agreement and the exhibits
and schedules hereto. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Debtors and the Secured Parties or, in
the case of a waiver, by the party against whom enforcement of any such
waived provision is sought.
(d) If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of
21
the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(e) No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall
any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.
(f) This Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The Company and
the Guarantors may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Secured Party (other
than by merger). Any Secured Party may assign any or all of its rights
under this Agreement to any Person to whom such Secured Party assigns or
transfers any Obligations, provided such transferee agrees in writing to
be bound, with respect to the transferred Obligations, by the provisions
of this Agreement that apply to the "Secured Parties."
(g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in order
to carry out the provisions and purposes of this Agreement.
(h) All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each
Debtor agrees that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement
and the Debentures (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, partners,
members, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York, Borough of Manhattan.
Each Debtor hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of New York, Borough of
Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any proceeding,
any claim that it is not personally subject to the jurisdiction of any
such court, that such proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial
by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
22
(i) This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all
of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature were the original thereof.
(j) All Debtors shall jointly and severally be liable for the
obligations of each Debtor to the Secured Parties hereunder.
(k) Each Debtor shall indemnify, reimburse and hold harmless the
Agent and the Secured Parties and their respective partners, members,
shareholders, officers, directors, employees and agents (and any other
persons with other titles that have similar functions) (collectively,
"Indemnitees") from and against any and all losses, claims, liabilities,
damages, penalties, suits, costs and expenses, of any kind or nature,
(including fees relating to the cost of investigating and defending any of
the foregoing) imposed on, incurred by or asserted against such Indemnitee
in any way related to or arising from or alleged to arise from this
Agreement or the Collateral, except any such losses, claims, liabilities,
damages, penalties, suits, costs and expenses which result from the gross
negligence or willful misconduct of the Indemnitee as determined by a
final, nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation of, any
other indemnification provision in the Debentures, the Purchase Agreement
(as such term is defined in the Debentures) or any other agreement,
instrument or other document executed or delivered in connection herewith
or therewith.
(l) Nothing in this Agreement shall be construed to subject Agent or
any Secured Party to liability as a partner in any Debtor or any if its
direct or indirect subsidiaries that is a partnership or as a member in
any Debtor or any of its direct or indirect subsidiaries that is a limited
liability company, nor shall Agent or any Secured Party be deemed to have
assumed any obligations under any partnership agreement or limited
liability company agreement, as applicable, of any such Debtor or any if
its direct or indirect subsidiaries or otherwise, unless and until any
such Secured Party exercises its right to be substituted for such Debtor
as a partner or member, as applicable, pursuant hereto.
(m) To the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the consent,
approval or action of any partner or member, as applicable, of any Debtor
or any direct or indirect subsidiary of any Debtor or compliance with any
provisions of any of the Organizational Documents, the Debtors hereby
grant such consent and approval and waive any such noncompliance with the
terms of said documents.
[SIGNATURE PAGES FOLLOW]
23
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed on the day and year first above written.
EPIC ENERGY RESOURCES, INC.
By:__________________________________________
Name:
Title:
[INSERT NAMES OF SUBSIDIARIES]
By:__________________________________________
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
24
[SIGNATURE PAGE OF HOLDERS TO EPCC SA]
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing entity: __________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
25
SCHEDULE A
Principal Place of Business of Debtors:
Locations Where Collateral is Located or Stored:
SCHEDULE B
SCHEDULE C
SCHEDULE D
Legal Names and Organizational Identification Numbers
SCHEDULE E
Names; Mergers and Acquisitions
SCHEDULE F
Intellectual Property
SCHEDULE G
Account Debtors
SCHEDULE H
Pledged Securities
26
ANNEX A
to
SECURITY
AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security Agreement dated as of December ___, 2007 made by
Epic Energy Resources, Inc.
and its subsidiaries party thereto from time to time, as Debtors
to and in favor of
the Secured Parties identified therein (the "Security Agreement")
Reference is made to the Security Agreement as defined above; capitalized
terms used herein and not otherwise defined herein shall have the meanings given
to such terms in, or by reference in, the Security Agreement.
