COVOL TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of March 17, 1999
TABLE OF CONTENTS
Page
Article I
DEFINITIONS........................................................1
1.1 Definitions; Interpretation........................................1
Article II
ISSUANCE AND SALE OF THE SECURITIES................................9
2.1 Authorization of the Securities. .................................9
2.2 Issuance and Sale of the Securities. .............................9
Article III
CLOSING; CLOSING DELIVERIES.......................................10
3.1 Closing...........................................................10
3.2 Payment for and Delivery of the Securities........................10
Article IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................10
4.1 Existence; Qualification; Subsidiaries............................10
4.2 Authorization and Enforceability; Issuance of the
Securities, the Conversion Shares and the Warrant Shares..........10
4.3 Capitalization....................................................11
4.4 Private Sale......................................................12
4.5 Financial Statements; Disclosure..................................12
4.6 Absence of Certain Changes........................................13
4.7 Litigation........................................................14
4.8 Licenses, Compliance with Law, Other Agreements, Etc..............15
4.9 Third-Party Approvals.............................................15
4.10 No Undisclosed Liabilities........................................15
4.11 Tangible Assets...................................................15
4.12 Inventory.........................................................15
4.13 Owned Real Property...............................................16
4.14 Real Property Leases..............................................16
4.15 Agreements........................................................16
4.16 Intellectual Property.............................................16
4.17 Employees.........................................................17
4.18 ERISA; Employee Benefits..........................................17
4.19 Environmental Laws................................................18
4.20 Transactions With Affiliates......................................19
4.21 Taxes.............................................................19
4.22 Other Investors...................................................20
4.23 Year 2000 Representations.........................................20
(i)
TABLE OF CONTENTS
(continued)
4.24 Seniority.........................................................20
4.25 Investment Company................................................21
4.26 Certain Fees......................................................21
4.27 Solicitation Materials............................................21
4.28 Form S-3 Eligibility..............................................21
4.29 Listing and Maintenance Requirements Compliance...................21
4.30 Registration Rights; Rights of Participation......................21
4.31 Synthetic Fuel Facilities.........................................22
5.1 Authorization and Enforceability..................................22
5.2 Government Approvals..............................................23
Article VI
COMPLIANCE WITH SECURITIES LAWS...................................23
6.1 Investment Intent of .............................................23
6.2 Status of Securities..............................................23
6.3 Accredited Investor Status........................................23
6.4 Access to Information.............................................23
6.5 Transfer of Securities, Conversion Shares and Warrant Shares......23
Article VII
CONDITIONS PRECEDENT..............................................24
7.1 Conditions Precedent..............................................24
7.2 Closing Deliveries to the Company.................................27
Article VIII
COVENANTS OF THE COMPANY..........................................27
8.1 Restricted Actions................................................27
8.2 Required Actions..................................................31
8.3 Reservation of Common Stock.......................................34
8.4 Payments Free of Withholding......................................34
Article IX
SURVIVAL..........................................................34
9.1 Survival..........................................................34
Article X
INDEMNIFICATION...................................................34
10.1 Indemnification...................................................34
(ii)
TABLE OF CONTENTS
(continued)
Article XI
GENERAL PROVISIONS................................................35
11.1 Successors and Assigns............................................35
11.2 Entire Agreement..................................................35
11.3 Notices...........................................................35
11.4 Purchaser Fees and Expenses.......................................36
11.5 Amendment and Waiver..............................................37
11.6 Counterparts......................................................37
11.7 Headings..........................................................37
11.8 Specific Performance..............................................37
11.9 Remedies Cumulative...............................................38
11.10 GOVERNING LAW.....................................................38
11.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.............38
11.12 WAIVER OF JURY TRIAL..............................................39
11.13 No Third Party Beneficiaries......................................39
11.14 Severability......................................................39
11.15 Right of First Refusal............................................39
Exhibit A Certificate of Designations
Exhibit B Financial Statements
Exhibit C Registration Rights Agreement
Exhibit D Security Agreement
Exhibit E Side Agreements
Exhibit F Termination and Release Agreement
Exhibit G Form of Warrant
Exhibit H Form of Convertible Secured Note
Exhibit I Opinion of Counsel
(iii)
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 17,
1999, by and among Covol Technologies, Inc., a Delaware corporation (the
"Company") and OZ Master Fund, Ltd. (the "Purchaser").
The Purchaser desires to purchase from the Company, and the Company
desires to issue to the Purchaser, upon the terms and subject to the conditions
set forth herein (i) shares of the Preferred Stock, (ii) the Convertible Secured
Notes of the Company and (iii) the Warrants (other than the Series E Warrants).
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
Article I
DEFINITIONS
1.1 Definitions; Interpretation.
(a) For purposes of this Agreement, the following terms have
the indicated meanings:
"Affiliate" of a Person means any officer, director or
employee of the Company and any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with such Person. For purposes of this definition, "control" of a
Person means the power, directly or indirectly, either to (i) vote 20% or more
of the Capital Stock havingordinary voting power for the election of directors
of such Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Board of Directors" means the board of directors of the
Company.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Capital Expenditures" means, with respect to any Person for
any period, the sum, without duplication, of the aggregate amount of all
expenditures of such Person during such period which, in accordance with GAAP,
is required to be included in, or is properly included by such Person as
additions to property, plant or equipment or other similar fixed asset accounts
of such Person. For purposes of the definition, the purchase price of equipment
which is purchased simultaneously with the trade-in of existing equipment owned
by such Person or with insurance proceeds shall be included in Capital
Expenditures only to the extent that the gross amount of such purchase price
exceeds the amount of the trade-in credit or insurance proceeds applied to such
purchase, as the case may be.
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"Capital Stock" of any Person shall mean any and all shares,
interests (including membership and economic interests in a limited liability
company), rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity prior to such conversion.
"Capitalized Lease" means any lease which is required under
GAAP to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means obligations for the
payment of rent for any Capitalized Lease; for purposes hereof, the amount of
any such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"CERCLA" shall mean the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
"Certificate of Designations" means the Certificate of
Designations, Number, Voting Powers, Preferences and Rights of the series of the
Preferred Stock of the Company to be designated Series D Cumulative Convertible
Preferred Stock, set forth as Exhibit A hereto, as the same may be amended from
time to time with the requisite consent of the holders of Preferred Stock.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Company's Common
Stock, $.001 par value per share, and any capital stock of any class of the
Company hereafter authorized which is not limited to a fixed sum or percentage
of par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Company" has the meaning set forth in the recitals hereof.
"Confidential Information" means any proprietary information
concerning the Company's business other than information that (i) was already
known to the Person having a duty tokeep confidential such information on a
nonconfidential basis prior to the time of disclosure, (ii) is or becomes
generally available to the public through no act or omission of such Person or
(iii) becomes available to such Person on a nonconfidential basis from a source
other than any party hereto (or any agent or representative thereof) if such
source was not under a prohibition against disclosing the information or
otherwise bound by a confidentiality agreement with respect thereto.
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"Conversion Shares" means shares of Common Stock issued or
issuable upon conversion of shares of the Preferred Stock and the Notes;
provided, that if there is a change such that the securities issuable upon
conversion of the Preferred Stock and the Notes are issued by an entity other
than the Company or there is a change in the securities so issuable, then the
term "Conversion Shares" shall mean shares or the security issuable upon
conversion of the Preferred Stock and the Notes if such securities are issuable
in shares, or shall mean the equivalent units in which such security is issuable
if such security is not issuable in shares.
"Current Balance Sheet" means the audited balance sheet of the
Company as at September 30, 1998.
"Dividend Shares" means shares of Preferred Stock issued
pursuant to Section 1D of the Certificate of Designations.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the six (6) calendar years preceding the Closing
Date) for employees of the Company, any Subsidiary or any ERISA Affiliate.
"Environmental Actions" refers to any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or Releases of Hazardous
Materials (i) from any assets, properties or businesses of the Company or any of
its Subsidiaries, licensees or predecessors in interest; (ii) from adjoining
properties or business; or (iii) from or onto any facilities which received
Hazardous Materials generated by the Company or any of its Subsidiaries,
licensees or predecessors in interest.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the
Hazardous Materials Transpiration Act (49 U.S.C. 42 ss. 1801, et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the
Federal Water Pollution Control Act (33 U.S.C. ss. 1251, et seq.), the Clean Air
Act (42 U.S.C. ss. 7401, et seq.), the Toxic Substances Control Act (15 U.S.C.
ss. 2601, et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651
et seq.), as such laws may be amended or supplemented from time to time, and any
other present or future federal (United States or Canada), state, provincial,
local or foreign statute, ordinance, rule, regulation, order, judgment, decree,
permit, license or other binding determination of any Governmental Agency
imposing liability or establishing standards of conduct for protection of the
environment.
"Environmental Liabilities and Costs" means all liabilities
(including strict liabilities), monetary obligations, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable out-of-pocket fees, disbursements and
expenses of counsel, out-of-pocket expert and consulting fees, and out-of-pocket
costs for environmental site assessments, remedial investigations and
feasibility studies),
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fines, penalties, sanctions and interest incurred as a result of any
Environmental Action filed by any Governmental Agency or any third party, which
relate to any violations of Environmental Laws, Remedial Actions, Releases or
threatened Releases of Hazardous Materials from or onto (i) any property
presently or formerly owned by the Company or any of its Subsidiaries, licensees
or predecessors in interest or (ii) any facility which received Hazardous
Materials generated by the Company or any of its Subsidiaries, licensees or
predecessors in interest.
"Environmental Lien" means any Lien in favor of any
Governmental Agency for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and regulations
thereunder in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means, with respect to any Person, any trade
or business (whether or not incorporated) which is a member of a group of which
such Person is a member and which would be deemed to be a "controlled group"
within the meaning of Sections 414(b), (c), (m) and (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" has the meaning set forth in Section
4.2.
"Facilities" has the meaning set forth in Section 4.31.
"Family Group" means, with respect to an individual Purchaser,
such Purchaser, such Purchaser's spouse, siblings, descendants and/or ancestors
(whether natural, by marriage or adopted) and any trust solely for the benefit
of such Purchaser and/or such Purchaser's spouse, siblings, their respective
ancestors and/or descendants (whether natural, by marriage or adopted).
"Financial Statements" means (i) the unaudited balance sheets
of the Company as at December 31, 1998 and 1997, and the related unaudited
statements of income and consolidated cash flow for the quarterly periods then
ended, and (ii) the audited balance sheets of the Company as at September 30,
1998 and 1997, and the related audited statements of income and consolidated
cash flow for the fiscal year periods then ended, all of which are attached as
Exhibit B hereto.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time, consistently
applied.
