1
EXHIBIT 4.3
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
October 31, 2000 among Procom Technology, Inc., a California corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each a
"PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933 (the
"SECURITIES ACT"), the Company desires to issue and sell to the Purchasers, and
the Purchasers, severally and not jointly, desire to purchase from the Company,
securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"ACTUAL MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and convertible Securities, assuming that (a) any previously
unconverted Debentures are held until the fifth anniversary of the
Closing Date or, if earlier, until maturity, and all interest is paid
in shares of Common Stock (b) all other obligations of the Company that
are payable in Common Stock are paid in Common Stock, and (c) the
Closing Price at all times on and after the date of determination
equals 100% of the actual Closing Price on the Trading Day immediately
prior to the date of determination.
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"CHANGE OF CONTROL" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of more than 40% of the voting rights or equity interests
in the Company (excluding from such calculation any Purchasers or their
Affiliates), (ii) a replacement of more than one-half of the members of
the Company's board of directors that is not approved by those
individuals who are members of the board of
2
directors on the date hereof or successor directors whose nomination
was approved by directors who were directors prior to such successor's
election in one or a series of related transactions, (iii) a merger or
consolidation of the Company or any Subsidiary or a sale of more than
50% of the assets of the Company in one or a series of related
transactions, unless following such transaction or series of
transactions, the holders of the Company's securities prior to the
first such transaction continue to hold at least a majority of the
voting rights and equity interests in of the surviving entity or
acquirer of such assets, or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"CLOSING DATE" means the date of the Closing.
"CLOSING PRICE" means, for any date, the price determined by
the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on an Eligible Market or any other
national securities exchange, the closing bid price per share of the
Common Stock for such date (or the nearest preceding date) on the
primary Eligible Market or exchange on which the Common Stock is then
listed or quoted; (b) if prices for the Common Stock are then quoted on
the OTC Bulletin Board, the closing bid price per share of the Common
Stock for such date (or the nearest preceding date) so quoted; (c) if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in
good faith by a majority-in-interest of the Purchasers.
"CLOSING WARRANT" or "WARRANT" means a Common Stock purchase
warrant, in the form of Exhibit A.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $.01 per share.
"DEBENTURES" means $15,000,000.00 in aggregate principal
amount of 6% Convertible Debentures due October31, 2003, issued by the
Company to the Purchasers hereunder.
"EFFECTIVE DATE" means the date that an Underlying Shares
Registration Statement is declared effective by the Commission.
"ELIGIBLE MARKET" means the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq
SmallCap Market.
2
3
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PURCHASER COUNSEL" means Hughes & Luce, L.L.P., counsel to
the Purchasers.
"QUALIFIED OFFERING" means a public offering of Common Stock
registered under the Securities Act, managed by an investment banking
firm of recognized national standing resulting in gross proceeds to the
Company of not less than $20,000,000 in which the Common Stock is
offered to the public at a price of not less than 85% of the Closing
Price on the last Trading Day before such offering is priced.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated on or around the Closing Date, among the Company and
the Purchasers, in the form of Exhibit B.
"REQUIRED EFFECTIVENESS DATE" means the date on which an
Underlying Shares Registration Statement is required to become
effective pursuant to the Registration Rights Agreement.
"REQUIRED MINIMUM" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and convertible Securities, assuming that (a) any
previously unconverted Debentures are held until the fifth anniversary
of the Closing Date or, if earlier, until maturity, and all interest
thereon is paid in shares of Common Stock, (b) all other obligations of
the Company that are payable in Common Stock are paid in Common Stock,
and (c) the Closing Price at all times on and after the date of
determination equals 50% of the actual Closing Price on the Trading Day
immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SECURITIES" means the Debentures, Warrants and the Underlying
Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means any subsidiary of the Company that is
required to be listed in Schedule 3.1(a).
3
4
"STRATEGIC TRANSACTION" means a bona fide strategic
transaction in which the Company issues shares of Common Stock to a
Person that is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and
in which the Company receives material benefits other than the
investment of funds, but shall not include any transaction (i) in which
a primary or significant purpose of the Company is to raise capital,
(ii) with a Person the primary business of which is investing in
securities, or (iii) in which any Floating Price Security (as defined
in the Debenture) is issued.
