SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of September 26, 2000, between Creative Host Services,
Inc. (the "Company") a California corporation and GCA Strategic Investment Fund
Limited ("Purchaser"), a Bermuda Corporation.
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser
desires to purchase from the Company, $2,500,000 aggregate principal amount of
the Company's 7% Convertible Debentures due September 26, 2003 (the "Convertible
Debentures"), with terms and conditions as set forth in the form of Convertible
Debenture attached hereto as Exhibit A;
WHEREAS, the Convertible Debentures will be convertible into shares of the
Company's common stock, no par value per share (the "Common Stock");
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchaser a
warrant to purchase 125,000 shares of Common Stock upon the Closing (as defined
herein) on the terms and conditions described in the form of the common stock
purchase warrant attached hereto as Exhibit F (the "Warrants"); and
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as interest under, and upon conversion of,
the Convertible Debentures (the "Debenture Shares") and upon exercise of the
Warrants (the "Warrant Shares," the Debenture Shares and the Warrant Shares
being collectively referred to herein as the "Conversion Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit C;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
1.1. DEFINITIONS. The following terms, as used herein, have the following
meanings:
"Additional Shares of Common Stock" has the meaning set forth in Section
11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 50% or more of the outstanding shares of Common Stock of the
Company; or (ii) individuals constituting the Board of Directors of the Company
on the date hereof (together with any new Directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, no par value per share, of the
Company.
"Company" means Creative Host Services, Inc., a California corporation, and
its successors.
"Company Corporate Documents" means the certificate of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible
Debenture by the holder thereof to the Company as specified in each Convertible
Debenture.
"Conversion Price" has the meaning set forth in the Convertible Debentures.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Debentures" means the Company's 7% Convertible Debentures due
September 26, 2003 substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at
any time thereafter, the holders of more than 50% in aggregate principal amount
of the 7% Convertible Debentures due September 26, 2003 outstanding at such
time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Debentures.
"Maximum Number of Shares" shall mean that percentage that the Company may
issue without shareholder approval under the applicable rules of the National
Market or the applicable OTC Bulletin Board or equivalent entity, of the then
issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
stockholders of the Company may have previously approved.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the
New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Debenture.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the Warrant.
"Officer's Certificate" shall mean a certificate executed by the president,
chief executive officer or chief financial officer of the Company in the form of
Exhibit F Form of Officer's CertificateExhibit D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock Company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
Group for employees of any member of the ERISA Group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Convertible
Debentures.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(e).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Convertible Debentures, the Warrants and, as
applicable, the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the treasurer
of the Company as to the solvency of the Company, the adequacy of its capital
and its ability to pay its debts, all after giving effect to the issuance and
sale of the Convertible Debentures and the completion of the offering (including
without limitation the payment of any fees or expenses in connection therewith),
which such Solvency Certificate shall be in the form of Exhibit E attached
hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin Board,
National Market or other automated quotation system or exchange on which the
Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Debentures,
the Warrant, the Registration Rights Agreement, the Security Agreement, and the
other agreements contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant substantially in the form
set forth in Exhibit F hereto.
1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis with the Company's prior practice (except for changes concurred in by the
Company's independent public accountants) ("GAAP"). All references to
"dollars," "Dollars" or "$" are to United States dollars unless otherwise
indicated.
2. PURCHASE AND SALE OF SECURITIES
2.1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
2.1.1. Subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase
from the Company, Convertible Debentures in the aggregate principal amount of
Two Million Five Hundred Thousand Dollars ($2,500,000.00).
2.1.2. In connection with the Purchaser's agreement to purchase
the Convertible Debentures specified in this Article II, the Company shall issue
and deliver to the Purchaser on the Closing Date a Warrant to purchase an
aggregate of 125,000 shares of Common Stock.
2.2. PURCHASE PRICE. The purchase price for the Convertible Debentures
shall be 95% of the principal amount thereof. No part of the purchase price of
the Convertible Debentures shall be allocated to the Warrant. Therefore, the
aggregate consideration payable by Purchaser to the Company for the Convertible
Debentures and Warrants shall be Two Million Three Hundred Seventy Five Thousand
Dollars ($2,375,000.00) (the "Purchase Price").
2.3. CLOSING AND MECHANICS OF PAYMENT.
2.3.1. The Purchase Price shall be paid as follows:
(i) $1,900,000.00 of the Purchase Price shall be paid on the
Closing Date by wire transfer of immediately available funds; and
(ii) $ 475,000.00 of the Purchase Price shall be paid on the
Filing Date (as defined in Section 10.4 of this Agreement) by wire transfer of
immediately available funds.
2.3.2. The Convertible Debentures and Warrants shall be issued as
follows:
(i) The Company will issue Convertible Debentures in the
Principal Amount of $2,000,000.00 and the Warrants on the Closing Date; and
(ii) On the Filing Date, the Company will issue Convertible
Debentures in the Principal Amount of $500,000.00.
The Convertible Debentures will be dated as of the Closing Date and
interest shall begin to accrue on the Convertible Debentures as of the Closing
Date.
3. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
3.1. PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The Company
will pay all amounts due on each Convertible Debenture by the method and at the
address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Debenture or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Debenture, the holder shall surrender the Convertible Debenture
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office. Prior to any sale or other disposition of any
Convertible Debenture, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Debenture to the Company in
exchange for a new Convertible Debenture or Convertible Debentures. The Company
will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Convertible Debenture purchased under this Agreement and that
has made the same agreement relating to this Convertible Debenture as Purchaser
has in this Section 3.1; provided that such transferee is an "accredited
investor" under Rule 501 of the Securities Act.
3.2. PAYMENT OF INTEREST. Interest shall accrue on the outstanding
principal amount of each Convertible Debenture and shall be payable as specified
therein.
3.3. VOLUNTARY PREPAYMENT. For so long as no Event of Default shall have
occurred and is continuing, the Company may, at its option, repay, in whole or
in part, the Convertible Debentures, in accordance with Sections 3 and 5.1 of
Exhibit A hereto, following at least five (5) Business Days prior written notice
to Purchaser (the expiration of such five (5) Business Day period being referred
to as the "prepayment date"); provided, however, that if such date is not a
Business Day, the prepayment date shall be the next Business Day thereafter.
3.4. MANDATORY PREPAYMENTS.
3.4.1. Upon (i) the occurrence of a Change in Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company to any
Person in a single transaction or series of related transactions, (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger which is
effected solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock) (each of items (i), (ii) and
(iii) being referred to as a "Sale Event"), or (iv) the occurrence of a
Registration Default which continues uncured for a period of twenty (20) days,
then, in each case, the Company shall, upon request of the Majority Holders,
redeem the Convertible Debentures and Warrants, subject to the provisions of
Section 5 of the Convertible Debentures and Section 13 of the Warrants,
respectively. The redemption price payable upon any such redemption shall be
the Redemption Price in Section 5 of the Convertible Debentures and Section 13
of the Warrants, respectively (referred to herein as the "Formula Price").
3.4.2. At the option of Purchaser, upon the consummation of one or more
Financings, the Company shall use 25% of the Net Cash Proceeds therefrom (unless
such Net Cash Proceeds from each such Financing is less than $250,000) to redeem
the Convertible Debentures.
