EXHIBIT 4.06
SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "Agreement"),
dated as of March 26, 2002, among DeMarco Energy Systems of America, Inc., a
Utah corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
WHEREAS, the Company, AJW Partners, LLC and New Millennium Capital
Partners II, LLC ("Initial Investors") are parties to that certain Secured
Convertible Debenture Purchase Agreement, dated September 26, 2000, pursuant to
which the Company issued and sold an aggregate principal amount of $1,500,000 of
the Company's 10% Secured Convertible Debentures (the "Initial Transaction");
and
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Rule 506 promulgated thereunder, the Company desires
to issue and sell to the Purchasers and the Purchasers, severally and not
jointly, desire to purchase from the Company, an aggregate principal amount of
$1,000,000 of the Company's 10% Secured Convertible Debentures, due March 25,
2003, which shall be in the form of Exhibit A and which are convertible into
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shares of the Company's common stock, $ .001 par value per share (together with
such securities into which such common stock may hereafter be reclassified, the
"Common Stock").
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
PURCHASE AND SALE
1.1. The Closing
(a) The Closing. (i) Subject to the terms and conditions set
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forth in this Agreement, the closing of the purchase and sale of the debentures
(the "Closing") shall take place at the offices of Robinson Silverman Pearce
Aronsohn & Berman LLP ("Robinson Silverman") 1290 Avenue of the Americas, New
York, New York 10104, immediately following the execution of this Agreement or
such later date or other place as the parties may agree. The date of the Closing
is hereinafter referred to as the "Closing Date."
(ii) At the Closing, the parties shall deliver or shall
cause to be delivered the following: (A) the Company shall deliver to each
Purchaser: (1) 10% Secured Convertible Debentures in the form of Exhibit A
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("Closing Debentures") in the aggregate principal amount indicated below such
Purchaser's name on the signature page to this Agreement for the Closing
Debentures, registered in the name of such Purchaser, (2) the legal opinion of
Locke Liddell & Sapp LLP, outside counsel to the Company, in the form of Exhibit
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B, (3) an executed Registration Rights Agreement, dated the date hereof, among
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the Company and the Purchasers, in the form of Exhibit C (the "Registration
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Rights Agreement"), (4) Transfer Agent Instructions, in the form of Exhibit D,
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delivered to and acknowledged by the Company's transfer agent (the "Transfer
Agent Instructions"), (5) an executed Security Agreement, dated the date hereof,
among the Company and the Purchasers, in the form of Exhibit E (the "Security
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Agreement"), and (6) an executed Intellectual Property Security Agreement, dated
the date hereof, among the Company and the Purchasers, in the form of Exhibit D
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(the "IP Security Agreement"), and (B) each Purchaser will deliver to the
Company: (1) the Closing Debentures indicated below such Purchaser's name on the
signature page to this Agreement in United States dollars in immediately
available funds by wire transfer as designated in writing by the Company for
such purpose, and (2) an executed original of each of the Registration Rights
Agreement, Security Agreement, IP Security Agreement and this Agreement.
(iii) If each of the conditions set forth in Section
1.1(b) have been either satisfied by the Company or waived by each Purchaser,
then promptly (not exceeding five days) after the Effective Date (as defined
herein), (A) the Company will deliver to each Purchaser, 10% Secured Convertible
Debentures in the form of Exhibit A (the "Additional Debentures" and together
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with the Closing Debentures, the "Debentures"), in the aggregate principal
amount indicated below such Purchaser's name on the signature page to this
Agreement for Additional Debentures, registered in the name of such Purchaser,
and (B) each Purchaser will, against delivery of its Additional Debentures,
deliver to the Company, an amount equal to the principal amount of Additional
Debentures indicated below such Purchaser's name on the signature page to this
Agreement in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose.
The date, if any, on which the deliveries contemplated in this paragraph occurs
is the "Additional Funding Date."