"TRADING DAY" means (a) any day on which the Common Stock is
traded on its primary Trading Market, or (b) if the Common Stock is not
then listed or quoted on any national securities exchange, market or
trading or quotation facility, then a day on which trading occurs on
the New York Stock Exchange (or any successor thereto).
"TRADING MARKET" means Nasdaq or any other national securities
exchange, market or trading or quotation facility on which the Common
Stock is then listed or quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Securities,
the Registration Rights Agreement, the Transfer Agent Instructions and
any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"TRANSFER AGENT INSTRUCTIONS" means instructions to the
Company's transfer agent, in the form of Exhibit C.
"UNDERLYING SHARES" means the shares of Common Stock or other
securities issuable upon conversion of and upon payment of interest on
the Debentures and upon exercise of the Warrants and in satisfaction of
any other obligation of the Company to issue shares of Common Stock or
other securities pursuant to the Transaction Documents.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement and covering the resale of the Securities
(including the Underlying Shares) by the Purchasers.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to the Purchasers,
and the Purchasers shall, severally and not jointly, purchase from the Company,
the Debentures and the Warrants for an aggregate purchase price of
$15,000,000.00. The Closing shall take place at the offices of Purchaser Counsel
immediately following the execution hereof, or at such other location or time as
the parties may agree.
4
5
2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) Debentures in the aggregate principal amount
indicated below such Purchaser's name on the signature page of this
Agreement, registered in the name of such Purchaser;
(ii) a Closing Warrant, registered in the name of
such Purchaser, pursuant to which such Purchaser shall have the right
to acquire the number of shares of Common Stock indicated below such
Purchaser's name on the signature page of this Agreement, on the terms
set forth therein;
(iii) legal opinions of Company Counsel Frederick
Judd and O'Melveny & Myers, L.L.P., in the forms of Exhibit D-1 and
D-2, executed by such counsel and delivered to the Purchasers;
(iv) a Registration Rights Agreement duly executed by
the Company;
(vi) Transfer Agent Instructions executed by the
Company and delivered to and acknowledged by U.S. Stock Transfer, the
Company's transfer agent; and
(vii) a certificate executed by the registrar of the
Common Stock as to the accuracy of matters set forth in Schedule
3.1(g).
(b) At the Closing, each Purchaser shall deliver or cause to
be delivered to the Company the following:
(i) the purchase price indicated below such
Purchaser's name on the signature page of this Agreement, in United
States dollars and in immediately available funds, by wire transfer to
an account designated in writing by the Company for such purpose; and
(ii) a Registration Rights Agreement duly executed by
such Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers:
(a) Subsidiaries. The Company has no subsidiaries other than
those listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the
Company owns all of the capital stock of each Subsidiary free and clear of any
lien, charge, security interest, encumbrance, right of first
5
6
refusal or other restriction (collectively, "LIENS"), and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights. If the
Company has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate,
reasonably be expected to (i) adversely affect the legality, validity or
enforceability of any Transaction Document, (ii) have or result in a material
adverse effect on the results of operations, assets, prospects, business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) adversely impair the Company's ability to perform fully on a
timely basis its obligations under any of the Transaction Documents (any of (i),
(ii) or (iii), a "MATERIAL ADVERSE EFFECT").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been (or upon delivery will be) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, insolvency and other similar
laws affecting the rights of creditors generally and the principles of equity.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) subject to obtaining the Required Approvals (as defined below), conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the
6
7
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required under Section 4.8,
(ii) the filing with the Commission of the Underlying Shares Registration
Statement, (iii) the application(s) to each Trading Market for the listing of
the Securities (including the Underlying Shares) for trading thereon in the time
and manner required thereby, (iv) applicable Blue Sky filings, (v) consent of
The CIT Group/Business Credit, Inc. under the Financing Agreement dated October
10, 2000, which has been obtained, and (vi) in all other cases where the failure
to obtain such consent, waiver, authorization or order, or to give such notice
or make such filing or registration could not have or result in, individually or
in the aggregate, a Material Adverse Effect (collectively, the "REQUIRED
APPROVALS").