The undersigned hereby agrees that upon delivery of this Additional Debtor
Joinder to the Secured Parties referred to above, the undersigned shall (a) be
an Additional Debtor under the Security Agreement, (b) have all the rights and
obligations of the Debtors under the Security Agreement as fully and to the same
extent as if the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein as of the date
of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE
SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN
THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL
PROVISIONS SET FORTH THEREIN.
Attached hereto are supplemental and/or replacement Schedules to the
Security Agreement, as applicable.
An executed copy of this Joinder shall be delivered to the Secured
Parties, and the Secured Parties may rely on the matters set forth herein on or
after the date hereof. This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Parties.
IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed
in the name and on behalf of the undersigned.
[Name of Additional Debtor]
By:
Name:
Title:
Address:
Dated:
ANNEX B
to
SECURITY
AGREEMENT
THE AGENT
1. Appointment. The Secured Parties (all capitalized terms used
herein and not otherwise defined shall have the respective meanings
provided in the Security Agreement to which this Annex B is attached (the
"Agreement")), by their acceptance of the benefits of the Agreement,
hereby designate [_____ ("[_____" or "Agent") as the Agent to act as
specified herein and in the Agreement. Each Secured Party shall be deemed
irrevocably to authorize the Agent to take such action on its behalf under
the provisions of the Agreement and any other Transaction Document (as
such term is defined in the Debentures) and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated
to or required of the Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder by or through its agents or employees.
2. Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement.
Neither the Agent nor any of its partners, members, shareholders,
officers, directors, employees or agents shall be liable for any action
taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of
any oversight or error of judgment or answerable for any loss, unless
caused solely by its or their gross negligence or willful misconduct as
determined by a final judgment (not subject to further appeal) of a court
of competent jurisdiction. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in
respect of any Debtor or any Secured Party; and nothing in the Agreement
or any other Transaction Document, expressed or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations in
respect of the Agreement or any other Transaction Document except as
expressly set forth herein and therein.
3. Lack of Reliance on the Agent. Independently and without reliance
upon the Agent, each Secured Party, to the extent it deems appropriate,
has made and shall continue to make (i) its own independent investigation
of the financial condition and affairs of the Company and its subsidiaries
in connection with such Secured Party's investment in the Debtors, the
creation and continuance of the Obligations, the transactions contemplated
by the Transaction Documents, and the taking or not taking of any action
in connection therewith, and (ii) its own appraisal of the
creditworthiness of the Company and its subsidiaries, and of the value of
the Collateral from time to time, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Secured Party with any credit, market or other information with respect
thereto, whether coming into its possession before any Obligations are
incurred or at any time or times thereafter. The Agent shall not be
responsible to the Debtors or any Secured Party for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith,
or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Agreement or any other Transaction Document, or for the financial
condition of the Debtors or the value of any of the Collateral, or be
required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of the Agreement
or any other Transaction Document, or the financial condition of the
Debtors, or the value of any of the Collateral, or the existence or
possible existence of any default or Event of Default under the Agreement,
the Debentures or any of the other Transaction Documents.
4. Certain Rights of the Agent. The Agent shall have the right to
take any action with respect to the Collateral, on behalf of all of the
Secured Parties. To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act or
action (including failure to act) in connection with the Agreement or any
other Transaction Document, and shall be entitled to act or refrain from
acting in accordance with the instructions of a Majority in Interest; if
such instructions are not provided despite the Agent's request therefor,
the Agent shall be entitled to refrain from such act or taking such
action, and if such action is taken, shall be entitled to appropriate
indemnification from the Secured Parties in respect of actions to be taken
by the Agent; and the Agent shall not incur liability to any person or
entity by reason of so refraining. Without limiting the foregoing, (a) no
Secured Party shall have any right of action whatsoever against the Agent
as a result of the Agent acting or refraining from acting hereunder in
accordance with the terms of the Agreement or any other Transaction
Document, and the Debtors shall have no right to question or challenge the
authority of, or the instructions given to, the Agent pursuant to the
foregoing and (b) the Agent shall not be required to take any action which
the Agent believes (i) could reasonably be expected to expose it to
personal liability or (ii) is contrary to this Agreement, the Transaction
Documents or applicable law.