(b) Conditions Precedent to the Purchase of Additional
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Debentures. Notwithstanding anything to the contrary contained in this
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Agreement, the obligation of a Purchaser to purchase the securities described in
Section 1.1(a)(iii) above is subject to the satisfaction by the Company of each
of the following conditions:
(i) Accuracy of the Company's Representations and
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Warranties. The representations and warranties of the Company contained in this
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Agreement shall be true and correct as of the date when made and as of the
Additional Funding Date, as though made on and as of the Additional Funding Date
(other than representations and warranties which relate to a specific date
(which shall not include representations and warranties relating to the "date
hereof") which representations and warranties shall be true as of such specific
date).
(ii) Performance by the Company. The Company shall have
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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 Company between the Closing Date and the
Additional Funding Date.
(iii) Underlying Shares Registration Statement. The
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Underlying Shares Registration Statement (as defined herein) shall have been
declared effective under the Securities Act by the Commission and shall have
remained effective (and the prospectus therein shall have remained available for
use by the Purchasers to resell Securities there under) at all times, not
subject to any actual or threatened stop order or subject to any actual or
threatened suspension at any time prior to the Additional Funding Date.
(iv) No Injunction. Since the Closing Date, no statute,
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rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated, amended, modified or endorsed by any court of
governmental authority of competent jurisdiction or governmental authority,
stock market or trading facility which prohibits the consummation of any of the
transactions contemplated by the Transaction Documents.
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(v) Adverse Changes. Since the Closing Date, no event
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or series of events which reasonably would be expected to have or result in a
material adverse effect on the results of operations, assets or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole.
(vi) No Suspensions of Trading in Common Stock. The
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trading in the Common Stock shall not have been suspended by the Commission or
on the OTC Bulletin Board ("OTC") (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company) at any time since the Closing Date.
(vii) Listing of Common Stock. The Common Stock shall
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have been at all times since the Closing Date quoted on the OTC.
(viii) Change of Control. No Change of Control in the
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Company shall have occurred (as defined in the Debentures).
1.2. Certain Defined Terms. For purposes of this Agreement,
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"Conversion Price," "Original Issue Date" and "Trading Day" shall have the
meanings set forth in the Debentures; "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday in the
United States or a day on which banking institutions in the State of New York or
Utah are authorized or required by law or other governmental action to close; A
"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.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Company. The Company
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hereby makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a
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corporation duly incorporated, validly existing and in good standing under the
laws of the State of Utah with the requisite corporate power and authority to
own and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in Schedule
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2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries is an entity,
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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. 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, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Registration Rights Agreement, the
Security Agreement, the IP Security Agreement or the Transfer Agent Instructions
(collectively, the "Transaction Documents"), (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any of the Transaction Documents (any of (x), (y) or (z),
a "Material Adverse Effect").
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(b) Authorization; Enforcement. The Company has the requisite
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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 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. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles of incorporation,
by-laws or other organizational or charter documents.
(c) Capitalization. The number of authorized, issued and
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outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the securities of the Company entitled to preemptive or similar rights
arising out of any agreement or understanding with the Company by virtue of any
of the Transaction Documents. Except as a result of the purchase and sale of the
Debentures and except as disclosed in Schedule 2.1(c), there are no outstanding
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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 Debentures or Underlying Shares (as hereinafter defined) will not obligate
the Company to issue shares of Common Stock or other securities to any person
other than the Purchasers (and other than the Initial Investors under the
Initial Transaction) and will not result in a right of any holder of Company
securities to adjust the exercise or conversion or reset price under such
securities.
(d) Issuance of the Debentures. When issued, the Debentures
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will be duly and validly issued, free and clear of all liens, encumbrances and
rights of first refusal of any kind (including rights of first refusal under the
Initial Transaction which are deemed satisfied with respect to this Agreement)
(collectively, "Liens"). On the date hereof and on the Additional Funding Date,
the Company will have (and will, at all times while Debentures are outstanding,
maintain) an adequate reserve of duly authorized shares of Common Stock,
reserved for issuance to the holders of such Debentures, to enable it to perform
its conversion and other obligations under this Agreement, and the Debentures.