(f) Issuance of the Securities. The Securities (including the
Underlying Shares) are duly authorized and, when issued and paid for in
accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens. The Company has
reserved from its duly authorized capital stock a number of shares of Common
Stock for issuance of the Securities (including the Underlying Shares) at least
equal to the Required Minimum on the date hereof.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set forth in
Schedule 3.1(g). No securities of the Company are entitled to preemptive or
similar rights, and no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities and except as disclosed in Schedule 3.1(g), there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Securities (including the Underlying Shares) will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. To the knowledge of the Company, except as
specifically disclosed in Schedule 3.1(g), no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act),
or has the right to acquire, by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of 5% of the outstanding Common
Stock.
7
8
(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC REPORTS" and, together with the Schedules to this
Agreement, the "DISCLOSURE MATERIALS") on a timely basis (except as disclosed on
Schedule 3.1(h)) or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
All material agreements to which the Company or any Subsidiary is a party or to
which the property or assets of the Company or any Subsidiary are subject have
been filed as exhibits to the SEC Reports as required under the Exchange Act.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the identity of its auditors, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "ACTION") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could reasonably be expected to, if there were an
unfavorable decision, individually or in the aggregate, have or result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer
8
9
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. The Company does not have pending before the Commission any
request for confidential treatment of information, and the Company does not
expect to make any such request prior to the Required Effectiveness Date. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The SEC has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act. No strike, work stoppage, slow down or other material labor
problem exists or, to the knowledge of the Company, is threatened or imminent
with respect to any of the employees of the Company or the Subsidiaries.
(k) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.
(l) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect ("MATERIAL
PERMITS"), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
(m) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by them that
is material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and currently
proposed to be made of such property by the Company and the Subsidiaries, and
(ii) Liens described on Schedule 3.1(m). Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in compliance.
(n) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in
9
10
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could have a Material Adverse Effect (collectively,
the "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(o) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary
believes that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a significant
increase in cost.
(p) Transactions With Affiliates and Employees. Except as set
forth in SEC Reports filed at least ten days prior to the date hereof, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
(q) Internal Accounting Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles 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.
(r) Solvency. Based on the financial condition of the Company
as of the Closing Date, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as currently proposed by the Company to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and capital requirements
currently anticipated by the Company and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).
10
11
(s) Certain Fees. Except as described in Schedule 3.1(s), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.
(t) Private Placement. Neither the Company nor any Person
acting on the Company's behalf has sold or offered to sell or solicited any
offer to buy the Securities by means of any form of general solicitation or
advertising. Neither the Company nor any of its Affiliates nor any person acting
on the Company's behalf has, directly or indirectly, at any time within the past
six months, made any offer or sale of any security or solicitation of any offer
to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale of the Securities as
contemplated hereby or (ii) cause the offering of the Securities pursuant to the
Transaction Documents to be integrated with prior offerings by the Company for
purposes of any applicable law, regulation or shareholder approval provisions,
including without limitation under the rules and regulations of any Trading
Market. The Company is not, and is not an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(u) Form S-3 Eligibility. The Company is eligible to register
its Common Stock for resale by the Purchasers under Form S-3 promulgated under
the Securities Act.
(v) Listing and Maintenance Requirements. The Company has not,
in the two years preceding the date hereof, received notice (written or oral)
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(w) Registration Rights. Except as described in Schedule
3.1(w), the Company has not granted or agreed to grant to any Person any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority that
have not been satisfied.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes material non-public
information. The Company understands and
11
12
confirms that the Purchasers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchasers by the Company, its officers, directors and employees regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement, are true and correct and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2.
(z) Seniority. As of the date of this Agreement, except as
described in Schedule 3.1(m), no indebtedness of the Company is senior to the
Debentures in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to the
property covered thereby).