3.4.3. Upon the issuance of the Maximum Number of Shares and the
failure within 40 days of such issuance to obtain shareholder approval to issue
additional shares of Common Stock (the "Redemption Event"), the Company shall
redeem the outstanding balance of each Convertible Debenture and Warrant for the
Formula Price.
3.4.4. In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock registered
under the Registration Statement filed by the Company to fully convert the
Convertible Debentures and exercise all Warrants held by Purchaser and sell such
shares issued thereon, then the Company shall immediately file an amendment to
the then current registration statement to register a sufficient number of such
shares to convert said Convertible Debentures and Warrants. Upon the failure
within twenty (20) Trading Days to register a sufficient number of such shares,
the Company shall redeem the outstanding balance of each Convertible Debenture
and Warrant for the Formula Price. In addition, failure of the Company to
register a sufficient number of such shares to fully convert said Convertible
Debentures and exercise such Warrants shall be a Registration Default under
Section 10.4(e) from the date of the Notice of Conversion to the date of the
earlier of (i) the redemption of the outstanding balance of the Convertible
Debentures and exercise of all such Warrants or (ii) full conversion of the
Convertible Debentures and exercise of all such Warrants.
3.5. PREPAYMENT PROCEDURES.
3.5.1. Any permitted prepayment or redemption of the Convertible
Debentures and Warrants, as applicable pursuant to Sections 3.3 or 3.4 above
shall be deemed to be effective and consummated (for purposes of determining the
Formula Price and the time at which Purchaser shall thereafter not be entitled
to deliver a Notice of Conversion for the Convertible Debentures) as follows:
3.5.1.1. A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
3.5.1.2. A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event or the Registration Default;
3.5.1.3. A redemption pursuant to Section 3.4(b), three (3) Business
Days following the date of consummation of the applicable Financing (meaning
closing and funding); and
3.5.1.4. A redemption pursuant to Section 3.4(c), the date specified in
each Convertible Debenture.
3.5.2. On the Maturity Date and on the effective date of a prepayment
or redemption of the Convertible Debentures and Warrants as specified in Section
3.5(a) above, the Company shall deliver by wire transfer of funds the
prepayment/redemption price to Purchaser of the Convertible Debentures and
Warrants subject to prepayment or redemption. Should Purchaser not receive
payment of any amounts due on prepayment or redemption of its Convertible
Debentures and Warrants by reason of the Company's failure to make payment at
the times prescribed above for any reason, the Company shall pay to the
applicable holder on demand (x) interest on the sums not paid when due at an
annual rate equal to the greater of (I) the maximum lawful rate and (II) 18% per
annum, compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but not
limited to, reasonable attorneys' fees and costs, whether or not suit or other
formal proceedings are instituted.
3.5.3. The Company shall select the Convertible Debentures and Warrants
to be redeemed in any redemption in which not all of the Convertible Debentures
and Warrants are to be redeemed so that the ratio of the Convertible Debentures
and Warrants of each holder selected for redemption to the total Convertible
Debentures and Warrants owned by that holder shall be the same as the ratio of
all such Convertible Debentures and Warrants selected for redemption bears to
the total of all then outstanding Convertible Debentures and Warrants. Should
any Convertible Debentures and Warrants required to be redeemed under the terms
hereof not be redeemed solely by reason of limitations imposed by law, the
applicable Convertible Debentures and Warrants shall be redeemed on the earliest
possible dates thereafter to the maximum extent permitted by law.
3.5.4. Any Notice of Conversion delivered by Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or (y)
effective date of a voluntary prepayment pursuant to Section 3.3 or a mandatory
prepayment pursuant to Section 3.4 as specified in Section 3.5(a) above), shall
be honored by the Company and the conversion of the Convertible Debentures shall
be deemed effected on the Conversion Date. In addition, between the effective
date of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above and the date the
Company is required to deliver the redemption proceeds in full to Purchaser,
Purchaser may deliver a Notice of Conversion to the Company. Such notice will
be (x) of no force or effect if the Company timely pays the prepayment or
redemption proceeds to Purchaser when due or (y) honored on or as of the date of
the Notice of Conversion if the Company fails to timely pay the prepayment or
redemption proceeds to Purchaser when due.
3.6. PAYMENT OF ADDITIONAL AMOUNTS.
3.6.1. Any and all payments by the Company hereunder or under the
Convertible Debentures to Purchaser and each "qualified assignee" thereof shall
be made free and clear of and without deduction or withholding for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto (all such taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes") unless such Taxes are required by law or the administration thereof
to be deducted or withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of any
sum payable under the Convertible Debentures (i) the holders of the Convertible
Debentures subject to such Taxes shall have the right, but not the obligation,
for a period of thirty (30) days commencing upon the day it shall have received
written notice from the Company that it is required to withhold Taxes to
transfer all or any portion of the Convertible Debentures to a qualified
assignee to the extent such transfer can be effected in accordance with the
other provisions of this Agreement and applicable law; (ii) the Company shall
make such deductions or withholdings; (iii) the sum payable shall be increased
as may be necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this Section 3.6) Purchaser receives an amount equal to the sum it would
have received if no such deduction or withholding had been made; and (iv) the
Company shall forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable. A "qualified
assignee" of a Purchaser is a Person that is organized under the laws of (i) the
United States or (II) any jurisdiction other than the United States or any
political subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws in
existence on the date of this Agreement would not be subject to any Taxes and
(z) from time to time, as and when requested by the Company, executes and
delivers to the Company and the Internal Revenue Service forms, and provides the
Company with any information necessary to establish such assignee's continued
exemption from Taxes under applicable law.
3.6.2. The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement other than Taxes payable solely as a result of the
transfer from Purchaser to a Person of any Security.
3.6.3. The Company shall indemnify Purchaser, or qualified assignee,
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 3.6) paid by Purchaser, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days from
the date Purchaser or assignee makes written demand therefor. A certificate as
to the amount of such Taxes or Other Taxes submitted to the Company by Purchaser
or qualified assignee shall be conclusive evidence of the amount due from the
Company to such party.
3.6.4. Within 30 days after the date of any payment of Taxes, the
Company will furnish to Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
3.6.5. Purchaser shall provide to the Company a form W-8, stating that
it is a non-U.S. person, together with any additional tax forms which may be
required under the Code, as amended after the date hereof, to allow interest
payments to be made to it without deduction.
4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser as of the Closing Date the
following:
4.1. ORGANIZATION AND QUALIFICATION. The Company and each Subsidiary is a
corporation (or other legal entity) duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with full power
and authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted. The
Company is qualified to conduct business as a foreign corporation and is in good
standing in every jurisdiction in which the nature of the business conducted by
it makes such qualification necessary, except where such failure would not have
a Material Adverse Effect. A "Material Adverse Effect" means any material
adverse effect on the operations, results of operations, properties, assets or
condition (financial or otherwise) of the Company or the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by
the agreements or instruments to be entered into in connection herewith.
4.2. AUTHORIZATION AND EXECUTION.
4.2.1. The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof.
4.2.2. The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities have
been duly and validly authorized by the Board of Director of the Company and no
further consent or authorization of the Company, its Board of Directors or its
shareholders is required.
4.2.3. This Agreement has been duly executed and delivered by the
Company.
4.2.4. This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the Transaction Agreements will constitute, a
valid and binding agreement of the Company, in each case enforceable against the
Company in accordance with its respective terms.