Such number of reserved and available shares of Common Stock is not less than
the sum of 210% of the number of shares of Common Stock which would be issuable
upon conversion in full of the Debentures, assuming such conversion occurred on
the Original Issue Date of the Debentures, the Debentures remain outstanding for
one year and all interest is paid in shares of Common Stock. All such authorized
shares of Common Stock shall be duly reserved for issuance to the holders of the
Debentures. The shares of Common Stock issuable upon conversion of the
Debentures are collectively referred to herein as the "Underlying Shares." The
Debentures and the Underlying Shares are collectively referred to herein as the
"Securities." When issued in accordance with the Debentures, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
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(e) No Conflicts. The execution, delivery and performance of
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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 charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (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 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), as could not, individually or in the aggregate, have or
result in a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority, except for violations which, individually or in the aggregate, could
not have or result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor
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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 pursuant to Section
3.10, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale of the Underlying
Shares by the Purchasers (the "Underlying Shares Registration Statement"), (iii)
applicable Blue Sky filings, and (iv) 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").
(g) Litigation; Proceedings. There is no action, suit,
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inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries 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, 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 thereof, is or has been the subject of any Action involving
(A) a claim of violation of or liability under federal or state securities laws
or (B) 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 has no knowledge of any expected such request that would be made
prior to the Effectiveness Date (as defined in the Registration Rights
Agreement) and there has not been, and to the best of the Company's knowledge
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.
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(h) No Default or Violation. Neither the Company nor any
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Subsidiary: (i) is in default under or in violation of (and no event has
occurred which has not been waived which, 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, (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is in violation of any statute, rule
or regulation of any governmental authority, in each case of clauses (i), (ii)
or (iii) above, except as could not individually or in the aggregate, have or
result in a Material Adverse Effect. The security interests granted to the
Purchasers pursuant to the Security Agreement and Intellectual Property Security
Agreement will convey and grant to the Purchasers a priority security interest
in all of the Collateral (as such term is defined in such agreements) which
security interests shall be pari passu with the security interests created with
respect to the Initial Transaction.
(i) Private Offering. Assuming the accuracy of the
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representations and warranties of the Purchasers set forth in Sections
2.2(b)-(f), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act. Neither the Company nor any Person acting on its behalf has
taken or is, to the knowledge of the Company, contemplating taking any action
which could subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act including soliciting any offer
to buy or sell the Securities by means of any form of general solicitation or
advertising.
(j) SEC Reports; Financial Statements. The Company has filed
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all reports required to be filed by it under the Securities Exchange Act of
1934, as amended (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,
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together with the Schedules to this Agreement, the "Disclosure Materials") on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act 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. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Reports as required under the Exchange Act. 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.
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(k) Material Changes. Since the date of the last audited
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financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (a) there has been no event, occurrence or
development that has or that could result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) 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, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock.
(l) Investment Company. The Company is not, and is not an
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Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(m) Certain Fees. No fees or commissions will be payable by
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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. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(n) Form S-B2 Eligibility. The Company is eligible to register
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for resale under Form S-B2 promulgated under the Securities Act.
(o) Seniority. No indebtedness of the Company is senior to the
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Debentures in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise and all debentures issued to the
Initial Investors under the Initial Transaction shall be ranked pari passu with
any Debentures issued hereunder.
(p) Listing and Maintenance Requirements Compliance. Except as
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set forth in the SEC Reports, the Company has not, in the two years preceding
the date hereof, received notice (written or oral) from any other stock
exchange, market or trading facility on which the Common Stock is or has been
listed (or on which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such exchange, market
or trading facility. 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.
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(q) Patents and Trademarks. The Company and its Subsidiaries
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have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
rights which are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have would 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 its
Subsidiaries violates or infringes upon the rights of any Person. To the best
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.
(r) Registration Rights; Rights of Participation. Except as
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set forth on Schedule 6(b) to the Registration Rights Agreement, the Company has
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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 which has not been satisfied.
Except as set forth on Schedule 6(b) to the Registration Rights Agreement, 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.