"Governmental Agency" means any federal, state, local, foreign
or other governmental agency, instrumentality, commission, authority, board or
body and the National Association of Securities Dealers.
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"Hazardous Materials" includes (a) any element, compound or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated
biphenyls; (d) any substance exhibiting a hazardous waste characteristic,
including but not limited to corrosivity, ignitability, toxicity or reactivity
as well as any radioactive or explosive materials; and (e) any raw materials,
building components, including but not limited to asbestos-containing materials
and manufactured products containing hazardous substances.
"Hedging Agreement" means any interest rate swap, collar, cap,
floor or forward rate agreement or other agreement regarding the hedging of
interest rate risk exposure executed in connection with hedging the interest
rate exposure of the Company, and any confirming letter executed pursuant to
such agreement, all as amended, supplemented, restated or otherwise modified
from time to time.
"includes" and "including" mean includes and including,
without limitation.
"Indebtedness" means, without duplication, as to any Person
(i) indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in the
Ordinary Course of Business and payable in accordance with customary practices);
(iii) indebtedness evidenced by bonds, debentures, notes or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the Ordinary Course of Business); (iv) obligations and liabilities
secured by a Lien upon property owned by such Person, whether or not owing by
such Person and even though such Person has not assumed or become liable for the
payment thereof; (v) obligations and liabilities directly or indirectly
guaranteed by such Person; (vi) obligations or liabilities created or arising
under any conditional sales contract or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights
and remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property; (vii) Capitalized Lease Obligations; (viii) all
liabilities in respect of letters of credit, acceptances and similar obligations
created for the account of such Person; (ix) net liabilities of such Person
under Hedging Agreements and foreign currency exchange agreements, as calculated
on a basis satisfactory to the Purchaser and in accordance with accepted
practice; and (x) the Notes issued hereunder valued at the Optional Redemption
Price (as defined in the Notes) for purposes hereof.
"Intellectual Property" means all domestic and foreign
patents, patent applications, disclosures, industrial designs, discoveries and
inventions; trademarks, service marks, trade dress, trade names, d/b/a's,
Internet domain names and corporate names and all goodwill associated therewith;
published and unpublished works of authorship, copyrights; registrations,
applications andrenewals for any of the foregoing; trade secrets, Confidential
Information, know-how, technical and computer data, databases, proprietary
information, documentation and software, financial, business and marketing
plans, customer and supplier lists and all other intellectual property and
proprietary rights; and all copies and tangible embodiments of the foregoing.
5
"IRS" means the Internal Revenue Service.
"knowledge" or "know" when used with respect to the Company
means the knowledge of the senior management (vice president or senior) of the
Company, or any other management personnel that has had significant involvement
in the business and affairs of the Company.
"Liability" means any liability or obligation (whether
absolute or contingent, liquidated or unliquidated or due or to become due).
"Lien" means any mortgage, deed of trust, pledge, lien,
security interest, charge, encumbrance, security arrangement, restriction,
covenant, encroachment or other title imperfection of any nature whatsoever,
including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of security.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means any material adverse effect on
(i) the business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole, or (ii) any of
the transactions contemplated hereby or by the Related Documents.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA of which the Company or any ERISA Affiliate has
contributed to, or has been obligated to contribute to, at any time during the
six (6) years preceding the Closing Date.
"Notes" has the meaning set forth in Section 2.1.
"ordinary course of business" means the ordinary course of
business of the Company consistent with past practice (including with respect to
quantity, quality and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permitted Liens" has the meaning set forth in Section 8.1(l).
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other entity.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA), maintained or contributed to by the Company, or any predecessor
or Subsidiary at any time during the 5-calendar years immediately preceding the
date of this Agreement.
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"Preferred Shares" has the meaning set forth in Section 2.1.
"Preferred Stock" means the Series D Cumulative Convertible
Preferred Stock, $.001 par value per share, of the
Company.
"RCRA" shall mean the federal Resource Conservation and
Recovery Act, as amended.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchaser substantially in the form of
Exhibit C hereto.
"Related Documents" means all documents and instruments to be
executed or adopted by the Company in connection herewith, including without
limitation the Certificate of Designations, the Preferred Shares, the Side
Agreements, the Termination and Release Agreement, each of the Notes, the
Security Agreement, the Registration Rights Agreement, the Warrants and all
other documents and instruments to be executed or adopted by the Company
pursuant thereto.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, seeping,
migrating, dumping or disposing of any Hazardous Material (including the
abandonment or discarding of barrels, containers and other closed receptacles
containing Hazardous Materials) into the indoor or outdoor environment,
including ambient air, soil, surface or ground water.
"Remedial Action" means all actions taken to (i) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate or in any other way
address Hazardous Materials in the indoor or outdoor environment; (ii) prevent
or minimize a Release or threatened Release of Hazardous Materials so they do
not migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
any other actions authorized by 42 U.S.C. 9601.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning given that term in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement by and among
the Company, the Purchaser, PC Virginia Synthetic Fuel #1, L.L.C., a Delaware
limited liability company, PC West Virginia Synthetic Fuel #1, L.L.C., a
Delaware limited liability company, PC West Virginia Synthetic Fuel #2, L.L.C.,
a Delaware limited liability company, and PC West Virginia Synthetic Fuel #3,
L.L.C., a Delaware limited liability company, substantially in the form attached
as Exhibit D hereto.
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"Series E Warrants" has the meaning given that term in the
definition of "Warrants" in this Section 1.1(a).
"Side Agreements" means each of the Agreements, dated as of
the Closing Date, by and between the Company and each of (i) PC Virginia
Synthetic Fuel #1, L.L.C., a Delaware limited liability company, (ii) PC West
Virginia Synthetic Fuel #1, L.L.C., a Delaware limited liability company, (iii)
PC West Virginia Synthetic Fuel #2, L.L.C., a Delaware limited liability
company, and (iv) the PC West Virginia Synthetic Fuel #3, L.L.C., a Delaware
limited liability company, substantially in the form of Exhibit E hereto.
"Subsidiary" means any corporation, partnership, association
or other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by the Company. For
purposes hereof, the Company shall be deemed to have a majority ownership
interest in a partnership, association or other business entity if the Company,
directly or indirectly, is allocated a majority of partnership, association or
other business entity gains or losses, or is or controls the managing director
or general partner of such partnership, association or other business entity.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss.59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Termination and Release Agreement" means the Termination and
Release Agreement, dated as of the Closing Date, by and between the Company and
Trans Pacific Stores, LTD., a Hawaiian corporation, substantially in the form of
Exhibit F hereto.
"Termination Event" means (i) a Reportable Event with respect
to any Employee Plan, (ii) any event that causes the Company or any of its ERISA
Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4212 of ERISA or Section 4971 or 4975 of the Code,
(iii) the filing of a notice of intent to terminate an Employee Plan or the
treatment of an Employee Plan amendment as a termination under Section 4041 of
ERISA, (iv) the institution of proceedings by the PBGC to terminate an Employee
Plan, or (v) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer any Employee Plan.
8
"Warrants" means, collectively (i) the Series A Stock Purchase
Warrants of the Company initially exercisable for 200,000 shares of Common
Stock, (ii) the Series B Stock Purchase Warrants of the Company initially
exercisable for 200,000 shares of Common Stock, (iii) the Series C Stock
Purchase Warrants initially exercisable for 228,572 shares of Common Stock and
(iv) the Series D Stock Purchase Warrants initially exercisable for 342,858
shares of Common Stock, to be issued by the Company on the Closing Date and (v)
the Series E Stock Purchase Warrants (the "Series E Warrants") of the Company
initially exercisable for 312,196 shares of Common Stock, to be issued by the
Company on the Closing Date, each of (i) through (v) substantially in the form
of Exhibit G hereto.
"Warrant Shares" means shares of the Common Stock obtained or
obtainable upon exercise of the Warrants; provided, that if there is a change
such that the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
(b) The words "herein," "hereof" and "hereunder"
refer to this Agreement as a whole and not to any particular article, section or
other subdivision of this Agreement.
Article II
ISSUANCE AND SALE OF THE SECURITIES
2.1 Authorization of the Securities. The Company has authorized the
issuance and sale to the Purchaser of (a) 60,000 shares of Preferred Stock (the
"Preferred Shares"), (b) the Warrants (other than the Series E Warrants) and (c)
its Convertible Secured Notes in an aggregate principal amount of $20,000,000
and containing the terms and conditions and in the form of the Note set forth in
Exhibit H attached hereto (the "Notes" and, together with the Preferred Shares,
the Warrants and the Dividend Shares, the "Securities"). The Preferred Shares
and the Notes are convertible into and the Warrants are exercisable for shares
of the Company's Common Stock and the Notes are secured by a first priority
security interest in the collateral described in the Security Agreement.
2.2 Issuance and Sale of the Securities. At the Closing, on the terms
and subject to the conditions of this Agreement, the Company shall issue to the
Purchaser (a) 60,000 Preferred Shares, (b) Warrants (other than the Series E
Warrants) initially exercisable for an aggregate of 971,430 Warrant Shares, and
(c) a Note in the aggregate principal amount of $20,000,000, for an aggregate
purchase price of $16,000,000. For federal income tax purposes, the Company and
the Purchaser agree that the aggregate amount paid by the Purchaser for (i) the
Preferred Shares is $6,000,000, (ii) the Warrants (other than the Series E
Warrants) is $0, and (iii) the Notes is $10,000,000. Neither the Company nor the
Purchaser shall file any Tax Return or take any position with any taxing
authority inconsistent with the preceding sentence.
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Article III
CLOSING; CLOSING DELIVERIES
3.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at 10:00 a.m. on March 17, 1999, at the offices of
Kirkland & Ellis, New York, New York or at such other time, place and/or date as
shall be agreed upon by the parties hereto. The date upon which the Closing
occurs is referred to herein as the "Closing Date".
3.2 Payment for and Delivery of the Securities. At the Closing, the
Company shall issue and deliver to the Purchaser, (a) stock certificates for
60,000 Preferred Shares duly registered in the name of the Purchaser, (b) duly
issued Warrants of the relevant series and initially exercisable for an
aggregate of 971,430 Warrant Shares and (c) a Note in the aggregate principal
amount of $20,000,000, against payment by the Purchaser, by wire transfer of
immediately-available funds to the account designated by the Company not less
than two (2) days prior to the Closing Date, of $16,000,000.