4.3. CAPITALIZATION . As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 4.3
Capitalization Schedule 4.3 hereto and except as set forth on Schedule 4.3 no
other shares of capital stock of the Company will be outstanding as of the
Closing Date. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
similar rights of the stockholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company. Other than as set
forth on Schedule 4.3 hereto, as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries are obligated to
register the sale of any of its or their securities under the Securities Act
(except pursuant to the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) that will
be triggered by the issuance of the Convertible Debentures or Conversion Shares.
The Company has furnished to Purchaser true and correct copies of the Company's
Corporate Documents, and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
4.4. GOVERNMENTAL AUTHORIZATION. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Conversion Shares issuable
upon conversion of the Convertible Debentures, if applicable, and (d) the filing
of a "Form D" as described in Section 7.13 below.
4.5. ISSUANCE OF SHARES. Upon conversion in accordance with the terms of
the Convertible Debentures and exercise of the Warrants, the Conversion Shares
shall be duly and validly issued and outstanding, fully paid and nonassessable,
free and clear of any Taxes, Liens and charges issuance and shall not be subject
to preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of Purchaser herein are true and
correct in all material respects, each of the Securities will have been issued
in material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain circumstances,
the issuance of Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Convertible
Debentures and exercise of the Warrants is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
4.6. NO CONFLICTS. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation known by the
Company to be applicable to it, (ii) the Company Corporate Documents, (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary. The Company and each Subsidiary is in compliance with and conforms
to all statutes, laws, ordinances, rules, regulations, orders, restrictions and
all other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties, except where such failure would not have a
Material Adverse Effect.
4.7. FINANCIAL INFORMATION. Since June 30, 2000 (the "Balance Sheet
Date"), except as disclosed in Schedule 4.7, there has been (x) no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations or prospects, of the
Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and to the knowledge
of the Company no fact or condition exists or is contemplated or threatened
which might cause such a change in the future. The audited and unaudited
consolidated balance sheets of the Company and its Subsidiaries for the periods
ending December 31, 1999, and June 30, 2000, respectively, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and (ii) have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such financial statements
fairly present the financial condition of the Company and its Subsidiaries at
the dates indicated and the consolidated results of their operations and cash
flows for the periods then ended and, except as indicated therein, reflect all
claims against and all Debts and liabilities of the Company and its
Subsidiaries, fixed or continency required to be reflected therein.
4.8. LITIGATION. Except as set forth on Schedule 4.8, there is no action,
suit or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
of an adverse decision which could be reasonably expected to have a Material
Adverse Effect or which challenges the validity of any Transaction Agreements.
4.9. COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
4.9.1. Each member of the ERISA Group has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which as resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
4.9.2. The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
4.9.3. No Benefit Plans have any unfunded liabilities, either on a
"going concern" or "winding up" basis and determined in accordance with all
applicable laws and actuarial practices and using actuarial assumptions and
methods that are reasonable in the circumstances. No event has occurred and no
condition exists with respect to any Benefit Plans that has resulted or could
reasonably be expected to result in any pension plan having its registration
revoked or wound up (in whole or in part) or refused for the purposes of any
applicable laws or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or penalties
(in any material amounts) under any applicable laws.
4.10. ENVIRONMENTAL MATTERS. The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
4.11. TAXES. All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
4.12. INVESTMENTS, JOINT VENTURES. Other than as set forth in Schedule
4.12, the Company has no Subsidiaries or other direct or indirect Investment in
any Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
4.13. NOT AN INVESTMENT COMPANY. Neither the Company nor any Subsidiary
is an "Investment Company" within the meaning of Investment Company Act of 1940,
as amended.
4.14. FULL DISCLOSURE. The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
4.15. NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No form of
general solicitation or general advertising was used by the Company or, to the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Securities. The Company represents
that neither itself nor any Person authorized to act on its behalf (except that
the Company makes no representation as to Purchaser and their Affiliates) will
sell or offer for sale any such security to, or solicit any offers to buy any
such security from, or otherwise approach or negotiate in respect thereof with,
any Person or Persons so as thereby to cause the issuance or sale of any of the
Securities to be in violation of any of the provisions of Section 5 of the
Securities Act. The issuance of the Securities to Purchaser will not be
integrated with any other issuance of the Company's securities (past, current or
future) which requires stockholder approval under the rules of any National
Market.
4.16. PERMITS. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit, except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.
4.17. LEASES. Neither the Company nor any Subsidiary is a party to any
capital lease obligation with a value greater than $250,000 or to any operating
lease with an aggregate annual rental greater than $250,000 during the life of
such lease.
4.18. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS. There are
no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
4.19. PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
4.20. INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
to the knowledge of the Company, patents, trademarks, trade names, copyrights,
technology, know-how and processes (collectively, "Intellectual Property") used
in, or necessary for the conduct of its business; no claims have been asserted
by any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of Company's and its Subsidiaries' knowledge, there is no
valid basis for any such claim and the use of such Intellectual Property by the
Company and its Subsidiaries will not infringe upon the rights of any Person.
4.21. INSURANCE. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
4.22. TITLE TO PROPERTIES. The Company and its Subsidiaries have good and
marketable title to all their respective properties reflected on the financial
statements referred to in Section 4.7, free and clear of all Liens other than
the Permitted Liens.
4.23. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4.24. YEAR 2000 COMPLIANCE.
4.24.1. COMPUTER AND OTHER SYSTEMS. (i) All software programs and
computer hardware that are owned, leased or licensed by the Company and each
Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Computer Systems"), are designated to be used prior to, during and
after the calendar year 2000 A.D., including leap years; (ii) all other
operational systems that use software or equipment that are owned, leased, or
licensed by the Company and each Subsidiary, or used by third parties on behalf
of the Company and each Subsidiary ("Other Systems"), are designated to be used
prior to, during or after the calendar year 2000 A.D., including leap years;
(iii) the Computer systems and Other Systems will properly operate during each
such period without error or degradation of performance caused by a lack of Year
2000 Capabilities; and (iv) the Computer Systems and Other Systems will properly
operate during each such period without requiring intervention or modification
to Date Data.
4.24.2. CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the best
of the Company's knowledge after specific inquiry of all of its material
suppliers, vendors and landlords, the Company and each Subsidiary will not
suffer a loss from interruption or cessation of business operations, in whole or
in part, as a result of such suppliers, vendors or landlords failing to provide
materials, labor, supplies or access to leased space for the operation of the
Company and each Subsidiary as a result of such suppliers or vendors not having
Year 2000 Capabilities.
4.24.3. CAPABILITIES. For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data involving
dates, including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or generate incorrect values
or invalid results involving such dates; (ii) include the indication of proper
century dates in all date-related user interface functions and date fields; and
(iii) operate with proper century dates in date-related software or hardware
interface functions; and (y) "Date Data" means any existing data or input of
date which includes an indication of or reference to date.
4.25. FOREIGN PRACTICES. Neither the Company nor any of its Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payments of funds of the Company or Subsidiary, or
received or retained any funds, in each case in violation of any law, rule or
regulation.