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act or under an
exemption from such registration and in compliance with applicable federal and
state securities laws. Nothing contained herein shall be deemed a representation
or warranty by such Purchaser to hold Securities for any period of time. Such
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date on which
it exercises any Warrants or converts any Debentures, it will be an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the
12
13
Securities, and has so evaluated the merits and risks of such investment. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(e) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) 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 risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.
(f) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(g) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) Securities may only be disposed of pursuant to an
effective registration statement under the Securities Act, to the Company or
pursuant to an available exemption from or in a transaction not subject to the
registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company,
except as otherwise set forth herein, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. Notwithstanding the foregoing, the Company hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company, without any such legal
opinion, any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser, provided that the transferee
13
14
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and that it is acquiring the Securities solely
for investment purposes (subject to the qualifications hereof). As a condition
of transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of the following legend on the Securities:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
None of the Securities (including the Underlying Shares) shall contain the
legend set forth above nor any other legend (i) while an Underlying Shares
Registration Statement is effective under the Securities Act, or (i) following
any sale of such Securities pursuant to Rule 144 or (iii) such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the Effective
Date. The Company agrees that following the Effective Date or at such time as
such legend is no longer required under this Section 4.1(b), it will, no later
than three Trading Days following the delivery by a Purchaser to the Company or
the Company's transfer agent of a certificate representing Securities (including
Underlying Shares) issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
(c) If the Company fails to deliver or cause to be delivered
to any Purchaser a certificate representing any Securities by the third Trading
Day after the date on which delivery of such certificate is required by any
Transaction Document, the Company shall pay to such Purchaser, in cash, as
liquidated damages and not as a penalty, $5,000 for each day after such third
Trading Day until such certificate is delivered. Nothing herein shall limit such
Purchaser's right to pursue actual damages for the Company's failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(d) In addition to any other rights available to a Purchaser,
if the Company fails to deliver to such Purchaser a certificate representing
Common Stock by the third Trading Day after
14
15
the date on which delivery of such certificate is required by any Transaction
Document, and if after such third Trading Day such Purchaser purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the shares that the Purchaser
anticipated receiving from the Company (a "BUY-IN"), then the Company shall,
within three Trading Days after such Purchaser's request and in such Purchaser's
discretion, either (i) pay cash to such Purchaser in an amount equal to such
Purchaser's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which point the
Company's obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to such
Purchaser a certificate or certificates representing such Common Stock and pay
cash to such Purchaser in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Price on the date of the event giving rise to the Company's
obligation to deliver such certificate.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities (including the Underlying Shares) will result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Securities (including the Underlying Shares)
pursuant to the Transaction Documents is, subject to the terms and provisions of
the Transaction Documents, unconditional and absolute, regardless of the effect
of any such dilution.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any such Person, the Company shall deliver to
such Person a written certification of a duly authorized officer as to whether
it has complied with the preceding sentence. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with paragraph (c) of Rule 144 such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.
4.5 Reservation and Listing of Securities.
(a) [Intentionally Omitted.]
15
16
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock (the "REMAINING AUTHORIZED
SHARES") is less than 125% of (i) the Actual Minimum on such date, minus (ii)
the number of shares of Common Stock previously issued pursuant to the
Transaction Documents, then the Board of Directors of the Company shall use its
commercially reasonable best efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but unissued
shares of Common Stock to at least the Required Minimum at such time (minus the
number of shares of Common Stock previously issued pursuant to the Transaction
Documents), as soon as possible and in any event not later than the 75th day
after such date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock greater than the maximum remaining
number of shares of Common Stock that could possibly be issued after such time
pursuant to the Transaction Documents.
(c) If, at the time any Purchaser requests an exercise or
conversion of any Securities, the Actual Minimum minus the number of shares of
Common Stock previously issued pursuant to the Transaction Documents exceeds the
Remaining Authorized Shares, then the Company shall issue to the Purchaser
requesting such exercise or conversion a number of Underlying Shares equal to
such Purchaser's pro-rata portion of the Remaining Authorized Shares (based on
such Purchaser's share of the aggregate purchase price paid hereunder and
considering any Underlying Shares previously issued to such Purchaser), and the
remainder of the Underlying Shares issuable in connection with such exercise or
conversion shall constitute "Excess Shares" pursuant to Section 4.5(g) below.