Article IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as
follows:
4.1 Existence; Qualification; Subsidiaries. Each of the Company and its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of the state of its incorporation or formation and has full corporate or
partnership power and authority, as the case may be, to conduct its business and
own and operate its properties as now conducted, owned and operated. The copies
of the Certificate of Incorporation, as amended, and By-Laws of the Company and
all amendments thereto previously delivered to the Purchaser are true, correct
and complete copies of such documents. The Company and each Subsidiary is
licensed or qualified as a foreign corporation, partnership or limited liability
company and is in good standing in all jurisdictions where such person is
required to be so licensed or qualified, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect. Except as set forth on Schedule 4.1, the Company has no Subsidiaries and
owns no capital stock or other securities of, and has not made any other
investment in, any other entity. All of the issued shares of capital stock,
partnership interests or membership interests, as the case may be, of each
Subsidiary have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or adverse claims.
4.2 Authorization and Enforceability; Issuance of the Securities, the
Conversion Shares and the Warrant Shares.
(a) The Company has full power and authority and has taken all
required corporate and other action necessary to permit it to execute and
deliver this Agreement and the Related
10
Documents and to carry out the terms hereof and thereof and to issue and deliver
the Securities, the Conversion Shares and the Warrant Shares (including adoption
and filing in Delaware of the Certificate of Designations for the Preferred
Stock), and none of such actions will violate any provision of the Certificate
of Incorporation of the Company, the By-Laws of the Company or of any applicable
law, regulation, order, judgment or decree or rule of any stock exchange where
the Company's Common Stock is listed, or result in the breach of or constitute a
default (or an event which, with notice or lapse of time or both would
constitute a default) under any material agreement (including the Company's
current secured debt instruments set forth on Schedule 4.2 (the "Existing
Indebtedness")), instrument or understanding to which the Company is a party or
by which it is bound or by which it will become bound as a result of the
transactions contemplated by this Agreement. This Agreement, each of the Related
Documents and all other agreements and instruments contemplated hereby to which
the Company is a party, have been duly executed and delivered by the Company and
each constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
related to the enforcement of creditor's rights generally and (ii) general
principles of equity.
(b) The Preferred Stock has been duly and validly authorized
and, when issued and delivered in accordance with this Agreement and, in the
case of Dividend Shares, the Certificate of Designations, will be validly
issued, fully paid, nonassessable, and outstanding. The execution, delivery and
performance of this Agreement, each of the Related Documents and all other
agreements and instruments contemplated hereby to which the Company is a party
have been duly authorized by the Company. The Preferred Shares and, when issued,
the Dividend Shares, Conversion Shares and the Warrant Shares, will be fully
paid and nonassessable. The Dividend Shares have been duly reserved for issuance
and when issued in accordance with the Certificate of Designations will be duly
authorized, validly issued and outstanding, fully paid and nonassessable shares
of Preferred Stock. The Conversion Shares and the Warrant Shares have been duly
reserved for issuance upon conversion of the Preferred Stock and the Notes and
exercise of the Warrants, as the case may be, and, when so issued, will be duly
authorized, validly issued and outstanding, fully paid and nonassessable shares
of Preferred Stock or Common Stock, as the case may be. Neither the issuance and
delivery of the Preferred Shares nor the issuance and delivery of Dividend
Shares, nor the issuance and delivery of any Conversion Shares upon conversion
of any Preferred Stock or Notes or the issuance and delivery of any Warrant
Shares upon exercise of the Warrants is subject to any preemptive right of any
stockholder of the Company or to any right of first refusal or other similar
right in favor of any Person.
4.3 Capitalization. The authorized capital stock of the Company
consists of (a) 25,000,000 shares of Common Stock, par value $.001 per share, of
which, as of March 8, 1999, 12,494,029 shares were outstanding, 4,142,858 shares
are reserved for issuance upon conversion of the Preferred Stock and the Notes,
1,283,626 shares are reserved for issuance upon exercise of the Warrants, and
5,363,917 shares are reserved for issuance upon the exercise of certain stock
options
11
and warrants, and (b) 10,000,000 shares of preferred stock, par value $.001 per
share, of which (i) 3,000 shares have been designated Series A Preferred Stock,
of which 3,000 shares are issued and outstanding, (ii) 312,882 shares have been
designated Series B Preferred Stock, of which 27,168 shares are issued and
outstanding, (iii) 1,500 shares have been designated Series C Preferred Stock,
of which 1,000 shares are issued and outstanding, and (iv) 80,000 shares have
been designated Series D Preferred Stock. Upon the purchase and sale of the
shares of the Preferred Stock to the Purchaser pursuant to this Agreement, all
of such shares will be duly and validly issued and outstanding. All of the
outstanding capital stock has been validly issued and is fully paid and
nonassessable and has been issued in compliance with all applicable securities
laws (including the provisions of the Securities Act and the rules and
regulations promulgated thereunder) and (ii) no outstanding capital stock or
other equity securities of the Company ranks senior or pari passu with the
Preferred Stock in right of payment of dividends, or rights upon liquidation or
redemption. There are no options, convertible securities, warrants, calls,
pledges, transfer restrictions (except restrictions imposed by federal and state
securities laws), voting restrictions, liens, rights of first offer, rights of
first refusal, antidilution provisions or commitments of any character relating
to any issued or unissued shares of capital stock of the Company other than as
contemplated in the Related Documents. Except as contemplated by this Agreement
and the Related Documents or as set forth inSchedule 4.3, there are no
preemptive or other preferential rights applicable to the issuance and sale of
securities of the Company, including the Securities, the Dividend Shares, the
Conversion Shares and the Warrant Shares.
4.4 Private Sale. Assuming the accuracy of the representations and
warranties made by recipients of the Company's capital stock in connection with
the acquisition of such capital stock, the Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
and issuance of any of its capital stock. Subject to the accuracy of the
Purchaser's representations contained herein, neither the offer, sale and
issuance of the Securities hereunder nor the issuance and delivery of any
Dividend Shares, Conversion Shares upon conversion of any shares of Preferred
Stock or Notes or any Warrant Shares upon exercise of any Warrants requires
registration under the Securities Act or any state securities laws.
4.5 Financial Statements; Disclosure.
(a) The Financial Statements (together with the notes thereto,
as applicable), (i) are true, correct and complete in all material respects,
(ii) are in accordance with the books and records of the Company and (iii)
fairly present the financial condition and results of operations of the Company
as of the dates and for the periods indicated in accordance with GAAP, except
that the unaudited balance sheets and related financial statements do not
contain an auditors' opinion and do not contain footnotes and are subject to
normal, recurring year-end audit adjustments which are not material.
(b) This Agreement together with the schedules, attachments,
exhibits, written statements and certificates supplied to the Purchaser by or on
behalf of the Company with respect to the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein
12
or therein, in light of the circumstances in which they were made, not
misleading. There is no fact which has not been disclosed to the Purchaser in
writing of which the Company has knowledge, and which has had or could
reasonably be anticipated to have a Material Adverse Effect.
(c) As of its filing date, each document filed with the SEC by
the Company, as amended or supplemented prior to the Closing Date, if
applicable, pursuant to the Securities Act and/or the Exchange Act, true and
correct copies of which have been given to the Purchaser (i) complied in all
material respects with the applicable requirements of the Securities Act and/or
Exchange Act and (ii) did 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 the light of the circumstances under which they were made, not
misleading. Each final registration statement filed with the SEC by the Company
pursuant to the Securities Act, as of the date such statement became effective
(i) complied in all material respects with the applicable requirements of the
Securities Act and (ii) did 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 not misleading (in the case of any prospectus, in
light of the circumstances under which they were made).
4.6 Absence of Certain Changes.
(a) Except as set forth on Schedule 4.6(a) since the date of
the Current Balance Sheet, neither the Company nor any Subsidiary has:
(i) incurred any Liabilities other than current
Liabilities incurred, or obligations under contracts entered into, in the
ordinary course of business and for individual amounts not greater than
$250,000;
(ii) paid, discharged or satisfied any claim, Lien or
Liability, other than any claim, Lien or Liability (A) reflected or reserved
against on the Current Balance Sheet and paid, discharged or satisfied in the
ordinary course of business since the date of the Current Balance Sheet or (B)
incurred and paid, discharged or satisfied since the date of the Current Balance
Sheet, in each case in the ordinary course of business;
(iii) sold, leased, assigned or otherwise transferred
any of its assets, tangible or intangible (other than sales of inventory in the
ordinary course of business and use of supplies in the ordinary course of
business);
(iv) permitted any of its assets, tangible or
intangible, to become subject to any Lien (other than any Permitted Lien);
(v) written off as uncollectible any accounts
receivable other than (A) in the ordinary course of business or (B) for amounts
not greater than $50,000 in the aggregate;
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(vi) terminated or amended or suffered the
termination or amendment of, or other than in the ordinary course of business,
failed to perform in all material respects all of its obligations or suffered or
permitted any material default to exist under, any material agreement, license
or permit;
(vii) suffered any damage, destruction or loss of
tangible property (whether or not covered by insurance) which in the aggregate
exceeds $100,000;
(viii) made any loan (other than intercompany
advances) to any other Person (other than advances to employees in the ordinary
course of business which do not exceed $5,000 individually or $25,000 in the
aggregate);
(ix) canceled, waived or released any debt, claim or
right in an amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement,
arrangement or transaction with, or any series of agreements, arrangements or
transactions with, any Affiliate (including its officers, directors and
employees) having a value of in excess of $5,000 in the aggregate (other than as
Company-wide employee benefits paid in the ordinary course of business);
(xi) declared, set aside, or paid any dividend or
distribution with respect to its capital stock or redeemed, purchased or
otherwise acquired any of its capital stock;
(xii) other than in the ordinary course of business,
granted any increase in the compensation of any officer or employee or made any
other change in employment terms of any officer or employee;
(xiii) made any change in any method of accounting or
accounting practice;
(xiv) suffered or caused any other occurrence, event
or transaction outside the ordinary course of business or which could have a
Material Adverse Effect; or
(xv) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the date of the Current Balance Sheet, there has
been no Material Adverse Change.
(c) Schedule 4.6(c) hereto sets forth a complete and accurate
list as of the date hereof of (i) each place of business of the Company and each
of its Subsidiaries and (ii) the chief executive office of the Company and each
of its Subsidiaries.
4.7 Litigation. No claim, suit, proceeding or investigation is pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any
14
licensee or any officer or director thereof or the Company's, the Subsidiaries'
or the licensee's business which if decided adversely to any such person could
have a Material Adverse Effect. Schedule 4.7 hereto sets forth all litigation to
which the Company is currently a party.