5. Reliance. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram,
order or other document or telephone message signed, sent or made by the
proper person or entity, and, with respect to all legal matters pertaining
to the Agreement and the other Transaction Documents and its duties
thereunder, upon advice of counsel selected by it and upon all other
matters pertaining to this Agreement and the other Transaction Documents
and its duties thereunder, upon advice of other experts selected by it.
Anything to the contrary notwithstanding, the Agent shall have no
obligation whatsoever to any Secured Party to assure that the Collateral
exists or is owned by the Debtors or is cared for, protected or insured or
that the liens granted pursuant to the Agreement have been properly or
sufficiently or lawfully created, perfected, or enforced or are entitled
to any particular priority.
6. Indemnification. To the extent that the Agent is not reimbursed
and indemnified by the Debtors, the Secured Parties will jointly and
severally reimburse and indemnify the Agent, in proportion to their
initially purchased respective principal amounts of Debentures, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against
the Agent in performing its duties hereunder or under the Agreement or any
other Transaction Document, or in any way relating to or arising out of
the Agreement or any other Transaction Document except for those
determined by a final judgment (not subject to further appeal) of a court
of competent jurisdiction to have resulted solely from the Agent's own
gross negligence or willful misconduct. Prior to taking any action
hereunder as Agent, the Agent may require each Secured Party to deposit
with it sufficient sums as it determines in good faith is necessary to
protect the Agent for costs and expenses associated with taking such
action.
7. Resignation by the Agent.
(a) The Agent may resign from the performance of all its functions
and duties under the Agreement and the other Transaction Documents at any
time by giving 30 days' prior written notice (as provided in the
Agreement) to the Debtors and the Secured Parties. Such resignation shall
take effect upon the appointment of a successor Agent pursuant to clauses
(b) and (c) below.
(b) Upon any such notice of resignation, the Secured Parties, acting
by a Majority in Interest, shall appoint a successor Agent hereunder.
(c) If a successor Agent shall not have been so appointed within
said 30-day period, the Agent shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Secured Parties
appoint a successor Agent as provided above. If a successor Agent has not
been appointed within such 30-day period, the Agent may petition any court
of competent jurisdiction or may interplead the Debtors and the Secured
Parties in a proceeding for the appointment of a successor Agent, and all
fees, including, but not limited to, extraordinary fees associated with
the filing of interpleader and expenses associated therewith, shall be
payable by the Debtors on demand.
8. Rights with respect to Collateral. Each Secured Party agrees with
all other Secured Parties and the Agent (i) that it shall not, and shall
not attempt to, exercise any rights with respect to its security interest
in the Collateral, whether pursuant to any other agreement or otherwise
(other than pursuant to this Agreement), or take or institute any action
against the Agent or any of the other Secured Parties in respect of the
Collateral or its rights hereunder (other than any such action arising
from the breach of this Agreement) and (ii) that such Secured Party has no
other rights with respect to the Collateral other than as set forth in
this Agreement and the other Transaction Documents. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent
shall be discharged from its duties and obligations under the Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.