(d) The Company shall (i) in the time and manner required by
each Trading Market, prepare and file with such Trading Market an additional
shares listing application covering a number of shares of Common Stock at least
equal to the greater of (A) the Required Minimum on the Closing Date and (B) the
Required Minimum on the date of such application, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on each Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
reasonable evidence of such listing, and (iv) maintain the listing of such
Common Stock on each such Trading Market or another Eligible Market.
(e) If, on any date, the number of shares of Common Stock
previously listed on a Trading Market is less than 125% of the Actual Minimum on
such date, then the Company shall take the necessary actions to list on such
Trading Market, as soon as reasonably possible, a number of shares of Common
Stock at least equal to the Required Minimum on such date; provided that the
Company will not be required at any time to list a number of shares of Common
Stock greater than the maximum number of shares of Common Stock that could
possibly be issued pursuant to the Transaction Documents.
(f) The maximum number of shares of Common Stock that the
Company will be required to issue pursuant to the Transaction Documents at an
effective purchase price less than the Closing Price on the Trading Day
immediately preceding the Closing Date equals 2,322,150 shares (the "ISSUABLE
MAXIMUM"), unless the Company obtains shareholder approval in accordance with
the rules and regulations of the Nasdaq National Market (whether or not the
Company is then listed on such Trading Market). If, at the time any Purchaser
requests an exercise or conversion of any Securities, the Actual Minimum
(excluding any shares issued or issuable at an effective purchase
16
17
price in excess of the Closing Price on the Trading Day immediately preceding
the Closing Date) exceeds the Issuable Maximum (and if the Company has not have
previously obtained the required shareholder approval), then the Company shall
issue to the Purchaser requesting such exercise or conversion a number of
Underlying Shares of Common Stock equal to such Purchaser's pro-rata portion of
the Issuable Maximum (based on such Purchaser's share of the aggregate purchase
price paid hereunder and considering any Underlying Shares previously issued to
such Purchaser), and the remainder of the Underlying Shares issuable in
connection with such exercise or conversion shall constitute "Excess Shares"
pursuant to Section 4.5(g) below.
(g) Any Purchaser whose receipt of Excess Shares upon exercise
or conversion of Securities is restricted based on the number of Remaining
Authorized Shares or the Issuable Maximum shall have the option, by notice to
the Company, to require the Company to either: (i) use its best efforts to
obtain the required shareholder approval necessary to permit the issuance of
such Excess Shares as soon as is possible, but in any event not later than the
75th day after such notice, or (ii) within five Trading Days after such notice,
pay cash to such Purchaser in lieu of issuing the Excess Shares and in
satisfaction of the portion of the Warrant and Debenture relating thereto, as
liquidated damages and not as a penalty, in an amount equal to the number of
Excess Shares times the average Closing Price over the five Trading Days
immediately prior to the date of such notice or, if greater, the five Trading
Days immediately prior to the date of payment (the "CASH AMOUNT"). If the
exercising or converting Purchaser elects the first option under the preceding
sentence and the Company fails to obtain the required shareholder approval on or
prior to the 75th day after such notice, then within three Trading Days after
such 75th day, the Company shall pay the Cash Amount to such Purchaser, as
liquidated damages and not as penalty.
4.6 Conversion and Exercise Procedures. The Transfer Agent Instructions
and Conversion Notice, as defined in the Debentures, set forth the totality of
the procedures required to with respect to the conversion of the Debentures. The
Transfer Agent Instructions and Form of Election to Purchase under the Warrants
set forth the totality of the procedures with respect to the exercise of the
Warrants. No additional legal opinion or other information or instructions shall
be necessary to enable the Purchasers to convert their Debentures or exercise
their Warrants. The Company shall honor conversions of the Debentures and
exercises of the Warrants and shall deliver Underlying Shares in accordance with
the terms, conditions and time periods set forth in the Transaction Documents.