4.8 Licenses, Compliance with Law, Other Agreements, Etc. Each of the
Company, its Subsidiaries and, to the knowledge of the Company, its licensees
has all material franchises, permits, licenses and other rights to allow it to
conduct its business and is not in violation, in any material respects of any
order or decree of any court, or of any law, order or regulation of any
Governmental Agency, or of the provisions of any contract or agreement to which
it is a party or by which it is bound, and neither this Agreement nor the
Related Documents nor the transactions contemplated hereby or thereby will
result in any such violation. Each of the Company's, its Subsidiary's and, to
the knowledge of the Company, its licensee's business has been conducted in
compliance with all federal, state and local laws, ordinances, rules and
regulations, in all material respects.
4.9 Third-Party Approvals. Assuming the accuracy of the representations
and warranties of each Purchaser contained in this Agreement, the Company is not
required to obtain any order, consent, approval or authorization of, or to make
any declaration or filing with, any Governmental Agency or other third party
(including under any state securities or "blue sky" laws) inconnection with the
execution and delivery of this Agreement or the Related Documents, or the
consummation of the transactions contemplated hereby or thereby to occur on the
Closing Date, except for any consents, approvals or authorizations set forth on
Schedule 4.9, all of which have been obtained.
4.10 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any Liabilities (other than contingent Liabilities) except (i)
as and to the extent of the amounts reflected or reserved against on the Current
Balance Sheet (excluding the footnotes thereto) and (ii) liabilities and
obligations incurred in the ordinary course of business since the date thereof
that in the aggregate could not result in a Material Adverse Effect. To the
Company's knowledge, there are no contingent Liabilities.
4.11 Tangible Assets. Each of the Company and its Subsidiaries has good
and marketable title to, or valid leasehold interests in, all material tangible
assets used or reasonably necessary in connection with the conduct of its
business. All material tangible assets are free from any Liens (other than
Permitted Liens) and, to the knowledge of the Company, are free from any
material defects, have been maintained in accordance with normal industry
practice and any regulatory standard or procedure to which such assets are
subject, are in good operating condition and repair (subject to normal wear and
tear) and are suitable for the purposes for which such assets are used or
proposed to be used, other than defects and wear and tear which in the aggregate
could not be expected to have a Material Adverse Effect.
4.12 Inventory. All inventory of each of the Company and its
Subsidiaries, whether reflected on the Current Balance Sheet or otherwise,
consists of a quality and quantity usable or
15
salable in the ordinary course of business, subject to normal rates of defect or
obsolescence consistent with the Company's historical experience.
4.13 Owned Real Property. Set forth on Schedule 4.13 is a true and
correct description of all real property owned by the Company and its
Subsidiaries. The Company and each of its Subsidiaries has good and marketable
title in fee simple, free and clear of all Liens (other than any Permitted
Lien), to all of the real property owned by the Company and each of its
Subsidiaries.
4.14 Real Property Leases. Except as set forth on Schedule 4.14, there
exists no event of default (nor any event which with notice or lapse of time
would constitute an event of default) with respect to the Company, any
Subsidiary and, to the Company's knowledge, with respect to any other party
thereto under any agreement pursuant to which the Company is the lessee or
lessor of any real property, except for such defaults and defects in
enforceability as could not in the aggregate be expected to have a Material
Adverse Effect, and all such agreements are in full force and effect and
enforceable against the lessor or lessee in accordance with their terms except
for such defaults and defects in enforceability as could not in the aggregate be
expected to have a Material Adverse Effect.
4.15 Agreements. Except as set forth on Schedule 4.15, none of the
Company, any Subsidiary or, to the knowledge of the Company, any licensee is in
default, nor to the knowledge of the Company is there any basis for a valid
claim of default, and to the Company's knowledge no event has occurred which,
with notice or lapse of time, would constitute a default, under any agreement,
arrangement or understanding to which the Company, any Subsidiary or any
licensee is aparty, and to the knowledge of the Company, no Person other than
the Company is in default under any such agreement, in each case other than
defaults which in the aggregate could not be expected to have a Material Adverse
Effect. Additionally, none of the Company, any Subsidiary or, to the knowledge
of the Company, any licensee is party to any agreement the performance of which
in accordance with its terms (including any termination provision thereof) could
be expected to have a Material Adverse Effect.
4.16 Intellectual Property. Schedule 4.16 sets forth a complete list of
(i) all patented, registered, applied for or otherwise material Intellectual
Property owned, filed or used by the Company; and (ii) all trade names and
material unregistered trademarks and other designations used by the Company in
connection with its business. The Company owns and possesses all right, title
and interest in and to, or has a valid and enforceable license to use, all
Intellectual Property used by the Company in its business as currently conducted
and as currently proposed to be conducted. No claim by any third party
contesting the validity, enforceability, use or ownership of Intellectual
Property owned, held or used by the Company has been made or, to the knowledge
of the Company, is threatened. To the knowledge of the Company, neither it nor
its indemnitees has violated or misappropriated the Intellectual Property of any
third party and no third party has violated or misappropriated Intellectual
Property owned, held or used by the Company. No claim by any third party has
been asserted, or to the knowledge of the Company threatened, that the Company
or its indemnitees is violating or misappropriating Intellectual Property. To
the knowledge of the Company, all Intellectual Property owned or held by the
Company is valid, subsisting and
16
enforceable, and all such Intellectual Property is free of all Liens, and,
except as set forth on Schedule 4.16, is fully assignable by the Company to any
Person, without payment, consent of any Person or other condition or
restriction. The Company has taken all reasonable measures to protect the
secrecy, confidentiality and value of all Confidential Information, proprietary
information and trade secrets owned, held or used by the Company (including,
without limitation, entering into appropriate confidentiality agreements with
all officers, directors, employees, and other Persons with access to such
information and trade secrets). To the knowledge of the Company, such
information and trade secrets have not been disclosed to any Persons other than
Company employees or Company contractors who had a need to know and use such
information and trade secrets in the ordinary course of employment or contract
performance and who executed appropriate confidentiality agreements.
4.17 Employees. Except as set forth on Schedule 4.17, since the date of
the Current Balance Sheet, no key employees and no group of employees has
terminated, or to the knowledge of the Company plans to terminate, employment
with the Company or any Subsidiary, as applicable. Except as set forth on
Schedule 4.17, the Company is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strike, material grievance,
material claim of unfair labor practice or other collective bargaining dispute.
Except as set forth on Schedule 4.17, to the knowledge of the Company there is
no organizational effort being made or threatened by or on behalf of any labor
union with respect to its employees. To the knowledge of the Company, it has not
committed any unfair labor practice or violated any federal, state or local law
or regulation regulating employers or the terms and conditions of its employees'
employment, including laws regulating employee wages and hours, employment
discrimination, employee civil rights, equal employment opportunity and
employment of foreign nationals, except for such violations as could not be
expected to have a Material Adverse Effect.
4.18 ERISA; Employee Benefits. Each Plan (other than a Plan which is a
Multiemployer Plan) that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service or has timely filed for a favorable determination letter from the
Internal Revenue Service and no event has occurred since the date of the last
determination letter that could reasonably be expected to materially adversely
affect the qualified status of such Plan. Each Plan (other than a Plan which is
a Multiemployer Plan) is in full force and effect and has been administered in
all material respects in accordance with its terms and is and has been, and each
plan administrator and fiduciary of a Plan is acting and has been acting, in
compliance in all material respects with all applicable requirements of the Code
and ERISA (including the funding, reporting and disclosure and prohibited
transaction provisions thereof) and other applicable laws, regulations and
rulings in connection with each such Plan. No Plan has been terminated or
partially terminated. With respect to each Plan which is a Multiemployer Plan,
no complete or partial withdrawal (within the meaning of Sections 4203 and 4205
of ERISA) has occurred, no such Plan is in reorganization or insolvency (within
the meaning of Title IV of ERISA) and no material withdrawal liability has been
or could be assessed against the Company. The Company or one of its Subsidiaries
has made, accrued or provided for all contributions required under each Plan. To
the knowledge of the Company, no event has occurred or is reasonably expected to
occur with respect to any employee pension benefit plan of the Company or any
member
17
of the Company's controlled group (within the meaning of Section 414 of the
Code), which could reasonably be expected to directly or indirectly result in
any material liability (other than liability arising in the ordinary course) to
the Company or any member of its controlled group pursuant to Title IV of ERISA
or Section 412 of the Code. No Plan (other than a Plan which is a Multiemployer
Plan) has incurred an "accumulated funding deficiency" within the meaning of
Section 412 of the Code or Section 302 of ERISA.
4.19 Environmental Laws. Except as set forth on Schedule 4.19:
(a) Each of the Company (as used in this Section 4.19, Company
shall include any predecessor and the Company's Subsidiaries) and, to the
knowledge of the Company, its licensees has complied and is in compliance with
all Environmental Laws.
(b) The Company and, to the knowledge of the Company, its
licensees have obtained and complied with, and are in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental Laws to operate its facilities, assets, and its businesses.
(c) No Environmental Actions have been asserted against the
Company or, to the knowledge of the Company, against any licensee or facility
that may have received Hazardous Materials generated by the Company or any
licensee, regarding any actual, threatened, or alleged violation of
Environmental Laws, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated, or otherwise), including any
investigatory, remedial, or corrective obligations, relating to it or its
operations under Environmental Laws.
(d) To the knowledge of the Company, none of the following
exists at any property or facility currently or formerly owned or operated by
either the Company or, to the knowledge of the Company, any licensee: (i)
underground storage tanks, (ii) asbestos-containing material in any form or
condition, (iii) materials or equipment containing polychlorinated biphenyls, or
(iv) landfills, surface impoundments, or waste disposal areas, except for
feed-stock properties for Company facilities.
(e) Except as disclosed on Schedule 4.19, neither the Company
nor, to the knowledge of the Company, any licensee has treated, stored, disposed
of, arranged for or permitted the disposal of, transported, handled, or Released
any substance, including without limitation any Hazardous Material, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to Environmental Liabilities and Costs. There has been no Release at any of
the properties owned or operated by the Company or, to the knowledge of the
Company, at any of the properties owned or operated by its licensees or, to the
knowledge of the Company, at any disposal treatment facility which received
Hazardous Materials generated by the Company or any licensee which is reasonably
likely to result in Environmental Liabilities and Costs.