EXHIBIT F
SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE, dated as of December __, 2007 (this "Guarantee"),
made by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Guarantors"), in favor of the
purchasers signatory (together with their permitted assigns, the "Purchasers")
to that certain Securities Agreement, dated as of the date hereof, between Epic
Energy Resources, Inc., a Colorado corporation (the "Company") and the
Purchasers.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Agreement, dated as of the
date hereof, by and between the Company and the Purchasers (the "Purchase
Agreement"), the Company has agreed to sell and issue to the Purchasers, and the
Purchasers have agreed to purchase from the Company the Company's Secured
Debentures, due December __, 2012 (the "Debentures"), subject to the terms and
conditions set forth therein; and
WHEREAS, each Guarantor is a wholly-owned subsidiary of the Company and
will directly benefit from the extension of credit to the Company represented by
the issuance of the Debentures; and
NOW, THEREFORE, in consideration of the premises and to induce the
Purchasers to enter into the Purchase Agreement and to carry out the
transactions contemplated thereby, each Guarantor hereby agrees with the
Purchasers as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Purchase Agreement and used herein shall have the meanings given to them in the
Purchase Agreement. The words "hereof," "herein," "hereto" and "hereunder" and
words of similar import when used in this Guarantee shall refer to this
Guarantee as a whole and not to any particular provision of this Guarantee, and
Section and Schedule references are to this Guarantee unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The following
terms shall have the following meanings:
"Guarantee" means this Subsidiary Guarantee, as the same may be
amended, supplemented or otherwise modified from time to time.
"Obligations" means, in addition to all other costs and
expenses of collection incurred by Purchasers in enforcing any of such
Obligations and/or this Guarantee, all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, or
owing to, of the Company or any Guarantor to the Purchasers, including,
without limitation, all obligations under this Agreement, the Debentures,
this Guarantee and any other instruments, agreements or other documents
1
executed and/or delivered in connection herewith or therewith, in each
case, whether now or hereafter existing, voluntary or involuntary, direct
or indirect, absolute or contingent, liquidated or unliquidated, whether
or not jointly owed with others, and whether or not from time to time
decreased or extinguished and later increased, created or incurred, and
all or any portion of such obligations or liabilities that are paid, to
the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Purchasers as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time. Without
limiting the generality of the foregoing, the term "Obligations" shall
include, without limitation: (i) principal of, and interest on the
Debentures and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Company or
any Guarantor from time to time under or in connection with this
Agreement, the Debentures, the Guarantee and any other instruments,
agreements or other documents executed and/or delivered in connection
herewith or therewith; and (iii) all amounts (including but not limited to
post-petition interest) in respect of the foregoing that would be payable
but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Company or any
Guarantor.
2. Guarantee.
(a) Guarantee.
(i) The Guarantors hereby, jointly and severally, unconditionally
and irrevocably, guarantee to the Purchasers and their respective
successors, indorsees, transferees and assigns, the prompt and
complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations.
(ii) Anything herein or in any other Transaction Document to the
contrary notwithstanding, the maximum liability of each Guarantor
hereunder and under the other Transaction Documents shall in no event
exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws, including laws relating to the
insolvency of debtors, fraudulent conveyance or transfer or laws
affecting the rights of creditors generally (after giving effect to
the right of contribution established in Section 2(b)).
(iii) Each Guarantor agrees that the Obligations may at any time
and from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee contained in this
Section 2 or affecting the rights and remedies of the Purchasers
hereunder.
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(iv) The guarantee contained in this Section 2 shall remain in
full force and effect until all the Obligations and the obligations of
each Guarantor under the guarantee contained in this Section 2 shall
have been satisfied by the indefeasible payment in full.
(v) No payment made by the Company, any of the Guarantors, any
other guarantor or any other Person or received or collected by the
Purchasers from the Company, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time
to time in reduction of or in payment of the Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of
any Guarantor hereunder which shall, notwithstanding any such payment
(other than any payment made by such Guarantor in respect of the
Obligations or any payment received or collected from such Guarantor
in respect of the Obligations), remain liable for the Obligations up
to the maximum liability of such Guarantor hereunder until the
Obligations are indefeasibly paid in full.
(vi) Notwithstanding anything to the contrary in this Agreement,
with respect to any defaulted non-monetary Obligations the specific
performance of which by the Guarantors is not reasonably possible
(e.g. the issuance of the Company's Common Stock), the Guarantors
shall only be liable for making the Purchasers whole on a monetary
basis for the Company's failure to perform such Obligations in
accordance with the Transaction Documents.