4.7 Subsequent Placements.
(a) From the date hereof until 90 Trading Days after the
Effective Date, the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or, except
with the prior written consent of the holders of a majority in principal amount
of the Debenture, the Subsidiaries' equity or equity equivalent securities,
including without limitation any debt, preferred stock or other instrument or
security that is, at any time during its life and under any circumstances,
convertible into or exchangeable for Common Stock (any such offer, sale, grant,
disposition or announcement being referred to as a "SUBSEQUENT PLACEMENT").
17
18
(b) The Company will not, directly or indirectly, effect any
Subsequent Placement from the date hereof until 180 Trading Days after the
Effective Date, unless (i) the Company delivers to each of the Purchasers a
written notice (the "SUBSEQUENT PLACEMENT NOTICE") of its intention to effect
such Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Placement is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto and (ii) such Purchaser shall not
have notified the Company by 6:30 p.m. (New York City time) on the tenth Trading
Day after its receipt of the Subsequent Placement Notice of its willingness to
provide (or to cause its designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on the same terms set forth
in the Subsequent Placement Notice. If the Purchasers shall fail to so notify
the Company of their willingness to participate in the full Subsequent
Placement, the Company may effect such Subsequent Placement on the terms and to
the Persons set forth in the Subsequent Placement Notice; provided that the
Company must provide the Purchasers with a second Subsequent Placement Notice,
and the Purchasers will again have the right of first refusal set forth above in
this paragraph (b), if the Subsequent Placement subject to the initial
Subsequent Placement Notice is not consummated for any reason on the terms set
forth in such Subsequent Placement Notice within 30 Trading Days after the date
of the initial Subsequent Placement Notice with the Person identified in the
Subsequent Placement Notice. If the Purchasers indicate a willingness to provide
financing in excess of the amount set forth in the Subsequent Placement Notice,
then each Purchaser will be entitled to provide financing pursuant to such
Subsequent Placement Notice up to an amount equal to such Purchaser's pro rata
portion of the aggregate purchase price paid for the Securities under this
Agreement, but the Company shall not be required to accept financing from the
Purchasers in an amount in excess of the amount set forth in the Subsequent
Placement Notice.
(c) Except for (i) Registrable Securities, as defined in the
Registration Rights Agreement, and (ii) Common Stock permitted to be issued
pursuant to Section 4.7(e), the Company shall not, until 90 Trading Days after
the Effective Date, without the prior written consent of the Purchasers, (A)
issue or sell any of its or any of its Affiliates' equity or equity-equivalent
securities pursuant to Regulation S promulgated under the Securities Act, or (B)
file a registration statement with the Commission with respect to any securities
of the Company or the Subsidiaries.
(d) The 90 and 180 Trading Day periods set forth in the
foregoing paragraphs of this Section 4.7 shall be extended for (i) the number of
Trading Days during such periods in which trading in the Common Stock is
suspended by any Trading Market, and (ii) the number of Trading Days after the
Effective Date during which (A) the Underlying Shares Registration Statement is
not effective or (B) the prospectus included in the Underlying Shares
Registration Statement may not be used by the holders thereof for the resale of
Registrable Securities thereunder.
(e) The restrictions contained in paragraphs (a) and (b) of
this Section 4.7 shall not apply to (i) the granting of options to employees,
officers and directors of the Company or bona fide consultants for services
rendered other than in connection with financing activities pursuant to any
stock option plan duly adopted by the Company or to the issuance of Common Stock
upon exercise of such options; (ii) issuance of Common Stock or securities
convertible into Common Stock in a Strategic Transaction; (iii) the issuance of
up to an aggregate 100,000 shares of Common
18
19
Stock after the date hereof (appropriately adjusted for stock splits, reverse
stock splits and similar transactions); or (iv) the issuance of Common Stock in
a Qualified Offering.