18
(f) Except as disclosed on Schedule 4.19, neither this
Agreement nor the consummation of the transactions that are contemplated by this
Agreement will result in any obligations for site investigation, cleanup or
notification pursuant to any so-called "transaction-triggered" or "responsible
property transfer" Environmental Laws.
(g) Neither the Company nor, to the knowledge of the Company,
any licensee has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
Remedial Action, of any other Person relating to Environmental Laws.
(h) The Company has provided to the Purchaser copies of all of
the following in the Company's possession: (i) the environmental compliance
audits or any so-called "Phase I" or "PhaseII" environmental assessments, all of
which are listed on Schedule 4.19; (ii) notices of Environmental Actions, CERCLA
information requests and responses, and similar documents, relating to
violations of Environmental Laws, or Environmental Liabilities and Costs,
relating to the Company or its licensees; (iii) correspondence alleging
nuisance, injury or property damage arising from odors, noise, pollution or
contamination associated with the Company's business; (iv) reports prepared in
connection with any Remedial Action, RCRA corrective actions, or other site
investigations or cleanups required or undertaken pursuant to Environmental Laws
and associated with properties owned, leased, used or operated by the Company
and its licensees; (v) documents describing or explaining cost estimates for
closure and post-closure care of the Company's and its licensees' facilities
involved in the treatment, storage or disposal of hazardous wastes; (vi) and
documents alleging, describing or explaining the Company's liability or
potential liability pursuant to Environmental Laws.
4.20 Transactions With Affiliates. Except as set forth on Schedule
4.20, neither the Company nor any Subsidiary is party to any agreement,
arrangement or transaction or series of agreements, arrangements or transactions
with any Affiliate which agreements, arrangements, transactions and series of
transactions in the aggregate have a value over $5,000 (other than as
Company-wide employee benefits paid in the ordinary course of business).
4.21 Taxes.
(a) Except as disclosed on Schedule 4.21, each of the Company
and its Subsidiaries has filed all Tax Returns that it was required to file, and
has paid all Taxes due with respect to the periods covered by such Tax Returns.
(b)None of the Company and its Subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
19
(c) Each of the Company and its Subsidiaries has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) Except as set forth on Schedule 4.21, there is no dispute
or claim concerning any Tax Liability of any of the Company and its Subsidiaries
either (i) claimed or raised by any authority in writing or (ii) as to which any
of the directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has knowledge based upon personal contact with any
agent of such authority.
4.22 Other Investors. Set forth on Schedule 4.22 is a list of all
shareholders (including option and convertible securityholders) of the Company
who as of the date hereof, based on SEC filings of such shareholders, after
giving effect to the terms hereof, own more than 5% of the fully diluted common
equity of the Company and sets forth such percentage ownership.
4.23 Year 2000 Representations. The Company represents and warrants
that:
(a) The Company does not have any computer applications that
it believes are mission critical to the operation of synthetic fuel facilities
that it operates. While the Company has not formally verified Year 2000
compliance with licensees that utilize the Company's technology in their
synthetic fuel facilities, the Company believes that the computer applications
used in the operations of these facilities are not mission critical.
Accordingly, the Company believes that Year 2000 issues will not be significant
to these computer applications and accordingly, upgrading or modifications to
these applications to make them Year 2000 compliant will not be significant.
(b) During 1998 the Company upgraded its network operating
system and believes that system is Year 2000 compliant and that any additional
upgrading to that system will not be significant. The Company utilizes computer
applications in the finance and accounting departments and in the corporate
office that utilize a two-digit date that will need to be upgraded in order to
be Year 2000 compliant. The Company has contacted the providers of this software
and they have indicated that Year 2000 compliant software will be available in
early 1999. The Company believes the cost to purchase this upgraded software and
to convert the applicable applications to this new software will be less than
$50,000. The Company anticipates that this conversion will be completed by June
30, 1999. The costs incurred during 1998 to upgrade the network operating
systems was approximately $25,000 and is included in selling, general and
administrative expenses.
4.24 Seniority. No Capital Stock of the Company whether or not
currently outstanding is senior to or pari passu with the Preferred Stock in
right of payment, whether with respect to dividends or redemption or upon
liquidation, dissolution or otherwise.
20
4.25 Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
4.26 Certain Fees. Other than fees and expenses due and payable to the
Purchaser (pursuant to Sections 8.2(l) and 11.4), Havenwood Capital Markets, LLC
and Leeds Group Inc., no fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, or bank with respect
to the transactions contemplated by this Agreement. The Purchaser shall not have
any obligation with respect to any fees or with respect to any claims made by or
on behalf of Havenwood Capital Markets, LLC or other Persons (other than any
fees that may be payable to the Leeds Group Inc. by the Purchaser pursuant to a
separate written agreement between the Purchaser and the Leeds Group Inc.) for
fees of a type contemplated in this section that may be due in connection with
the transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents and
partners,and their respective Affiliates from and against all claims, losses,
damages, costs (including attorney's fees) and expenses suffered in respect to
any such claimed or existing fees.
4.27 Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the disclosure materials delivered to the Purchaser (the "Disclosure
Materials") or (ii) solicited any offer to buy or sell the Securities by means
of any form of general solicitation or general advertising within the meaning of
Regulation D under the Securities Act. None of the Disclosure Materials or any
other information provided to the Purchaser by or on behalf of the Company
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4.28 Form S-3 Eligibility. The Company is eligible to register
securities for resale with the SEC on Form S-3 promulgated under the Securities
Act.
4.29 Listing and Maintenance Requirements Compliance. (a) The Company
has not received notice (written or oral) from the National Association of
Securities Dealers that the Company is not in compliance with its listing or
maintenance requirements.
(b) Upon conversion of shares of the Preferred Stock or the
Notes into Conversion Shares or the exercise of the Warrants for the Warrant
Shares, all such Conversion Shares and Warrant Shares shall be listed on the
Nasdaq National Market System.
4.30 Registration Rights; Rights of Participation. Except as described
on Schedule 4.30 hereto, (a) the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the SEC or any other Governmental
Agency which has not expired or been satisfied in full and (b) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other
21
related document which has not been waived. None of the rights granted to the
Purchaser hereunder and under the Related Documents conflicts with or would
cause a default under any of the agreements or arrangements listed on Schedule
4.30 hereto.
4.31 Synthetic Fuel Facilities.
(a) The Company shall take all reasonably necessary action to
ensure that the credit for producing fuel from a nonconventional source provided
under Section 29 of the Code is available and is maintained with respect to each
of the Company's and its licensee's facilities for producing synthetic fuels
("Facilities") including, without limitation, ensuring that the Facilities
produce "qualified fuels" (as defined in Section 29(c) of the Code) and such
qualified fuels are sold to persons that are not "related persons" (as defined
in Section 29(d)(7) of the Code). Each of the Facilities was placed in service
before July 1, 1998, in each case pursuant to a binding written contract in
effect on or before December 31, 1996. For purposes of this Section 4.31, each
representation made regarding licensees of the Company is made to the knowledge
of the Company.
(b) Each of the representations and warranties made by any of
the Company, its Subsidiaries or its licensees in obtaining any private letter
ruling from the Internal Revenue Service was true and correct in all material
respects when made and as of the date the ruling was issued.
(c) Set forth on Schedule 4.31 is each private letter ruling
obtained from the Internal Revenue Service regarding the Facilities which is
addressed to the Company or any of its licensees or is otherwise able to be
relied upon by the Company. To the Company's Knowledge, (i) no private letter
ruling listed on Schedule 4.31 has been amended, rescinded or revoked since the
date of issuance, and (ii) there exists no reason that the Internal Revenue
Service would deny a request by the Company or any owner of the Facilities for a
private letter ruling with regard to the Facilities owned by the Company or any
of its licensees.
Article V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
5.1 Authorization and Enforceability. The Purchaser has full power and
authority and has taken all action necessary to permit him/it to execute and
deliver this Agreement and the other documents and instruments to be executed by
it pursuant hereto and to carry out the terms hereof and thereof. This Agreement
and each such other document and instrument, when duly executed and delivered by
the Purchaser, will constitute a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except to the
extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the enforcement of
creditors' rights generally and (ii) general principles of equity.
22
5.2 Government Approvals. To the knowledge of Purchaser, the Purchaser
is not required to obtain any order, consent, approval or authorization of, or
to make any declaration or filing with, any Governmental Agency in connection
with the execution and delivery of this Agreement and the other documents and
instruments to be executed by it pursuant hereto or the consummation of the
transactions contemplated hereby and thereby, except for any such order,
consent, approval, authorization, declaration or filing which (i) has been or
will be obtained or made, or (ii) is related to the nature of the business in
which the Company is engaged.
Article VI
COMPLIANCE WITH SECURITIES LAWS
6.1 Investment Intent of the Purchaser. The Purchaser represents and
warrants to the Company that it is acquiring the Securities for its own account,
with no present intention of selling or otherwise distributing the same in
violation of the Securities Act.
6.2 Status of Securities. The Purchaser has been informed by the
Company that the Securities have not been and will not be registered under the
Securities Act or under any state securities laws and are being offered and sold
in reliance upon federal and state exemptions for transactions not involving any
public offering.
6.3 Accredited Investor Status. The Purchaser represents and warrants
to the Company that it is an "Accredited Investor" as defined in Regulation D
under the Securities Act.
6.4 Access to Information. The Purchaser has had access to management
of the Company and has been able to ask questions of management related to the
Company and has reviewed the Company's filings pursuant to the Exchange Act.
Notwithstanding any due diligence investigations conducted by or on behalf of
the Purchaser, it is understood and agreed by each of the parties hereto that
the Purchaser is entitled to rely, and is relying, on the representations and
warranties made by the Company herein and in the Related Documents.
6.5 Transfer of Securities, Conversion Shares and Warrant Shares.
(a) Securities, Conversion Shares and Warrant Shares may be
transferred (i) pursuant to public offerings registered under the Securities
Act, (ii) pursuant to Rule 144 of the SEC (orany similar rule then in force),
(iii) to an Affiliate or member of the Family Group of the transferor (provided
that the subsequent transfer of the Securities, Conversion Shares or Warrant
Shares is restricted), or (iv) subject to the conditions set forth in Section
6.5(b), any other legally-available means of transfer.
(b) In connection with any transfer of any Securities,
Conversion Shares or Warrant Shares (other than a transfer described in Section
6.5(a)(i), (ii) or (iii)), the holder of such shares shall deliver written
notice to the Company describing in reasonable detail the proposed transfer,
together with an opinion of counsel (which, to the Company's reasonable
satisfaction,
23
is knowledgeable in securities law matters), to the effect that such transfer
may be effected without registration of such shares under the Securities Act.