4.26. TITLE TO CERTAIN ASSETS. The Company owns the assets designated as
collateral and described on Exhibit A to that certain Security Agreement between
the Company and Purchaser of even date herewith in substantially the form of
Exhibit G hereto (the "Security Agreement"), free and clear of any lien, except
Permitted Liens.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1. PURCHASER. Purchaser hereby represents and warrants to the Company
that:
5.1.1. Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and, as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and state
securities law; provided that the disposition of Purchaser's property shall at
all times be and remain within its control;
5.1.2. the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant thereto are within Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly authorized
by all requisite corporate or partnership action;
5.1.3. this Agreement has been duly executed and delivered by
Purchaser;
5.1.4. the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon Purchaser;
5.1.5. Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold except as
specified in this Agreement or the remaining Transaction Agreements;
5.1.6. this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
5.1.7. Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and Purchaser is capable of bearing the economic
risks of such investment;
5.1.8. Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; Purchaser has previously invested in securities
similar to the Securities and fully understands the limitations on transfer
described herein; Purchaser has been afforded access to information about the
Company and the financial condition, results of operations, property, management
and prospects of the Company sufficient to enable it to evaluate its investment
in the Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
Purchaser concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall not
limit Purchaser's ability to rely thereon;
5.1.9. no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
Purchaser in which any employee benefit plan (or its related trust) has any
interest; and
5.1.10. Purchaser is a corporation organized under the laws of Bermuda.
6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
6.1. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE. The
obligation of Purchaser hereunder to purchase the Convertible Debentures at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole discretion:
6.1.1. The Company shall have duly executed this Agreement, the
Warrant, the Registration Rights Agreement, and the Security Agreement and all
other appropriate financing statements, and delivered the same to Purchaser;
6.1.2. The Company shall have delivered to Purchaser a duly executed
certificate representing the Convertible Debenture in accordance with Section
2.3 hereof;
6.1.3. The Company shall have delivered the Solvency Certificate;
6.1.4. The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified date)
and the Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by such Transaction Agreements to be
performed, satisfied or complied with by it at or prior to the Closing Date.
Purchaser shall have received an Officer's Certificate executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by Purchaser,
including but not limited to certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company. The form of such
certificate is attached hereto as Exhibit D;
6.1.5. The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities and the
consummation of the transactions contemplated by the Transaction Agreements;
6.1.6. All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been taken
by any competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
6.1.7. No law or regulation shall have been imposed or enacted that, in
the judgment of Purchaser, could adversely affect the transactions set forth
herein or in the other Transaction Agreements, and no law or regulation shall
have been proposed that in the reasonable judgment of Purchaser could reasonably
have any such effect;
6.1.8. Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, in form and substance satisfactory to
Purchaser;
6.1.9. All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
6.1.10. The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or condition
thereof shall have been amended, waived or otherwise modified without the prior
written consent of Purchaser;
6.1.11. There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since June 30, 2000;
6.1.12. There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
Material Adverse Effect, or any material adverse effect on the enforceability of
the Transaction Agreements or the Securities or the rights of the holders of the
Securities or Purchaser hereunder;
6.1.13. Purchaser shall have confirmed the receipt of the Convertible
Debentures and the Warrants to be issued, duly executed by the Company in the
denominations and registered in the name of Purchaser;
6.1.14. There shall not have occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which
Purchaser reasonably deems material in connection with the purchase of the
Securities;
6.1.15. Immediately before and as of the Closing Date, no Default or
Event of Default shall have occurred and be continuing;
6.1.16. An Escrow Agreement, substantially in the form of Exhibit E, by
and between the Company and Purchaser, and accepted by the Law Offices of Kim T.
Stephens as escrow agent (the "Escrow Agent"), shall have been duly executed by
the said parties.
6.1.17. Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8.
6.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the
Company to issue and sell the Securities to Purchaser pursuant to this Agreement
are subject to the satisfaction, at or prior to any Closing Date, of the
following conditions:
6.2.1. The representations and warranties of Purchaser contained in
each Transaction Agreement shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified date)
and Purchaser shall have performed, satisfied and complied with in all material
respects with all covenants, agreements, and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by Purchaser
at or prior to the Closing Date;
6.2.2. The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
6.2.3. Receipt by the Company of duly executed counterparts of this
Agreement, the Security Agreement and the Registration Rights Agreement signed
by Purchaser;
6.2.4. The Company shall have received payment of the portion of the
Purchase Price set forth in Section 2.3(a) hereto, less the Expense
Reimbursement Fee.
(e) All applicable waiting periods in respect to the issuance and sale
of the Securities shall have expired without any action having been taken by any
competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(f) No law or regulation shall have been imposed or enacted that, in
the judgment of Company, could adversely affect the transactions set forth
herein or in the other Transaction Agreements, and no law or regulation shall
have been proposed that in the reasonable judgment of Company could reasonably
have any such effect;
(g) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which Company
reasonably deems material in connection with the purchase of the Securities;
(h) An Escrow Agreement, substantially in the form of Exhibit E, by and
between the Company and Purchaser, and accepted by the Law Offices of Kim T.
Stephens as escrow agent (the "Escrow Agent"), shall have been duly executed by
the said parties.
7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
7.1. INFORMATION. The Company will deliver to each holder of the
Convertible Debentures:
7.1.1. Reserved
7.1.2. Reserved
7.1.3. within five (5) days after any officer of the Company obtains
knowledge of a Default or Event of Default, or that any Person has given any
notice or taken any action with respect to a claimed Default hereunder, a
certificate of the chief financial officer of the Company setting forth the
details thereof and the action which the Company is taking or proposed to take
with respect thereto;
7.1.4. promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
7.1.5. at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible Debentures
under Section 3.4, notice thereof together with a summary of all material terms
thereof and copies of all documents and instruments associated therewith;
7.1.6. notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum number of
Conversion Shares issuable pursuant to the Transaction Agreements; and
7.1.7. promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which the
Company or any Subsidiary is a party in which the amount involved is $250,000 or
more and not covered by insurance or in which injunctive or similar relief is
sought.
7.2. PAYMENT OF OBLIGATIONS. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith and will maintain, in accordance
with GAAP, appropriate reserves for the accrual of any of the same.
7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and will cause
each Subsidiary to, keep all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted. In addition,
the Company and each Subsidiary will maintain insurance in at least such amounts
and against such risks as it has insured against as of the Closing Date.
7.4. MAINTENANCE OF EXISTENCE. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
7.5. COMPLIANCE WITH LAWS. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
7.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and transactions in
relation to their respective businesses and activities; and will permit, during
normal business hours, Purchaser's Representative or an affiliate thereof, as
representatives of Purchaser, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will not
result in any unreasonable expense to the Company, without Company consent), all
at such reasonable times.
7.7. INVESTMENT COMPANY ACT. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
7.8. USE OF PROCEEDS. The proceeds from the issuance and sale of the
Convertible Debentures by the Company shall be used in accordance with Schedule
7.8 attached hereto. None of the proceeds from the issuance and sale of the
Convertible Debentures by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
7.9. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS. The
Company will, and will cause each Subsidiary to, comply, in all material
respects, with all terms and conditions of all material contracts to which it is
subject.
7.10. RESERVED SHARES AND LISTINGS.
7.10.1. The Company shall at all times have authorized, and reserved
for the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Debentures and
exercise of the Warrants and issuance of the Conversion Shares (based on the
conversion price of the Convertible Debentures in effect from time to time and
the exercise price of the Warrants, respectively) (the "Reserved Amount"). The
Company shall not reduce the Reserved Amount without the prior written consent
of Purchaser. With respect to all Securities which contain an indeterminate
number of shares of Common Stock issuable in connection therewith (such as the
Convertible Debentures), the Company shall include in the Reserve Amount, no
less than two (2) times the number of shares that is then actually issuable upon
conversion or exercise of such Securities. If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number of
Conversion Shares issued or issuable upon conversion of the Convertible
Debentures and exercise of the Warrants, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, either (x) calling a special meeting of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares or (y) in lieu thereof, consummating the immediate
repurchase of the Convertible Debentures and the Warrants contemplated in
Sections 3.4(c) and 10.3 hereof, respectively.