4.8 Securities Laws Disclosure; Publicity. The Company shall (i) on the
Closing Date, issue a press release reasonably acceptable to the Purchasers
disclosing the transactions contemplated hereby, (ii) within ten Trading Days
after the Closing Date, file with the Commission a Report on Form 8-K disclosing
the transactions contemplated hereby, and (iii) timely file with the Commission
a Form D promulgated under the Securities Act with respect to the transactions
contemplated hereby and provide a copy thereof to the Purchasers promptly after
the filing thereof. The Company shall, at least two Trading Days prior to the
filing or dissemination of any disclosure required by this paragraph, provide a
copy thereof to the Purchasers for their review. The Company and the Purchasers
shall consult with each other in issuing any press releases or otherwise making
public statements or filings and other communications with the Commission or any
regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other (which will not be unreasonably withheld or
delayed), except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement, filing or other communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except to the extent such disclosure (but not any disclosure as to
the controlling Persons thereof) is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.
4.9 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than for (i) payment of
trade payables and accrued expenses in the ordinary course of the Company's
business and prior practices, and (ii) indebtedness described on Schedule
3.1(m)), to redeem any Company equity or equity-equivalent securities or to
settle any outstanding litigation.
4.10 Reimbursement. If any Purchaser or any Affiliate, officer,
director, partner, controlling person, employee or agent of a Purchaser (a
"RELATED PERSON") becomes involved in any capacity in any action, proceeding or
investigation brought by or against any Person in connection with or as a result
of the transactions contemplated by the Transaction Documents (except for such
as may arise from any breach or violation by any Purchaser of its articles of
incorporation, bylaws, or any agreement or other instrument (other than the
Transaction Documents) binding on, or any law or regulation applicable to, such
Purchaser or its property or assets), the Company will reimburse such Purchaser
or Related Person for its reasonable legal and other expenses (including the
costs of any investigation, preparation and travel) incurred in connection
therewith, as such expenses are incurred. In addition, the Company shall
indemnify and hold harmless each Purchaser and Related Person from and against
any and all losses, claims, damages, liabilities, costs and expenses including
those arising out of the sole or contributory negligence of such Purchaser or
any Related Person (including legal costs and costs of investigation,
preparation and travel) (collectively, "LOSSES"), as incurred, arising out of or
relating to any breach by the Company of any of the representations,
19
20
warranties or covenants made by the Company in this Agreement or any other
Transaction Document, or any allegation by a third party that, if true, would
constitute such a breach, excluding only Losses that result from such
Purchaser's or Related Person's gross negligence or willful misconduct. The
reimbursement and indemnification obligations of the Company under this
paragraph shall survive any termination of this Agreement, shall be in addition
to any liability that the Company may otherwise have, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Purchasers and any such Related Persons. The Company also
agrees that neither the Purchasers nor any Related Persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the transactions
contemplated by the Transaction Documents, except to the extent that any losses,
claims, damages, liabilities or expenses incurred by the Company result from the
gross negligence or willful misconduct of the applicable Purchaser or Related
Person in connection with such transactions. If the Company breaches its
obligations under any Transaction Document, then, in addition to any other
liabilities the Company may have under any Transaction Document or applicable
law, the Company shall pay or reimburse the Purchasers on demand for all costs
of collection and enforcement (including reasonable attorneys fees and
expenses).