(c) Until transferred pursuant to clauses (a)(i) or (ii)
above, each Note, Warrant and each certificate for Preferred Shares, Conversion
Shares and Warrant Shares shall be imprinted with a legend substantially in the
following form:
THE SECURITIES REPRESENTED BY THIS [NOTE/CERTIFICATE/
WARRANT] WERE ORIGINALLY ISSUED ON MARCH 17, 1999
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAW. THE TRANSFER OF THE SECURITIES
REPRESENTED BY THIS [NOTE/CERTIFICATE/WARRANT] IS
SUBJECT TO THE CONDITIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT, DATED AS OF MARCH 17, 1999,
BETWEEN THE ISSUER (THE "COMPANY") AND THE PURCHASER
NAMED THEREIN. THE COMPANY RESERVES THE RIGHT TO
REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST TO THE COMPANY.
Article VII
CONDITIONS PRECEDENT
7.1 Conditions Precedent. The obligation of the Purchaser to purchase
the Securities hereunder is subject to the satisfaction of each of the following
conditions precedent:
(a) The issuance and sale of the Securities shall not
contravene any law, rule or regulation applicable to the Purchaser or the
Company or any of its Subsidiaries;
(b) The following conditions have been satisfied as of the
Closing Date,
(i) The representations and warranties of the Company
contained herein and in any Related Document and in any writing delivered
pursuant hereto or thereto shall be true and correct when made and materially
true and correct as of the time of the Closing;
(ii) No action, suit, investigation or proceeding
shall be pending or threatened before any court or Governmental Agency to
restrain, prohibit, collect damages as a result of or otherwise challenge this
Agreement or any Related Document or any transaction contemplated hereby or
thereby;
24
(iii) All acts or covenants required hereunder to be
performed by the Company prior to the Closing shall have been fully performed by
it; and
(iv)No Material Adverse Change shall have occurred
between the date of the Current Balance Sheet and the Closing Date and no event
or occurrence shall have occurred that could have a Material Adverse Effect.
(c) The following documents and items shall be delivered to
the Purchaser at or prior to the Closing:
(i) Stock Certificates for the Preferred Shares duly
registered in the name of the Purchaser and evidence acceptable to the Purchaser
of adoption and filing with the Secretary of State of the State of Delaware by
the Company of the Certificate of Designations;
(ii) Fully executed Notes and a fully executed
counterpart of this Agreement, the Security Agreement and the UCC-1 financing
statements related thereto, the Registration Rights Agreement, the Side
Agreements, the Termination and Release Agreement and the Warrants;
(iii) The written opinion of Callister, Nebeker &
McCullough, counsel for the Company, in the form of Exhibit I hereto;
(iv) Certificates of a duly authorized officer of the
Company dated as of the Closing Date:
(A) Stating that the following conditions have
been satisfied as of the Closing Date,
(1) The representations and warranties of
the Company contained herein and in any writing delivered
pursuant hereto were true and correct when made and are
materially true and correct as of the time of the Closing;
(2) No action, suit, investigation or
proceeding is pending or threatened before any court or
Governmental Agency to restrain, prohibit, collect damages as
a result of or otherwise challenge this Agreement or any
Related Document or any transaction contemplated hereby or
thereby;
(3)All acts or covenants required hereunder
to be performed by the Company prior to the Closing have been
fully performed by it; and
(4) No Material Adverse Change shall have
occurred between the date of the Current Balance Sheet and the
Closing Date and there shall have
25
been no event or occurrence that could result in a Material
Adverse Effect; and
(B) Setting forth the resolutions of the Board of Directors
authorizing (i) the execution and delivery of this Agreement
and the Related Documents (including the Certificate of
Designations) and the consummation of the transactions
contemplated hereby and thereby, (ii) the increase of the
Board of Directors to eight (8) members and (iii) the
appointment of an individual designated by the Purchaser to
the Board of Directors, and certifying that such resolutions
were duly adopted and have not been rescinded or amended;
(v)The Company shall have paid fees payable pursuant to
Section 11.4 hereof and a fee of $400,000 and Series E Warrants to purchase
156,098 shares of Common Stock payable to Leeds Group Inc.;
(vi) An executed Termination and Release Agreement and
evidence satisfactory to the Purchaser in its sole discretion that Trans Pacific
Stores Ltd., a Hawaiian corporation, has no lien on any of the Company's, any of
its Subsidiaries' or its licensee's property or assets with respect to its loan
to the Company pursuant to the Secured Draw Down Promissory Note, dated as of
March 17, 1998;
(vii) Lien search results satisfactory to the Purchaser in its
sole discretion;
(viii)A certificate of an authorized officer of the Company,
certifying the names and true signature of the representatives of such Person
authorized to sign this Agreement and the Related Documents to which such Person
is or will be a party and the other documents to be executed and delivered by
such Person in connection herewith, together with evidence of the incumbency of
such authorized officers;
(ix) A certificate of the appropriate official(s) of the state
of organization and each state of foreign qualification of the Company and each
of its Subsidiaries certifying asto the subsistence in good standing of, and the
payment of taxes by, such Person in such states, together with confirmation by
telephone, facsimile or telegram on the Closing Date as to such matters from
such official(s) or from a recognized service company specializing in the
verification of organizational good standing;
(x) A true and complete copy of the Certificate of
Incorporation, as amended, of the Company, certified as of a date not more than
30 days prior to the Closing Date by an appropriate official of the state of
organization of each such Person and a true and complete copy of the Bylaws of
the Company, certified as of the Closing Date by the Secretary of the Company;
and
(xi) Such other documents relating to the transactions
contemplated hereby as the Purchaser may reasonably
request.
26
(d) The Company shall have executed and delivered to
the Purchaser the Certificates (in such denominations as the Purchaser shall
request) for the Preferred Stock and the Warrants being purchased by such
Purchaser at the Closing.
7.2 Closing Deliveries to the Company. The Purchaser will deliver to
the Company the aggregate purchase price for the Securities to be acquired by
the Purchaser.
Article VIII
COVENANTS OF THE COMPANY
8.1 Restricted Actions. Without the prior written consent of the
holders of (i) two-thirds (2/3) (or such higher percentage of holders as may
then be required by law) of the then outstanding shares of Preferred Stock and
(ii) two-thirds (2/3) of the then outstanding aggregate principal amount of the
Notes, and for so long as any of the Preferred Stock or Notes remain
outstanding, the Company shall not, and shall not permit any Subsidiary to:
(a) become subject to any agreement or instrument which by its
terms would (under any circumstances) restrict or impair the Company's right to
comply with or fulfill its obligations under the terms of this Agreement or any
of the Related Documents;
(b) use the proceeds from the sale of the Securities other
than for repayment of indebtedness, working capital and other general corporate
purposes; provided, that the Company will in no event use the proceeds to invest
in any securities other than short-term, interest-bearing government securities;
(c) enter into any transaction or series of transactions with
any stockholder, director, officer, employee or Affiliate, including, without
limitation, the purchase, sale, lease orexchange of any property, the rendering
of any service or any investment, loan or advance, unless such transaction (i)
is consummated by the Company in good faith on an arm's-length basis, (ii) is
less than $100,000 per occurrence or $250,000 in the aggregate, and (iii) is
approved by the Board of Directors, including by a majority of the Company's
disinterested directors;
(d) expand the Board of Directors to greater than eight (8)
members;
(e) except with respect to the sale of the synthetic fuel
facilities of the Company set forth on Schedule 8.1(e), sell all or any material
portion of its assets, determined on a consolidated basis;
(f) declare or pay any dividends, purchase or otherwise
acquire for value any of its membership interests or other Capital Stock now or
hereafter outstanding, return any capital to its members as such, or make any
other payment or distribution of assets to its stockholders as such, or permit
any of its Subsidiaries to do any of the foregoing or to
27
purchase or otherwise acquire for value any Capital Stock of the Company or its
Subsidiaries, or make any payment or prepayment of principal of, premium, if
any, or interest on, or redeem, decrease or otherwise retire, any Indebtedness
before its scheduled due date;
(g) materially alter or change the business of the Company;
(h) issue any stock option at less than the fair market value
at the time of grant;
(i) create, incur or suffer to exist, or permit any
of its Subsidiaries to create, incur or suffer to exist, any Indebtedness, other
than:
(i) Indebtedness created hereunder and under the
Notes;
(ii) Indebtedness existing on the date hereof, as set
forth in Schedule 8.1(i) hereto, and any extension of maturity, refinancing or
modification of the terms thereof; provided, however, that such extension,
refinancing or modification (A) is pursuant to terms that are not materially
less favorable to the Purchaser than the terms of the Indebtedness being
extended, refinanced or modified and (B) after giving effect to the extension,
refinancing or modification, such Indebtedness is not greater than the amount of
Indebtedness outstanding immediately prior to such extension, refinancing or
modification;
(iii) Indebtedness under Capitalized Leases permitted
by subparagraph (p) of this Section 8.1; and
(iv) additional Indebtedness at any one time outstanding
not to exceed $4,000,000.
(j) enter into any merger, combination, consolidation,
reorganization, recapitalization, liquidation or other similar transaction of
the Company or any agreement with respect to any of the foregoing, other than a
transaction for the purpose of changing the Company's domicile;
(k) amend the Certificate of Incorporation or Bylaws, or alter
the rights, preferences and privileges of the Securities, the Conversion Shares
or the Warrant Shares;
(l) create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer, or permit any of its Subsidiaries to
assign or otherwise transfer, any right to receive income, other than the
following ("Permitted Liens"):
28
(i) Liens existing on the date hereof, as set forth
in Schedule 8.1(l) hereto, but not the extension of coverage thereof to other
property or the extension of maturity, refinancing or other modification of the
terms thereof or of the Indebtedness secured thereby;
(ii) Liens created by operation of law (other than
Environmental Liens), such as materialmen's liens, mechanics' liens and other
similar Liens arising in the ordinary course of business;
(iii) deposits, pledges or Liens (other than Liens
arising under ERISA or the Code) securing (A) obligations incurred in respect of
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits, (B) the performance of bids, tenders, leases, contracts
(other than for the payment of money) and statutory obligations, or (C)
obligations on surety or appeal bonds, but only to the extent such deposits,
pledges or Liens are incurred or otherwise arise in the ordinary course of
business and secure obligations which are not past due;
(iv) restrictions or covenants on the use of real
property and minor irregularities in the title thereto which do not (A) secure
obligations for the payment of money or (B) materially adversely impair the
value or marketability of such property or its use by the Company or any of its
Subsidiaries in the normal conduct of such Person's business; provided, that in
all such cases the Company or relevant Subsidiary complies in all material
respects with all of its obligations under such title restrictions or covenants;
(v) Liens securing Capitalized Leases permitted by
subparagraph (p) of this Section 8.1; and
(vi) non-consensual Liens, but only if the Company
has posted a bond or other financial assurance sufficient to satisfy the
Indebtedness secured by such Lien.