(b) Right of Contribution. Subject to Section 2(c), each
Guarantor hereby agrees that to the extent that a Guarantor shall have
paid more than its proportionate share of any payment made hereunder,
such Guarantor shall be entitled to seek and receive contribution from
and against any other Guarantor hereunder which has not paid its
proportionate share of such payment. Each Guarantor's right of
contribution shall be subject to the terms and conditions of Section
2(c). The provisions of this Section 2(b) shall in no respect limit
the obligations and liabilities of any Guarantor to the Purchasers,
and each Guarantor shall remain liable to the Purchasers for the full
amount guaranteed by such Guarantor hereunder.
(c) No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any
Guarantor by the Purchasers, no Guarantor shall be entitled to be
subrogated to any of the rights of the Purchasers against the Company
or any other Guarantor or any collateral security or guarantee or
right of offset held by the Purchasers for the payment of the
Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Guarantor
in respect of payments made by such Guarantor hereunder, until all
amounts owing to the Purchasers by the Company on account of the
Obligations are indefeasibly paid in full. If any amount shall be paid
3
to any Guarantor on account of such subrogation rights at any time
when all of the Obligations shall not have been paid in full, such
amount shall be held by such Guarantor in trust for the Purchasers,
segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Purchasers in
the exact form received by such Guarantor (duly indorsed by such
Guarantor to the Purchasers, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the
Purchasers may determine.
(d) Amendments, Etc. With Respect to the Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against any Guarantor and without
notice to or further assent by any Guarantor, any demand for payment
of any of the Obligations made by the Purchasers may be rescinded by
the Purchasers and any of the Obligations continued, and the
Obligations, or the liability of any other Person upon or for any part
thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Purchasers, and
the Purchase Agreement and the other Transaction Documents and any
other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as
the Purchasers may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by
the Purchasers for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. The Purchasers shall have
no obligation to protect, secure, perfect or insure any Lien at any
time held by them as security for the Obligations or for the guarantee
contained in this Section 2 or any property subject thereto.
(e) Guarantee Absolute and Unconditional. Each Guarantor waives
any and all notice of the creation, renewal, extension or accrual of
any of the Obligations and notice of or proof of reliance by the
Purchasers upon the guarantee contained in this Section 2 or
acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon the guarantee contained in this Section 2;
and all dealings between the Company and any of the Guarantors, on the
one hand, and the Purchasers, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon
the guarantee contained in this Section 2. Each Guarantor waives to
the extent permitted by law diligence, presentment, protest, demand
for payment and notice of default or nonpayment to or upon the Company
or any of the Guarantors with respect to the Obligations. Each
Guarantor understands and agrees that the guarantee contained in this
Section 2 shall be construed as a continuing, absolute and
unconditional guarantee of payment and performance without regard to
(a) the validity or enforceability of the Purchase Agreement or any
other Transaction Document, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with
4
respect thereto at any time or from time to time held by the
Purchasers, (b) any defense, set-off or counterclaim (other than a
defense of payment or performance or fraud by Purchasers) which may at
any time be available to or be asserted by the Company or any other
Person against the Purchasers, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the Company or
such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Company for the
Obligations, or of such Guarantor under the guarantee contained in
this Section 2, in bankruptcy or in any other instance. When making
any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Guarantor, the Purchasers may, but shall be
under no obligation to, make a similar demand on or otherwise pursue
such rights and remedies as they may have against the Company, any
other Guarantor or any other Person or against any collateral security
or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Purchasers to make any such demand, to
pursue such other rights or remedies or to collect any payments from
the Company, any other Guarantor or any other Person or to realize
upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Company, any other Guarantor or
any other Person or any such collateral security, guarantee or right
of offset, shall not relieve any Guarantor of any obligation or
liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of
the Purchasers against any Guarantor. For the purposes hereof,
"demand" shall include the commencement and continuance of any legal
proceedings.