4.11 Cash Payments. If the Company fails to make any cash payment
required by any Transaction Document in full before the expiration of 3 days
after the same becomes due, then (a) the Company shall pay interest thereon at a
rate of 15% per annum (or such lesser maximum rate that is permitted to be paid
under applicable law) from the date such payment was due until such amount, plus
all such interest thereon, is paid in full, and (b) any Purchaser may, in such
Purchaser's sole discretion by delivering notice of its election under this
paragraph to the Company, require the Company to satisfy such payment obligation
by issuing to the Holder a number of shares of Common Stock equal to (i) the
amount of such payment, plus any interest applicable thereto through the date
certificates evidencing such shares are delivered to such Purchaser, divided by
(ii) the lowest of (A) the average of the Closing Prices on the five Trading
Days immediately preceding the date on which such payment was required to be
made, or (B) the average of the Closing Prices on the five Trading Days
immediately preceding the date of such Purchaser's notice under this paragraph,
or (C) the Conversion Price under the Debentures on the date on which such
payment was required to be made, or (D) the Conversion Price under the
Debentures on the date of such Purchaser's notice under this paragraph. Upon
receipt of a notice under this paragraph from a Purchaser, the Company shall
promptly (but in no event later than three Trading Days after the date of such
notice) issue or cause to be issued and cause to be delivered to or upon the
written order of such Purchaser and in such name or names as such Purchaser may
designate a certificate evidencing such number of shares of Common stock (which
shall constitute Underlying Shares hereunder), free of restrictive legends
unless a registration statement covering the resale of the Underlying Shares and
naming such Purchaser as a selling stockholder thereunder is not then effective
and such Underlying Shares are not then freely transferable without volume
restrictions pursuant to Rule 144 under the Securities Act. Such Purchaser, or
any Person so designated by such Purchaser to receive such shares, shall be
deemed to have become holder of record of such shares as of the date of such
notice. The Company shall, upon request of such Purchaser, use its best efforts
to deliver such shares electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
20
21
4.12 Shareholders Rights Plan. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under any such
plan or in any way could be deemed to trigger the provisions of such plan by
virtue of receiving Securities under the Transaction Documents.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date;
(b) Performance. The Company and each other Purchaser shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that reasonably
would be expected to have or result in a Material Adverse Effect; and
(e) No Suspensions of Trading in Common Stock; Listing.
Trading in the Common Stock shall not have been suspended by the Commission or
any Trading Market (except for any suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding the
Company) at any time since the date of execution of this Agreement, and the
Common Stock shall have been at all times since such date listed for trading on
an Eligible Market.
5.2 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;
21
22
(b) Performance. The Purchasers shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
ARTICLE VI
MISCELLANEOUS
6.1 Fees and Expenses. At the Closing, the Company shall reimburse the
Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to the
Purchasers, in proportion to their respective purchase prices (or, at the
Purchasers' election, directly to Purchaser Counsel), an aggregate of $25,000.
In lieu of the payments required by the immediately preceding sentence, the
Purchasers may retain the amount of such payments instead of delivering such
amounts to the Company at the Closing. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.
6.2 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
6.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
22
23
If to the Company: Procom Technology, Inc.
58 Discovery
Irvine, California 92604
Fax: (949) 261-5481
With a copy to: O'Melveny & Meyers
114 Pacifica
Suite 100
Irvine, California 92618
Attention: Jay Herron
Fax: (949) 737-2300
If to a Purchaser: To the address set forth under such Purchaser's name
on the signature pages hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
6.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
6.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.
6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.10 and may enforce the provisions of such Section
directly against the Company.
6.8 Governing Law. The corporate laws of the State of Texas shall
govern all issues concerning the relative rights of the Company and its
stockholders. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Texas, without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive
23
24
jurisdiction of the state and federal courts sitting in the City of Dallas,
Texas for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
6.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery, exercise and/or
conversion of the Securities, as applicable.
6.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.13 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or
24
25
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate of interest applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
6.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose; provided that the foregoing will not preclude consolidation of separate
proceedings brought by separate Purchasers.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOWS]
25
26
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Procom Technology, Inc.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
27
Montrose Investments Ltd.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Purchase Price: $15,000,000
Face Amount of Debentures
to be acquired: $15,000,000
Warrant Shares subject to
Closing Warrant: 32,916
Address for Notice:
Montrose Investments Ltd.
c/o HBK Investments L.P.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Facsimile No.: (214) 758-1207
Telephone No.: (214) 758-6107
Attn: Jeff Estes and Kim Rozman
With a copy to: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Glen Hettinger
Fax: (214) 939-5849
28
Exhibits:
A Form of Closing Warrant
B Registration Rights Agreement
C Transfer Agent Instructions
D-1 Opinion of O'Melveny & Meyers, L.L.P.
D-2 Opinion of Fred Judd
Schedules:
3.1(a) Subsidiaries
3.1(g) Capitalization
3.1(h) SEC Reports
3.1(m) Liens
3.1(s) Commissions
3.1(w) Registration Rights
3.1(z) Senior Indebtedness