(m) assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor or otherwise to assure the creditor
against loss), in connection with any Indebtedness of any other Person (other
than, in the case of the Company, guaranties of Indebtedness of any
Subsidiaries), other than
(i) guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business; and
(ii) guaranties existing on the date hereof, as set
forth in Schedule 8.1(m) hereto, but not any renewal or other modification
thereof;
29
(n) make, or permit any of its Subsidiaries to make, any loan
or advance to any Person or purchase or otherwise acquire or permit any of its
Subsidiaries to purchase or otherwise acquire, any capital stock, properties,
assets or obligations of, or any interest in, any Person, other than (i) raw
material purchased in the ordinary course of business and (ii) trade credit
extended in the ordinary course of business;
(o) create, incur or suffer to exist, or permit any of its
Subsidiaries to create, incur or suffer to exist, any obligations as lessee (i)
for the payment of rent for any real or personal property in connection with any
sale and leaseback transaction, or (ii) for the payment of rent for any real or
personal property under Capitalized Leases which would cause the aggregate
amount of all obligations under Capitalized Leases entered into after the
Closing Date owing by the Company in any fiscal year to exceed the amounts set
forth in subsection (p) of this Section 8.1;
(p) except as set forth on Schedule 8.1(p), make or be
committed to make, or permit any of its Subsidiaries to make or be committed to
make, any Capital Expenditure (by purchase or capitalized lease) other than
Capital Expenditures (including obligations under Capitalized Leases) which
would not cause the aggregate amount of all such Capital Expenditures to exceed
the greater of (i) $300,000 and (ii) 15% of the greater of (A) Consolidated
EBITDA (as defined in the Notes) for the prior fiscal year of the Company and
(B) Consolidated EBITDA for the current fiscal year of the Company, in any
fiscal year of the Company;
(q) allow the use, handling, generation, storage, treatment,
release or disposal of Hazardous Materials at any property owned or leased by
the Company or any of its Subsidiaries except in compliance with Environmental
Laws and so long as such use, handling, generation, storage, treatment, release
or disposal of Hazardous Materials does not result in a violation of
Environmental Law which would result in a Material Adverse Change;
(r) (A) engage or permit any ERISA Affiliate to engage in any
transaction described in Section 4069 of ERISA; (B) engage, or permit any ERISA
Affiliate to engage, in any prohibited transaction described in Section 406 of
ERISA or 4975 of the Code for which a statutory or class exemption is not
available or a private exemption has not previously been obtained from the
Department of Labor; (C) adopt or permit any ERISA Affiliate to adopt any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA which
provides benefits to employees after termination of employment other than as
required by Section 601 of ERISA or applicable law; (D) fail to make any
contribution or payment to any Multiemployer Plan which the Company or any
Subsidiary or any ERISA Affiliate may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining thereof; (E) fail, or
permit any ERISA Affiliate to fail, to pay any required installment or any other
payment required under Section 412 of the Code on or before the due date for
such installment or other payment; and
30
(s) grant any rights of registration under the Securities Act
relating to any of its shares of capital stock or other securities to any Person
other than pursuant to this Agreement, unless (i) the rights so granted to
another Person do not limit, restrict or impair the rights of the Purchaser
under this Agreement and under the Related Documents and (ii) such rights so
granted to another Person do not grant priority in registration rights to such
other Person over rights granted to Purchaser under this Agreement and under the
Related Documents.
8.2 Required Actions. For so long as any shares of Preferred Stock or
the Notes remain outstanding, the Company shall, and shall cause each Subsidiary
to:
(a) cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any of its Subsidiaries to be maintained and kept in good condition,
repair and working order (reasonable wear and tear excepted) and supplied with
all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Board of Directors may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that the foregoing shall not prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the management of the Company, desirable in the conduct
of its business or the business of any of its Subsidiaries and is not
disadvantageous in any material respect to the holders of the Securities;
(b) preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not disadvantageous in any material respect to the
holders of Securities;
(c) maintain the books, accounts and records of the Company
and its Subsidiaries in accordance with past custom and practice as used in the
preparation of the Financial Statements except to the extent permitted or
required by GAAP;
(d) keep all of its and its Subsidiaries' properties which are
of an insurable nature insured with insurers, believed by the Company in good
faith to be financially sound and responsible, against loss or damage to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties (which may include self-insurance,
if reasonable and in comparable form to that maintained by companies similarly
situated);
31
(e) comply with all material legal requirements and material
contractual obligations applicable to the operations and business of the Company
and its Subsidiaries and pay all applicable Taxes as they become due and
payable;
(f) permit representatives of any holder of the Securities and
its agents (including their counsel, accountants and consultants) to have
reasonable access upon reasonable notice during business hours to the Company's
books, records, facilities, key personnel, officers, directors, customers,
independent accountants and legal counsel so long as such access does not
violate any applicable Federal or state law or cause the loss of the
attorney-client privilege;
(g) at all times (i) file all reports (including annual
reports, quarterly reports and the information, documentation and other reports)
required to be filed by the Company under the Exchange Act and Sections 13 and
15 of the rules and regulations adopted by the SEC thereunder, and the Company
shall use its best efforts to file each of such reports on a timely basis, and
take such further action as any holder or holders of the Securities, the
Conversion Shares or the Warrant Shares may reasonably request (including
providing copies of such reports to the holders of the Securities, the
Conversion Shares or the Warrant Shares), all to the extent required to enable
such holders to sell Securities pursuant to Rule 144 adopted by the SEC under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the SEC and to enable the
Company to register securities with the SEC on Form S-3 or any similar
short-form registration statement and upon the filing of each such report
deliver a copy thereof to each holder of the Securities, the Conversion Shares
or the Warrant Shares, (ii) if the Company is no longer subject to the
requirements of the Exchange Act, provide reports to the holders of the
Securities, the Conversion Shares or the Warrant Shares in substantially the
same form and at the same times as would be required if the Company were subject
to the Exchange Act, and (iii) provide to each initial holder of the Securities,
the Conversion Shares or the Warrant Shares and each other holder who has
entered into a confidentiality agreement with the Company, pursuant to mutually
agreeable terms, any material information distributed to the Board of
Directors);
(h) maintain at all times a valid listing for the Common Stock
on a national securities exchange, the Nasdaq National Market System or the
Nasdaq SmallCap Market;
(i) maintain all material Intellectual Property
Rights necessary to the conduct of its business and own or have a valid license
to use all right, title and interest in and to, such material Intellectual
Property Rights;
(j) on the Closing Date and at each subsequent election of
directors, to elect to the Board of Directors an individual designated by OZ
Master Fund, Ltd., as long as any Preferred Stock or Notes are outstanding;
32
(k) deliver Dividend Shares and Conversion Shares in
accordance with the terms and conditions, and time periods, set forth in the
Certificate of Designation and the Notes;
(l) on the earlier to occur of (i) a redemption pursuant to
either Section 4 of the Certificate of Designations or paragraph 3 of the Notes
and (ii) the third anniversary of the Closing Date, pay to the Purchaser a
financing fee of $100,000;
(m) by March 31, 2000, obtain the vote of the shareholders of
the Company approving the sale and issuance of Securities and Conversion Shares,
Warrant Shares and Dividend Shares upon conversion and exercise of the
Securities to the extent the issuance thereof equals 20% or more of the Common
Stock as required by the Nasdaq Stock Market or any other national securities
exchange on which the Common Stock shall at the time be listed; provided, that
the Company shall file a proxy statement with the SEC related thereto no later
than June 30, 1999 and use its good faith efforts to obtain such approval by
June 30, 1999 or as soon thereafter as is possible. The proxy statement shall
comply in all material respects with federal and state securities laws and the
rules and regulations promulgated thereunder and the Company agrees that it will
recommend to its shareholders that the approval of the issuance of such shares
to the Purchaser is in the best interests of the Company and its shareholders;
(n) (i) Keep any property either owned or operated by it or
any of its Subsidiaries free of any Environmental Liens or post bonds or other
financial assurances sufficient to satisfy the obligations or liability
evidenced by such Environmental Liens; (ii) comply, and cause its Subsidiaries
to comply, in all material respects with Environmental Laws and shall provide to
the Purchaser documentation of such compliance which the Purchaser reasonably
requests; (iii) promptly notify the Purchaser of any Release of a Hazardous
Material in excess of any reportable quantity from or onto property owned or
operated by the Company, any of its Subsidiaries or, to the knowledge of the
Company, any of its licensees and take any Remedial Actions required to abate
said Release or otherwise to come into compliance with applicable Environmental
Law; and (iv) promptly provide the Purchaser with written notice within ten (10)
days of the receipt of any of the following: (a) notice that an Environmental
Lien has been filed against any of the real or personal property of the Company,
any of its Subsidiaries or, to the knowledge of the Company, any of its
licensees; (b) commencement of any Environmental Action or notice that an
Environmental Action will be filed against the Company or any Subsidiary; and
(c) notice of a violation, citation or other administrative order which would
reasonably be expected to cause a Material Adverse Effect; and
(o) Take such actions and execute, acknowledge and deliver,
and cause each of the Subsidiaries to take such actions and execute, acknowledge
and deliver, at its sole cost and expenses such agreements, instruments or other
documents as the Purchaser may reasonably require from time to time in order to
(i) carry out more effectively the purposes of this Agreement and the Related
Documents, (ii) maintain the validity and effectiveness of any of the Related
Documents, and (iii) to better assure, convey, grant, assign, transfer and
33
confirm unto the Purchaser the rights now or hereafter intended to be granted to
the Purchaser under this Agreement or any Related Document.
8.3 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purposes of issuance upon conversion of the Preferred Shares, any
Dividend Shares and the Notes and the exercise of the Warrants, such number of
shares of Common Stock as are issuable upon the conversion or exercise of all
outstanding shares of Preferred Stock, Notes and Warrants. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all Taxes, liens and charges. The
Company shall take all such actions as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
8.4 Payments Free of Withholding. All payments by the Company hereunder
or under the Preferred Stock, the Notes, or the Warrants shall be made free and
clear of, and without any deduction for, any Tax imposed by any taxing
jurisdiction, domestic or foreign.