(f) Reinstatement. The guarantee contained in this Section 2
shall continue to be effective, or be reinstated, as the case may be,
if at any time payment, or any part thereof, of any of the Obligations
is rescinded or must otherwise be restored or returned by the
Purchasers upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of the Company or any Guarantor, or upon or as a
result of the appointment of a receiver, intervenor or conservator of,
or trustee or similar officer for, the Company or any Guarantor or any
substantial part of its property, or otherwise, all as though such
payments had not been made.
(g) Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Purchasers without set-off or
counterclaim in U.S. dollars at the address set forth or referred to
in the Purchase Agreement.
3. Representations and Warranties. Each Guarantor hereby makes the
following representations and warranties to Purchasers as of the date hereof:
(a) Organization and Qualification. The Guarantor is a corporation,
duly incorporated, validly existing and in good standing under the laws of
the applicable jurisdiction set forth on Schedule 1, with the requisite
corporate power and authority to own and use its properties and assets and
to carry on its business as currently conducted. The Guarantor has no
5
subsidiaries other than those identified as such on the Disclosure
Schedules to the Purchase Agreement. The Guarantor is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of any of this Guaranty in any material respect,
(y) have a material adverse effect on the results of operations, assets,
prospects, or financial condition of the Guarantor or (z) adversely impair
in any material respect the Guarantor's ability to perform fully on a
timely basis its obligations under this Guaranty (a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Guarantor has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Guaranty, and otherwise to carry out its
obligations hereunder. The execution and delivery of this Guaranty by the
Guarantor and the consummation by it of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the
part of the Guarantor. This Guaranty has been duly executed and delivered
by the Guarantor and constitutes the valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of this
Guaranty by the Guarantor and the consummation by the Guarantor of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Certificate of Incorporation or By-laws or
(ii) conflict with, constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Guarantor is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Guarantor is subject (including Federal and state
securities laws and regulations), or by which any material property or
asset of the Guarantor is bound or affected, except in the case of each of
clauses (ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as could not, individually or
in the aggregate, have or result in a Material Adverse Effect. The business
of the Guarantor is not being conducted in violation of any law, ordinance
or regulation of any governmental authority, except for violations which,
individually or in the aggregate, do not have a Material Adverse Effect.
6
(d) Consents and Approvals. The Guarantor is not required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local, foreign or
other governmental authority or other person in connection with the
execution, delivery and performance by the Guarantor of this Guaranty.
(e) Purchase Agreement. The representations and warranties of the
Company set forth in the Purchase Agreement as they relate to such
Guarantor, each of which is hereby incorporated herein by reference, are
true and correct as of each time such representations are deemed to be made
pursuant to such Purchase Agreement, and the Purchasers shall be entitled
to rely on each of them as if they were fully set forth herein, provided
that each reference in each such representation and warranty to the
Company's knowledge shall, for the purposes of this Section 3, be deemed to
be a reference to such Guarantor's knowledge.
(f) Foreign Law. Each Guarantor has consulted with appropriate foreign
legal counsel with respect to any of the above representations for which
non-U.S. law is applicable. Such foreign counsel have advised each
applicable Guarantor that such counsel knows of no reason why any of the
above representations would not be true and accurate. Such foreign counsel
were provided with copies of this Subsidiary Guarantee and the Transaction
Documents prior to rendering their advice.
4. Covenants.
(a) Each Guarantor covenants and agrees with the Purchasers that, from
and after the date of this Guarantee until the Obligations shall have been
indefeasibly paid in full, such Guarantor shall take, and/or shall refrain
from taking, as the case may be, each commercially reasonable action that
is necessary to be taken or not taken, as the case may be, so that no Event
of Default is caused by the failure to take such action or to refrain from
taking such action by such Guarantor.