7.10.2. The Company shall promptly file the Listing Applications and
secure the listing of the Conversion Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion or
exercise of the Convertible Debentures and Warrants, respectively. The Company
will maintain the listing and trading of its Common Stock on the Nasdaq Small
Cap Market. The Company will use its commercially reasonable best efforts to
obtain as soon as practicable and maintain the listing and trading of its Common
Stock on a National Market. The Company will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers, Inc. (the "NASD") and such
exchanges, as applicable. The Company shall promptly provide to Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for listing on the Nasdaq Small Cap Market or any National Market.
7.11. TRANSFER AGENT INSTRUCTIONS. Upon receipt of a Notice of Conversion
or Notice of Exercise, as applicable, the Company shall immediately direct the
Company's transfer agent to issue certificates, registered in the name of
Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Convertible Debentures or exercise of the Warrants. Upon conversion of
any Convertible Debentures in accordance with their terms and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement
contemplated by the Registration Rights Agreement shall remain effective, the
shares of Common Stock issuable upon conversion of any Convertible Debentures or
exercise of the Warrants shall be issued to any transferee of such shares from
Purchaser without any restrictive legend upon appropriate evidence of transfer
in compliance with the Securities Act and the rules and regulations of the
Commission; provided that for so long as the Registration Statement is
effective, no opinion of counsel will be required to effect any such transfer.
The Company further warrants and agrees that no instructions other than these
instructions have been or will be given to its transfer agent. Nothing in this
Section 7.11 shall affect in any way a Purchaser's obligation to comply with all
securities laws applicable to Purchaser upon resale of such shares of Common
Stock, including any prospectus delivery requirements.
7.12. MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION. So long
as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
7.13. FORM D; BLUE SKY LAWS. The Company agrees to file a "Form D" with
respect to the Securities as required under Regulation D of the Securities Act
and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
Purchaser at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.
8. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Convertible Debentures remain outstanding and for the benefit of Purchaser:
8.1. LIMITATIONS ON DEBT OR OTHER LIABILITIES. Neither the Company nor
any Subsidiary will create, incur, assume or suffer to exist (at any time after
the Closing Date, after giving effect to the application of the proceeds of the
issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted
Financing, (y) Debt incurred in connection with equipment leases to which the
Company or its Subsidiaries are a party incurred in the ordinary course of
business; and (z) Debt incurred in connection with trade accounts payable,
imbalances and refunds arising in the ordinary course of business and (ii) any
equity securities (including Derivative Securities) (other than those securities
that are issuable (x) under or pursuant to stock option plans, warrants or other
rights programs that exist as of the date hereof, (z) in connection with the
acquisition (including by merger) of a business or of assets otherwise permitted
under this Agreement), unless the Company complies with the mandatory prepayment
terms of Section 3.4(b) hereof.
8.2. TRANSACTIONS WITH AFFILIATES. The Company and each Subsidiary will
not, directly or indirectly, pay any funds to or for the account of, make any
investment (whether by acquisition or stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate, except, (1) pursuant to those agreements
specifically identified on Schedule 8.2 attached hereto (with a copy of such
agreements annexed to such Schedule 8.2) and (2) on terms to the Company or such
Subsidiary no less favorable than terms that could be obtained by the Company or
such Subsidiary from a Person that is not an Affiliate of the Company upon
negotiation at arms' length, as determined in good faith by the Board of
Directors of the Company; provided that no determination of the Board of
Directors shall be required with respect to any such transactions entered into
in the ordinary course of business.
8.3. MERGER OR CONSOLIDATION. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
8.4. LIMITATION ON ASSET SALES. Neither the Company nor any Subsidiary
will consummate an Asset Sale of material assets of the Company or any
Subsidiary without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
8.5. RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
8.6. PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS.
8.6.1. In addition to and not in lieu of the covenant specified in
Section 8.1 above, beginning on the Closing Date and continuing until 180 days
following the date on which the Registration Statement is declared effective by
the Commission (the "Effective Date") or until such time as all of the
Convertible Debentures have been either redeemed or converted into Conversion
Shares in full, whichever is later to occur, the Company agrees that it will not
issue any of its equity securities (or securities convertible into or
exchangeable or exercisable for equity securities (the "Derivative Securities"))
on terms that allow a holder thereof to acquire such equity securities (or
Derivative Securities) at a discount to the Market Price of the Common Stock at
the time of issuance or, in the case of Derivative Securities at a conversion
price based on any formula (other than standard anti-dilution provisions) based
on the Market Price on a date later than the date of issuance so long as such
conversion is not below the Market Price on the date of issuance (each such
event, a "Discounted Equity Offering"). As used herein, "discount" shall
include, but not be limited to, (i) any warrant, right or other security granted
or offered in connection with such issuance which, on the applicable date of
grant, is offered with an exercise or conversion price, as the case may be, at
less than the then current Market Price of the Common Stock or, if such security
has an exercise or conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later than the
date of issuance, then at a price below the Market Price on such date of
exercise or conversion, as the case may be, or (ii) any commissions, fees or
other allowances paid in connection with such issuances (other than customary
underwriter or placement agent commissions, fees or allowances). For the
purposes of determining the Market Price at which Common Stock is acquired under
this Section, normal underwriting commissions and placement fees (including
underwriters' warrants) shall be excluded.
8.6.2. Beginning on the Closing Date and continuing until 180 days
following the Effective Date or until such time as all of the Convertible
Debentures have been either redeemed or converted into Conversion Shares in
full, whichever is later to occur, the Company agrees it will not issue any of
its equity securities (or Derivative Securities), unless any shares of Common
Stock issued or issuable in connection therewith are "restricted securities."
As used herein "restricted securities" shall mean securities which may not be
sold by virtue of contractual restrictions imposed by the Company or otherwise,
in each case prior to twelve (12) months following the date of issuance of such
securities.
8.6.3. The restrictions contained in this Section 8.6 shall not apply
to the issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this Agreement, or
(ii) stock option or other compensatory plans.
8.7. LIMITATION ON STOCK REPURCHASES. Except as otherwise set forth in
the Convertible Debentures and the Warrants, the Company shall not, without the
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
8.8. LIMITATION ON SALES BY OFFICERS AND DIRECTORS. The executive
officers and employee directors of the Company will not sell or otherwise
dispose of (other than by reason of death or disability) to any other Person
shares of Common Stock unless such disposition is made in accordance with the
provisions of Rule 144 of the Securities Act regardless of whether Rule 144
would apply to such disposition.
9. RESTRICTIVE LEGENDS
9.1. RESTRICTIONS ON TRANSFER. From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
9.2. NOTICE OF PROPOSED TRANSFERS. Prior to any proposed Transfer of the
Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement.
Such proposed Transfer may be effected only if the Company shall have received
such notice of transfer, opinion of counsel, representation letters and other
letters referred to in the immediately preceding sentence, whereupon the holder
of such Securities shall be entitled to Transfer such Securities in accordance
with the terms of the notice delivered by the holder to the Company.