Article IX
SURVIVAL
9.1 Survival. The representations, warranties, covenants and agreements
of the parties hereto contained herein, or in any writing delivered pursuant
hereto, shall survive the Closing of the transactions contemplated hereby and by
the Related Documents notwithstanding any due diligence investigation conducted
by or on behalf of Purchaser.
Article X
INDEMNIFICATION
10.1 Indemnification. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless, on an after-tax
basis, the Purchaser and each other holder of the Securities and each of their
respective officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, Environmental Actions, losses, costs,
penalties, fees, liabilities, Environmental Liabilities and Costs and damages,
and expenses (including, without limitation, costs of suit and attorneys' fees
and expenses) in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought) (the "Indemnified Liabilities"), incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to (a) the breach or
inaccuracy of any
34
representation or warranty contained in this Agreement or any Related Document
or any other instrument, agreement or document delivered to the Purchaser in
accordance herewith or therewith, (b) the execution, delivery, performance or
enforcement of this Agreement, any Related Document and any other instrument,
document or agreement executed pursuant hereto or thereto by any of the
Indemnitees or (c) resulting from any breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Company herein or in
any Related Document. The Company shall reimburse the Indemnitees for the
Indemnified Liabilities as such Indemnified Liabilities are incurred. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
Article XI
GENERAL PROVISIONS
11.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Securities, Conversion Shares or Warrant
Shares. Except as otherwise specifically provided herein, this Agreement shall
not be assignable by the Company without the prior written consent of the
Purchaser.
11.2 Entire Agreement. This Agreement and the other writings referred
to herein or delivered pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior oral
or written arrangements or understandings.
11.3 Notices. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be (i) delivered in person,
(ii) transmitted by telecopy, (iii) sent by registered or certified mail,
postage prepaid with return receipt requested, or (iv) sent by reputable
overnight courier service, fees prepaid, to the recipient at the address or
telecopy number set forth below, or such other address or telecopy number as may
hereafter be designated in writing by such recipient. Notices shall be deemed
given upon personal delivery, upon receipt of return receipt in the case of
delivery by mail, upon acknowledgment by the receiving telecopier or one day
following deposit with an overnight courier service.
(a) If to the Company:
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telecopy: (801) 768-4483
Attention: Steven Stewart
35
with a copy to (which shall not constitute notice to the Company):
Callister, Nebeker & McCullough
Ten East South Temple
Salt Lake City, Utah 84133
Telecopy: (801) 364-9127
Attention: Richard Beard, Esq.
(b) If to the Purchaser:
OZ Master Fund, Ltd.
c/o Och-Ziff Management, L.L.C.
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 292-5999
Attention: Dan Och
with a copy to (which shall not constitute notice to the Purchaser):
Schulte Roth & Zabel LLP
900 Third Avenue
19th Floor
New York, New York 10022
Telecopy: (212) 593-5955
Attention: Mark Broude, Esq.
11.4 Purchaser Fees and Expenses.
(a) The Company shall reimburse the Purchaser upon demand for
(i) the reasonable fees and expenses of counsel(s) to the Purchaser incurred in
connection with the documentation, negotiation and consummation of the
transactions contemplated by this Agreement and the Related Documents and (ii)
reasonable due diligence expenses incurred by the Purchaser. The Company shall
reimburse the Purchaser for the reasonable fees and expenses of counsel(s) to
the Purchaser incurred in connection with any future amendment or waiver to this
Agreement or any of the Related Documents.
(b) The Company also agrees to pay or cause to be paid, on
demand, and to save the Purchaser harmless against liability for the payment of
all reasonable out-of-pocket expenses incurred by the Company from time to time
arising from or relating to: (i) the preservation and protection of any of the
Company's rights under this Agreement or the Related Documents, (ii) the defense
of any claim or action asserted or brought against the Purchaser by any Person
that arises from or relates to this Agreement, any Related Document, the
Purchaser's claims against the Company, or any and all matters in connection
therewith, (iii) the commencement or defense of, or intervention in, any court
proceeding arising from or related to this Agreement or any Related Document,
(iv) the filing of any petition, complaint, answer, motion or other pleading by
the Purchaser in connection with
36
this Agreement or any Related Document, (v) any attempt to collect from the
Company, (vi) the receipt of any advice with respect to any of the foregoing,
(vii) all liabilities and costs arising from or in connection with the past,
present or future operations of the Company or any Subsidiary involving any
damage to real or personal property or natural resources or harm or injury
alleged to have resulted from any Release of Hazardous Materials on, upon or
into such property, (viii) any Environmental Liabilities and Costs incurred in
connection with the investigation, removal, cleanup and/or remediation of any
Hazardous Materials present or arising out of the operations of any facility of
the Company or any Subsidiary, or (ix) any Environmental Liabilities and Costs
incurred in connection with any Environmental Lien. Without limitation of the
foregoing or any other provision of any Related Document: (A) the Company agrees
to pay all stamp, document, transfer, recording or filing taxes or fees and
similar impositions now or hereafter determined by the Purchaser to be payable
in connection with this Agreement or any Related Document, and the Company
agrees to save the Purchaser harmless from and against any and all present or
future claims, liabilities or losses with respect to or resulting form any
omission to pay or delay in paying any such taxes, fees or impositions, and (B)
if the Company fails to perform any covenant or agreement contained herein or in
any Related Document, the Purchaser may itself perform or cause performance of
such covenant or agreement, and the expenses of the Purchaser incurred in
connection therewith shall be reimbursed on demand by the Company.
11.5 Amendment and Waiver. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed by
the Company and the holders of at least 662/3% of the shares of Preferred Stock
and at least 662/3% of the aggregate principal amount of the Notes then
outstanding, in each case, voting separately as one class. Any failure of the
Company to comply with any provision hereof may only be waived in writing by the
holders of at least 662/3% of the shares of Preferred Stock and at least 662/3%
of the aggregate principal amount of the Notes outstanding, in each case, voting
separately as one class, and any failure of any holder of the Securities, the
Conversion Shares or the Warrant Shares to comply with any provision hereof may
only be waived in writing by the Company. No such waiver shall operate as a
waiver of, or estoppel with respect to, any subsequent or other failure. No
failure by any party to take any action against any breach of this Agreement or
default by any other party shall constitute a waiver of such party's right to
enforce any provision hereof or to take any such action.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
11.7 Headings. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part of
this Agreement.
11.8 Specific Performance. The Company, on the one hand, and the
Purchaser, on the other hand, acknowledge that money damages would not be a
sufficient remedy for any breach of this Agreement. It is accordingly agreed
that the parties shall be entitled to specific
37
performance and injunctive relief as remedies for any such breach, these
remedies being in addition to any of the remedies to which they may be entitled
at law or equity.
11.9 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
11.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF
NEW YORK OR OF ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF
ANY LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK.
11.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY RELATED DOCUMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY
ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE COMPANY FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS FOR NOTICES AS
SET FORTH IN SECTION 11.3, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER
SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PURCHASER TO SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. THE COMPANY
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING
OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND
ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO
THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE RELATED DOCUMENTS.
38
11.12 WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASER HEREBY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR RELATED DOCUMENTS, OR UNDER ANY
AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR
WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM
ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY
SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY. THE COMPANY CERTIFIES THAT NO OFFICER, REPRESENTA TIVE, AGENT OR
ATTORNEY OF THE PURCHASER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE
PURCHASER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM,
SEEK TO ENFORCE THE FOREGOING WAIVERS. THE COMPANY HEREBY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PURCHASER ENTERING INTO THIS
AGREEMENT.
11.13 No Third Party Beneficiaries. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to confer
upon any person or entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
11.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
11.15 Right of First Refusal. For as long as any Preferred Stock or
Notes are outstanding, the Company shall provide the Purchaser with written
notice, prior to the execution by the Company of any binding commitment or
contract, of its intention to obtain debt or equity financing from a party other
than the Purchaser, with such notice to provide the terms of such debt or equity
financing. The Purchaser may, within five (5) Business Days of its receipt of
such notice, provide the Company with written notice of its willingness to
provide all of such debt financing or all or a portion of such equity financing,
as applicable, on such terms, in which case the Company may not consummate such
debt or equity financing on such terms except with the Purchaser. In addition
and subject to the notice provisions of this section, for so long as any of the
Preferred Stock or Notes are outstanding, the Purchaser shall have the right to
subscribe for and receive additional securities of the Company upon all
additional issuances of stock by the Company (other than issuances pursuant to
employee stock or stock option benefit plans of the Company or in connection
with any stock split or stock dividend) of any or all classes or series thereof,
or securities of the Company convertible into or exchangeable for such stock,
such that the Purchaser may, by purchasing such additional securities, maintain
the percentage interest it had immediately prior to such issuance of the voting
power of the capital stock of the Company voting together as a single class
and/or its economic interest in the Company.
* * * * *
39
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
COVOL TECHNOLOGIES, INC.
By: /s/ Steven G. Stewart
---------------------------------
Name: Steven G. Stewart
Title: CFO
OZ MASTER FUND, LTD.
By: /s/ Daniel S. Och
---------------------------------
Name: Daniel S. Och
Title: Managing Member
The following schedules and exhibits have been omitted from the Securities
Purchase Agreement attached to this report as Exhibit 10.58:
Schedules
Schedule 4.1 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6(a) Certain Changes
Schedule 4.6(e) Places of Business
Schedule 4.7 Litigation
Schedule 4.13 Owned Real Property
Schedule 4.16 Intellectual Property
Schedule 4.17 Employees
Schedule 4.19 Environmental Laws
Schedule 4.20 Transactions with Affiliates
Schedule 4.21 Taxes
Schedule 4.22 Other Investors
Schedule 4.29 Registration Rights
Schedule 4.31 Synthetic Fuel Facilities
Schedule 8.1(e) Synthetic Fuel Facilities for Sale
Schedule 8.1(i) Indebtedness
Schedule 8.1(l) Permitted Liens
Schedule 8.1(m) Guarantees
Schedule 8.1(p) Capital Expenditures
Exhibits
Exhibit A Certificate of Designations
Exhibit B Financial Statements
Exhibit C Registration Rights Agreement
Exhibit D Security Agreement
Exhibit E Side Agreements
Exhibit F Termination and Release Agreement
Exhibit G Form of Warrant
Exhibit H Form of Convertible Secured Note
Exhibit I Opinion of Counsel
The Registrant agrees to furnish supplementally a copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request.