(b) So long as any of the Obligations are outstanding, unless
Purchasers holding at least 67% of the aggregate principal amount of the
then outstanding Debentures shall otherwise consent in writing, each
Guarantor will not directly or indirectly on or after the date of this
Guarantee:
i. other than Permitted Indebtedness (as defined in the
Debentures), enter into, create, incur, assume or suffer to exist any
indebtedness for borrowed money of any kind, including but not limited
to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income
or profits therefrom;
7
ii. other than Permitted Liens (as defined in the Debentures),
enter into, create, incur, assume or suffer to exist any liens of any
kind, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits
therefrom;
iii. amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of any
Purchaser;
iv. repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its securities or
debt obligations;
v. pay cash dividends on any equity securities of the Company;
vi. enter into any transaction with any Affiliate of the
Guarantor which would be required to be disclosed in any public filing
of the Company with the Commission, unless such transaction is made on
an arm's-length basis and expressly approved by a majority of the
disinterested directors of the Company (even if less than a quorum
otherwise required for board approval); or
vii. enter into any agreement with respect to any of the
foregoing.
5. Miscellaneous.
(a) Amendments in Writing. None of the terms or provisions of this
Guarantee may be waived, amended, supplemented or otherwise modified except
in writing by the Purchasers.
(b) Notices. All notices, requests and demands to or upon the
Purchasers or any Guarantor hereunder shall be effected in the manner
provided for in the Purchase Agreement, provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 5(b).
(c) No Waiver By Course Of Conduct; Cumulative Remedies. The
Purchasers shall not by any act (except by a written instrument pursuant to
Section 5(a)), delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any default
under the Transaction Documents or Event of Default. No failure to
exercise, nor any delay in exercising, on the part of the Purchasers, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Purchasers of any right or
8
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Purchasers would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights
or remedies provided by law.
(d) Enforcement Expenses; Indemnification.
(i) Each Guarantor agrees to pay, or reimburse the Purchasers
for, all its costs and expenses incurred in collecting against such
Guarantor under the guarantee contained in Section 2 or otherwise
enforcing or preserving any rights under this Guarantee and the other
Transaction Documents to which such Guarantor is a party, including,
without limitation, the reasonable fees and disbursements of counsel
to the Purchasers.
(ii) Each Guarantor agrees to pay, and to save the Purchasers
harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable in connection
with any of the transactions contemplated by this Guarantee.
(iii) Each Guarantor agrees to pay, and to save the Purchasers
harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this
Guarantee to the extent the Company would be required to do so
pursuant to the Purchase Agreement.
(iv) The agreements in this Section shall survive repayment of
the Obligations and all other amounts payable under the Purchase
Agreement and the other Transaction Documents.
(e) Successor and Assigns. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of
the Purchasers and their respective successors and assigns; provided that
no Guarantor may assign, transfer or delegate any of its rights or
obligations under this Guarantee without the prior written consent of the
Purchasers.
(f) Set-Off. Each Guarantor hereby irrevocably authorizes the
Purchasers at any time and from time to time while an Event of Default
under any of the Transaction Documents shall have occurred and be
continuing, without notice to such Guarantor or any other Guarantor, any
such notice being expressly waived by each Guarantor, to set-off and
appropriate and apply any and all deposits, credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute
9
or contingent, matured or unmatured, at any time held or owing by the
Purchasers to or for the credit or the account of such Guarantor, or any
part thereof in such amounts as the Purchasers may elect, against and on
account of the obligations and liabilities of such Guarantor to the
Purchasers hereunder and claims of every nature and description of the
Purchasers against such Guarantor, in any currency, whether arising
hereunder, under the Purchase Agreement, any other Transaction Document or
otherwise, as the Purchasers may elect, whether or not the Purchasers have
made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Purchasers shall notify such
Guarantor promptly of any such set-off and the application made by the
Purchasers of the proceeds thereof, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Purchasers under this Section are in addition to other rights
and remedies(including, without limitation, other rights of set-off) which
the Purchasers may have.
(g) Counterparts. This Guarantee may be executed by one or more of the
parties to this Guarantee on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
(h) Severability. Any provision of this Guarantee which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(i) Section Headings. The Section headings used in this Guarantee are
for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
(j) Integration. This Guarantee and the other Transaction Documents
represent the agreement of the Guarantors and the Purchasers with respect
to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Purchasers relative to
subject matter hereof and thereof not expressly set forth or referred to
herein or in the other Transaction Documents.