10. ADDITIONAL AGREEMENTS AMONG THE PARTIES
10.1. LIQUIDATED DAMAGES.
10.1.1. The Company shall cause its transfer agent to, issue and
deliver shares of Common Stock consistent with Section 7.11 hereof within three
(3) New York Stock Exchange Trading Days of delivery of a Notice of Conversion
or Notice of Exercise, as applicable (the "Deadline") to Purchaser (or any party
receiving Securities by transfer from Purchaser) at the address of Purchaser set
forth in the Notice of Conversion or Notice of Exercise, as the case may be.
The Company understands that a delay in the issuance of such certificates after
the Deadline could result in economic loss to Purchaser.
10.1.2. Without in any way limiting Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company agrees
that if delivery of the Conversion Shares is more than one (1) Business Day
after the Deadline (other than a failure due to the circumstances described in
Section 4.3 of the Convertible Debentures, which failure shall be governed by
such Section) the Company shall pay to Purchaser, as liquidated damages and not
as a penalty, $500 for each $100,000 principal amount of Convertible Debentures
then outstanding per day in cash, for each of the first ten days following the
Deadline that the Company fails to deliver such Common Stock, and $1,000 for
each $100,000 principal amount of Convertible Debentures then outstanding per
day in cash, for each day thereafter the Company fails to deliver such Common
Stock. Such cash amount shall be paid to Purchaser upon demand, or if no demand
is made, by the last day of the calendar week following the week in which it has
accrued or, at the option of Purchaser (by written notice to the Company by the
first day of the week following the week in which it has accrued), shall be
added to the principal amount of the Convertible Debenture (if then outstanding)
payable to Purchaser, in which event interest shall accrue thereon in accordance
with the terms of the Convertible Debentures and such additional principal
amount shall be convertible into Common Stock in accordance with the terms of
the Convertible Debentures.
10.2. CONVERSION NOTICE. The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this Agreement) to effect delivery to a Purchaser of certificates with or
without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Debentures or exercise of the Warrants, Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion or Notice of Exercise, as applicable, by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion or Notice of Exercise, as the case may be.
10.3. CONVERSION LIMIT. Notwithstanding the conversion rights under the
Convertible Debentures, unless Purchaser delivers a waiver which will be
effective on the 61st day after it is given by Purchaser in accordance with the
immediately following sentence, in no event shall Purchaser be entitled to
convert any portion of the Convertible Debentures, in excess of that portion of
the Convertible Debentures, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by Purchaser and its Affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Convertible Debenture or other
Derivative Securities convertible into or exchangeable for shares of Common
Stock which contain a limitation similar to that set forth in this Section
10.3), and (ii) the number of shares of Common Stock issuable upon the
conversion of the portion of the Convertible Debenture with respect to which
this determination is being made, would result in beneficial ownership by
Purchaser and its Affiliates of more than 4.99% of the outstanding shares of
Common Stock. For purposes of Section 10.3(i) beneficial ownership shall be
determined in accordance with Rule 13d-3 of the Exchange Act and Regulations 13
D-G thereunder, except as otherwise provided in this Section 10.3. The
foregoing limitation shall not apply and shall be of no further force or effect
(i) immediately preceding and upon the occurrence of any voluntary or mandatory
redemption or repayment transaction described herein or in the Convertible
Debentures, (ii) immediately preceding and upon any Sale Event, (iii) on the
Maturity Date or (iv) following the occurrence of any Event of Default which is
not cured for a period of ten (10) calendar days.
10.4. REGISTRATION RIGHTS.
10.4.1. The Company shall grant Purchaser registration rights covering
the Conversion Shares (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
10.4.2. The Company shall prepare and file on or before the 60th day
following the Closing Date (the "Filing Date"), a registration statement (the
"Registration Statement") covering the resale of the Registrable Securities. In
the event the Company fails to file the Registration statement by the Filing
Date, the Company shall pay Purchaser as liquidated damages, and not as a
penalty, an amount of cash equal to one percent of the aggregate principal
amount of Convertible Debentures then outstanding per day until the Registration
Statement is filed with the Commission. The Company shall use its best efforts
to cause the Registration Statement to be declared effective by the Commission
or the earlier of (i) 45 days following the Filing Date, (ii) ten days following
the receipt of a "No Review" Letter from the Commission or (iii) the first day
following the day the Commission determines the Registration Statement eligible
to be declared effective (the "Required Effectiveness Date"). The Company shall
pay all expenses of registration (other than underwriting fees and discounts, if
any, in respect of Registrable Securities offered and sold under the
registration statement by Purchaser).
10.4.3. If the Registration Statement is not declared effective by the
Commission by the Required Effectiveness Date, the Company shall pay to
Purchaser, as liquidated damages and not as a penalty, an amount equal to 2% of
the outstanding principal amount of the Convertible Debentures, prorated, for
each 30 day period the Registration Statement is not declared effective by the
Commission, which amount will be increased to 3% of the outstanding principal
amount of the Convertible Debentures in the event that the Registration
Statement is not declared effective by the Commission within 75 days of the
Filing Date. In the event the Company fails to obtain an effective registration
statement by the 135th day following the Filing Date, the Company will redeem
the Convertible Debentures and the Warrants as set forth in Section 5 of the
Convertible Debentures and Section 13 of the Warrants, respectively.
Additionally, the Company will grant to Purchaser certain piggyback registration
rights in the event the Company proposes to effect a registered offering of
Common Stock or warrants or both prior to the filing of the Registration
Statement referenced above.
10.4.4. Any such liquidated damages shall be paid in cash by the
Company to Purchaser by wire transfer in immediately available funds on the last
day of each calendar week following the event requiring its payment.
10.4.5. If, following the declaration of effectiveness of the
Registration Statement, such registration statement (or any prospectus or
supplemental prospectus contained therein) shall cease to be effective for any
reason (including but not limited to the occurrence of any event that results in
any prospectus or supplemental prospectus containing an untrue statement of a
material fact or omitting a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading) for the period required in the
Registration Rights Agreement (the "Registration Maintenance Period"), the
Company fails to file required amendments to the Registration Statement in order
to allow the Purchaser to exercise its rights to receive unrestricted,
unlegended, freely tradeable shares of Common Stock, or if for any reason there
are insufficient shares of such shares of Common Stock registered under the then
current Registration Statement to effect full conversion of the Convertible
Debentures or exercise of the Warrants (a "Registration Default"), the Company
shall immediately take all necessary steps to cause the Registration Statement
to be amended or supplemented so as to cure such Registration Default. Failure
to cure a Registration Default within ten (10) business days shall result in the
Company paying to Purchaser liquidated damages at the rate of $1,000 per day
from the date of such Registration Default until the Registration Default is
cured.
10.5. RESTRICTION ON ISSUANCE OF SECURITIES. Beginning on the Closing
Date and continuing for a period of 180 days following the Effective Date or
until the Convertible Debentures have been fully converted into shares of Common
Stock, whichever is later to occur, the Company will not sell, or offer to sell,
any securities (including credit facilities which are convertible into
securities which may be issued at a discount to the then current Market Price)
other than borrowings under conventional credit facilities existing as of the
date hereof, stock issued or credit facilities to be established in connection
with acquisitions, employee and director stock options of the Company, existing
rights and warrants of the Company and securities issued under the Convertible
Debentures or Warrants. In addition, the Company shall not issue any securities
in connection with a strategic alliance entered into by the Company unless such
securities are the subject of a one year statutory or contractual hold period
or, if not subject to such a hold period, unless the Purchaser has fully
converted all outstanding Convertible Debentures and exercised all Warrants.