(k) Governing Laws. All questions concerning the construction,
validity, enforcement and interpretation of this Guarantee shall be
governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of
law thereof. Each of the Company and the Guarantors agree that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Guarantee (whether brought against a
party hereto or its respective affiliates, directors, officers,
10
shareholders, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New
York, Borough of Manhattan. Each of the Company and the Guarantors hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such
proceeding is improper. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any
such proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Guarantee and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Guarantee or the transactions
contemplated hereby.
(l) Acknowledgements. Each Guarantor hereby acknowledges that:
(i) it has been advised by counsel in the negotiation, execution
and delivery of this Guarantee and the other Transaction Documents to
which it is a party;
(ii) the Purchasers have no fiduciary relationship with or duty
to any Guarantor arising out of or in connection with this Guarantee
or any of the other Transaction Documents, and the relationship
between the Guarantors, on the one hand, and the Purchasers, on the
other hand, in connection herewith or therewith is solely that of
debtor and creditor; and
(iii) no joint venture is created hereby or by the other
Transaction Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Guarantors and the
Purchasers.
(m) Additional Guarantors. The Company shall cause each of its
subsidiaries formed or acquired on or subsequent to the date hereof to
become a Guarantor for all purposes of this Guarantee by executing and
delivering an Assumption Agreement in the form of Annex 1 hereto.
(n) Release of Guarantors. Each Guarantor will be released from all
liability hereunder concurrently with the indefeasible repayment in full of
all amounts owed under the Purchase Agreement, the Debentures and the other
Transaction Documents.
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(o) Seniority. The Obligations of each of the Guarantors hereunder
rank senior in priority to any other Indebtedness (as defined in the
Purchase Agreement) of such Guarantor.
(p) Waiver of Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE
BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.
12
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered as of the date first above written.
[SUBSIDIARY]
By:_________________________________
Name:
Title:
13
SCHEDULE 1
GUARANTORS
The following are the names, notice addresses and jurisdiction of
organization of each Guarantor.
COMPANY
JURISDICTION OF OWNED BY
INCORPORATION PERCENTAGE
------------- ----------
14
Annex 1 to
SUBSIDIARY GUARANTEE
ASSUMPTION AGREEMENT, dated as of ____ __, ______ made by
______________________________, a ______________ corporation (the "Additional
Guarantor"), in favor of the Purchasers pursuant to the Purchase Agreement
referred to below. All capitalized terms not defined herein shall have the
meaning ascribed to them in such Purchase Agreement.
W I T N E S S E T H :
WHEREAS, Epic Energy Resources, Inc., a Colorado corporation (the
"Company") and the Purchasers have entered into a Purchase Agreement, dated as
of December ___, 2007 (as amended, supplemented or otherwise modified from time
to time, the "Purchase Agreement");
WHEREAS, in connection with the Purchase Agreement, the Subsidiaries of the
Company (other than the Additional Guarantor) have entered into the Subsidiary
Guarantee, dated as of December ____, 2007 (as amended, supplemented or
otherwise modified from time to time, the "Guarantee") in favor of the
Purchasers;
WHEREAS, the Purchase Agreement requires the Additional Guarantor to become
a party to the Guarantee; and
WHEREAS, the Additional Guarantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Guarantee;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee. By executing and delivering this Assumption Agreement, the
Additional Guarantor, as provided in Section 5(n) of the Guarantee, hereby
becomes a party to the Guarantee as a Guarantor thereunder with the same force
and effect as if originally named therein as a Guarantor and, without limiting
the generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Guarantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in Schedule 1 to the
Guarantee. The Additional Guarantor hereby represents and warrants that each of
the representations and warranties contained in Section 3 of the Guarantee is
true and correct on and as the date hereof as to such Additional Guarantor
(after giving effect to this Assumption Agreement) as if made on and as of such
date.
2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
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IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to
be duly executed and delivered as of the date first above written.
[ADDITIONALGUARANTOR]
By:
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Name:
Title:
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