Notwithstanding the foregoing, the Company may enter into the following types of
transactions (collectively referred to as "Permitted Financings"): (1)
"permanent financing" transactions, which would include any form of debt or
equity financing (other than an underwritten offering), which is followed by a
reduction of the said financing commitment to zero and payment of all related
fees and expenses; (2) "project financing" which provide for the issuance of
recourse debt instruments in connection with the operation of the Company's
business as presently conducted or as proposed to be conducted; (3) an
underwritten offering of Common Stock, provided that such offering provides for
the registration of the Common Stock to be received by Purchaser as a result of
the conversion of the Convertible Debentures and the exercise of the Warrants
held by the Purchaser to the extent there is not an effective Registration
Statement for the sale of the Conversion Shares in place at the time of such
offering; and (4) other financing transactions specifically consented to in
writing by the Purchaser.
11. ADJUSTMENT OF FIXED PRICE
11.1. REORGANIZATION. The Conversion Price and the exercise price of the
Warrants (collectively, the "Fixed Prices") shall be adjusted, as applicable, as
hereafter provided.
11.2. SHARE REORGANIZATION. If and whenever the Company shall:
11.2.0.1. subdivide the outstanding shares of Common Stock into a
greater number of shares;
11.2.0.2. consolidate the outstanding shares of Common Stock into a
smaller number of shares;
11.2.0.3. issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
11.2.0.4. make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in the
case of a distribution of securities convertible into or exchangeable for shares
of Common Stock, the number of shares of Common Stock that would have been
outstanding if such securities had been converted into or exchanged for Common
Stock on such record or effective date.
11.3. RIGHTS OFFERING. If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than 45 days
after the record date of such issue, to subscribe for or purchase Common Stock
(or Derivative Securities), at a price per share (or, in the case of securities
convertible into or exchangeable for Common Stock, at an exchange or conversion
price per share at the date of issue of such securities) of less than 95% of the
Market Price of the Common Stock on such record date (any such event being
herein called a "Rights Offering"), then in each such case the applicable Fixed
Price shall be adjusted, effective immediately after the record date at which
holders of Common Stock are determined for the purposes of the Rights Offering,
by multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
11.3.0.1. the numerator shall be the sum of:
(i) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
11.3.0.1.0.1. either,
(x) the product of the total number of shares of Common Stock so
offered for subscription or purchase and the price at which such shares are so
offered, or
(y) the product of the maximum number of shares of Common Stock
into or for which the convertible or exchangeable securities so offered for
subscription or purchase may be converted or exchanged and the conversion or
exchange price of such securities, or, as the case may be, by
11.3.0.1.0.2. the Market Price of the Common Stock on such record
date; and
11.3.0.2. the denominator shall be the sum of:
11.3.0.2.0.0.1.(i) the number of shares of Common Stock outstanding on
such record date; and
(II) the number of shares of Common Stock so offered for subscription
or purchase (or, in the case of Derivative Securities, the maximum number of
shares of Common Stock for or into which the securities so offered for
subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
11.4. SPECIAL DISTRIBUTION. If and whenever the Company shall issue
or distribute to all or substantially all the holders of Common Stock:
11.4.0.1. shares of the Company of any class, other than Common Stock;
11.4.0.2. rights, options or warrants; or
11.4.0.3. any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
11.4.0.4. the numerator shall be the difference between:
11.4.0.4.0.1. the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common Stock on such
date; and
11.4.0.4.0.2. the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other assets
issued or distributed in the Special Distribution (net of any consideration paid
therefor by the holders of Common Stock), and
11.4.0.5. the denominator shall be the product of the number of shares
of Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
11.5. CAPITAL REORGANIZATION. If and whenever there shall occur:
11.5.0.1. a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
11.5.0.2. a consolidation, merger or amalgamation of the Company with,
or into another body corporate; or
11.5.0.3. the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Debentures
after the effective date of such Capital Reorganization shall be entitled to
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
11.6. PURCHASE PRICE ADJUSTMENTS. In case at any time and from time to
time the Company shall issue any shares of Common Stock or Derivative Securities
convertible or exercisable for shares of Common Stock (the number of shares so
issued, or issuable upon conversion or exercise of such Derivative Securities,
as applicable, being referred to as "Additional Shares of Common Stock") for
consideration less than the then Market Price at the date of issuance of such
shares of Common Stock or such Derivative Securities, in each such case the
Conversion Price shall, concurrently with such issuance, be adjusted by
multiplying the Conversion Price immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
11.7. ADJUSTMENT RULES. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
11.7.1. no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the applicable
Fixed Price then in effect, provided, however, that any adjustments which, but
for the provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent adjustment;
11.7.2. if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such provisions,
the Company will give notice of such event as provided herein, and the Company's
board of directors will make an appropriate adjustment in the Fixed Price so
that the rights of the holders of the applicable Security shall not be
diminished by such event; and
11.7.3. if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be conclusively
determined by the auditors of the Company or, if they are unable or unwilling to
act, by a firm of independent chartered accountants selected by the Directors
and any such determination shall be binding upon the Company and Purchaser.
11.8. CERTIFICATE AS TO ADJUSTMENT. The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
applicable Fixed Price deliver to Purchaser a certificate specifying the nature
of the event requiring the adjustment, the amount of the adjustment necessitated
thereby, the applicable Fixed Price after giving effect to such adjustment and
setting forth, in reasonable detail, the method of calculation and the facts
upon which such calculation is based.
11.9. NOTICE TO HOLDERS. If the Company shall fix a record date for:
11.9.1. any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the consolidation of
outstanding Common Stock into a smaller number of shares),
11.9.2. any Rights Offering,
11.9.3. any Special Distribution,
11.9.4. any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
11.9.5. Sale Event; or
11.9.6. any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
12. EVENTS OF DEFAULT
12.1. EVENTS OF DEFAULT. If one or more of the following events (each an
"Event of Default") shall have occurred and be continuing:
12.1.1. failure by the Company to pay or repay when due, all or any
part of the principal on any of the Convertible Debentures (whether by virtue of
the agreements specified in this Agreement or the Convertible Debentures);
12.1.2. failure by the Company to pay (i) within five (5) Business Days
of the due date thereof any interest on any Convertible Debentures or (ii)
within five (5) Business Days following the delivery of notice to the Company of
any fees or any other amount payable (not otherwise referred to in (a) above or
this clause (b)) by the Company under this Agreement or any other Transaction
Agreement;
12.1.3. failure by the Company to timely comply with the requirements
of Section 7.11 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
12.1.4. failure on the part of the Company to observe or perform any
covenant contained in Section 7.10 or Article VIII of this Agreement;
12.1.5. failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than those
covered by clauses (a), (b), (c) or (d) above) for 30 days from the date of such
occurrence;
12.1.6. the trading in the Common Stock shall have been suspended by
the Commission or any National Market (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension on any
National Market, the Common Stock is then listed and approved for trading on
another National Market within ten (10) Trading Days thereof);
12.1.7. failure of the Company to file the Listing Applications when
the Company is eligible within twenty (20) Business Days of the Closing Date, as
applicable, which failure is not cured within five (5) Business Days of such
failure;
12.1.8. the Company shall have its Common Stock delisted from a
National Market for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on a National Market within such ten (10) Trading Days;
12.1.9. the Registration Statement shall not have been declared
effective by the Commission by the Required Effectiveness Date, or such
effectiveness shall not be maintained for the Registration Maintenance Period,
in each case which results in the Company incurring the registration for a
period in excess of 10 days;
12.1.10. the Company or any Subsidiary has commenced a voluntary case
or other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or has consented to any
such relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or has made a
general assignment for the benefit of creditors, or has failed generally to pay
its debts as they become due, or has taken any corporate action to authorize any
of the foregoing;
12.1.11. an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days, or an order for relief has been entered against the
Company or any Subsidiary under the federal bankruptcy laws as now or hereafter
in effect;
12.1.12. default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess of
$500,000, which has not been cured within any applicable period of grace
associated therewith;
12.1.13. judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by insurance
have been rendered against the Company or any Subsidiary by a court of competent
jurisdiction and such judgments or orders shall continue unsatisfied and
unstayed for a period of 60 days; or
12.1.14. any representation, warranty, certification or statement made
by the Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with any Transaction Agreement shall prove to have been
untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Debentures to be, and the Convertible Debentures shall thereon
become immediately due and payable; provided that in the case of any of the
Events of Default specified in paragraph (j) or (k) above with respect to the
Company or any Subsidiary, then, without any notice to the Company or any other
act by Purchaser, the entire amount of the Convertible Debentures shall become
immediately due and payable, provided, further, if any Event of Default has
occurred and is continuing, and irrespective of whether any Convertible
Debenture has been declared immediately due and payable hereunder, any Purchaser
of Convertible Debentures may proceed to protect and enforce the rights of
Purchaser by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Convertible Debenture, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise, and provided further, in the case of any
Event of Default, the amount declared due and payable on the Convertible
Debentures shall be the Formula Price thereof.
12.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or reserved to Purchaser is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Every power and remedy given by the Convertible Debentures or by law may be
exercised from time to time, and as often as shall be deemed expedient, by
Purchaser.
13. MISCELLANEOUS
13.1. NOTICES. All notices, demands and other communications to any party
hereunder shall be in writing (including telecopier or similar writing) and
shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
13.2. NO WAIVERS; AMENDMENTS.
13.2.1. No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
13.2.2. Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing and
is signed by the Company and the Majority Holders; provided, that without the
consent of each holder of any Convertible Debenture affected thereby, an
amendment or waiver may not (a) reduce the aggregate principal amount of
Convertible Debentures whose holders must consent to an amendment or waiver, (b)
reduce the rate or extend the time for payment of interest on any Convertible
Debenture, (c) reduce the principal amount of or extend the stated maturity of
any Convertible Debenture or (d) make any Convertible Debenture payable in money
or property other than as stated in such Convertible Debenture. In determining
whether the holders of the requisite principal amount of Convertible Debentures
have concurred in any direction, consent, or waiver as provided in any
Transaction Agreement, Convertible Debentures which are owned by the Company or
any other obligor on or guarantor of the convertible Debentures, or by any
Person Controlling, Controlled by, or under common Control with any of the
foregoing, shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; and provided further that no such amendment,
supplement or waiver which affects the rights of Purchaser and their affiliates
otherwise than solely in their capacities as holders of Convertible Debentures
shall be effective with respect to them without their prior written consent.
13.3. INDEMNIFICATION.
13.3.1. The Company agrees to indemnify and hold harmless Purchaser,
its Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act (each,
a "Controlling Person"), and the respective partners, agents, employees,
officers and Directors of Purchaser, their Affiliates and any such Controlling
Person (each an "Indemnified Party") and collectively, the "Indemnified
Parties"), from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether or not
such Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than Purchaser
unless it has received from such Indemnified Party an undertaking to repay to
the Company the costs so advanced if it should be determined by final judgment
of a court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which may be
incurred by such Indemnified Party in connection with any investigative,
administrative or judicial proceeding brought or threatened that relates to or
arises out of, or is in connection with any activities contemplated by any
Transaction Agreement or any other services rendered in connection herewith;
provided that the Company will not be responsible for any claims, liabilities,
losses, damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
13.3.2. If any action shall be brought against an Indemnified Party
with respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company, at its option, may, assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so notify the
Company shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified Party shall
have the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless (i) the Company has failed to assume
the defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by Purchaser.
The Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which shall not be unreasonably
withheld) and the Company agrees to indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of settlement of any
action effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of Purchaser, settle or compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
pending or threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of Purchaser
and the other Indemnified Parties, satisfactory in form and substance to
Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
13.3.3. If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying such Indemnified Party, the Company shall contribute to the
amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by Purchaser on the other from the transactions contemplated by this
Agreement or (ii) if the allocation provided by clause (i) is not permitted
under applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the Company on the one hand and Purchaser on
the other, but also the relative fault of the Company and Purchaser as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with respect
to the transactions contemplated hereby shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of material
fact or the omission or alleged omission to state a material fact related to
information supplied by the Company or by Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
13.3.4. The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the other
Transaction Agreements and the payment in full of the Convertible Debentures and
(iii) shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Purchaser or any other Indemnified Party.
13.4. EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay to Purchaser
a fee of $25,000.00 (the "Expense Reimbursement Fee") in full satisfaction of
all obligations of the Company to Purchaser and its agents in connection with
the negotiation and preparation of the Transaction Agreements, relevant due
diligence, and fees and disbursements of legal counsel. In addition, the
Company agrees to pay any and all stamp, transfer and other similar taxes,
assessments or charges payable in connection with the execution and delivery of
any Transaction Agreement or the issuance of the Securities to Purchaser,
excluding their assigns.
13.5. PAYMENT. The Company agrees that, so long as Purchaser shall own
any Convertible Debentures purchased by it from the Company hereunder, the
Company will make payments to Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (E.S.T.).
13.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and upon Purchaser and its respective successors and assigns; provided
that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
13.7. BROKERS. Except for a cash fee payable to DP Securities, Inc. in
the form of 3% of the principal amount of the Convertible Debentures purchased
on the Closing Date by Purchaser, the Company represents and warrants that it
has not employed any broker, finder, financial advisor or investment banker who
would be entitled to any brokerage, finder's or other fee or commission payable
by the Company or Purchaser in connection with the sale of the Securities.
13.8. CALIFORNIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE CENTRAL DISTRICT OF CALIFORNIA AND OF ANY FEDERAL DISTRICT COURT SITTING IN
CALIFORNIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH
PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
13.9. ENTIRE AGREEMENT. This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Convertible Debenture, the
Warrant, the Registration Rights Agreement and the Security Agreement, set forth
the entire agreement and understanding of the parties relating to the subject
matter hereof and supercedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Schedules to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
13.10. SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
13.11. TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
13.12. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
13.13. PUBLICITY. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
CREATIVE HOST SERVICES, INC.
By: /s/
Name: _______________________________
Title: _______________________________
Address: Creative Host Services, Inc.
6335 Ferris Square
Suite G
San Diego, CA 92126
Fax:
Tel.:
GCA STRATEGIC INVESTMENT FUND LIMITED
By: /s/
Name: Lewis N. Lester
Title: Director
Address: c/o Prime Management Limited
Mechanics Building
12 Church Street
Hamilton HM II, Bermuda
Fax: 441-295-3926
Tel.: 441-295-0329