(s) Regulatory Permits. The Company and its Subsidiaries
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possess all certificates, authorizations and permits issued by the appropriate
federal, state 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, have or
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(t) Title. The Company and the Subsidiaries do not have title
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to any real property. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and its Subsidiaries are in compliance
and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
(u) Labor Relations. No material labor problem exists or, to
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the knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(v) Disclosure. The Company confirms that neither it nor any
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other Person acting on its behalf has provided any of the Purchasers or its
agents or counsel with any information that constitutes or might constitute
material non-public information. The Company understands and confirms that the
Purchasers shall be relying on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company 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.
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(w) Internal Accounting Controls. The Company and the
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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.
(x) Solvency. Based on the financial condition of the Company
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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 proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its 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).
(y) Application of Takeover Protections. The Company and its
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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.
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2.2. Representations and Warranties of the Purchasers. Each Purchaser
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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
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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, the Registration Rights Agreement, the
Security Agreement and the Intellectual Property Security 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
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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. Such Purchaser does not have any agreement or understanding, directly
or indirectly, with any Person to distribute the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
-----------------
the Securities, it was, and at the date hereof it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Such Purchaser has not been
formed solely for the purpose of acquiring the Securities. Such Purchaser is not
a registered broker-dealer under Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
----------------------------
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
(e) 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 Company's
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 which 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 and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. 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.
10
(f) General Solicitation. Such Purchaser is not purchasing the
--------------------
Securities as a result of or subsequent to 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.
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 this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1. 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 federal and 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, 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. 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 3.1(b), of the following legend on the certificates
evidencing the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
11
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement or grant a security
interest in some or all of the Securities and, if required under the terms of
such arrangement, such Purchaser may transfer pledged or secured Securities to
the pledgees or secured parties. Such a pledge or transfer would not be subject
to approval of the Company and no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
selling stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not contain the
legend set forth above nor any other legend if the conversion of Debentures
occurs at any time while an Underlying Shares Registration Statement is
effective under the Securities Act or the holder is relying on Rule 144
promulgated under the Securities Act ("Rule 144") in connection with the resale
of such Underlying Shares, or in the event there is not an effective Underlying
Shares Registration Statement, and Rule 144 is not then available for resale of
the Underlying Shares, at such time as 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 date that an
Underlying Shares Registration Statement is declared effective by the Commission
(such date, the "Effective Date"). The Company agrees that following the
Effective Date, it will, no later than three (3) Trading Days following the
delivery by a Purchaser to the Company of a certificate or certificates
representing Underlying Shares issued with a restrictive legend, deliver to such
Purchaser certificates representing such Underlying Shares which shall be 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 which
enlarge the restrictions of transfer set forth in this Section.
3.2. Performance of Obligation. The Company acknowledges that the
--------------------------
issuance of Underlying Shares upon conversion of the Debentures 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 Underlying Shares upon conversion of the Debenture
is unconditional and absolute, subject to the limitations set forth in the
Debentures, regardless of the effect of any such dilution.
12
3.3. Furnishing of Information. As long as the Purchasers own
---------------------------
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 Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. 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 Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including causing its attorneys to render and deliver any legal opinion required
in order to permit a Purchaser to receive Underlying Shares free of all
restrictive legends and to subsequently sell Underlying Shares under Rule 144
upon receipt of a notice of an intention to sell or other form of notice having
a similar effect. 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 such requirements.
3.4. 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.
3.5. Increase in Authorized Shares. If on any date the Company would
------------------------------
be, if a notice of conversion were to be delivered on such date, precluded from
issuing 210% of the number of Underlying Shares as would then be issuable upon a
conversion in full of the Debentures (the "Current Required Minimum"), in either
case, due to the unavailability of a sufficient number of authorized but
unissued or reserved shares of Common Stock, then the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's certificate or articles of incorporation to
increase the number of shares of Common Stock which the Company is authorized to
issue to at least such number of shares as reasonably requested by the
Purchasers in order to provide for such number of authorized and unissued shares
of Common Stock to enable the Company to comply with its issuance, conversion
and reservation of shares obligations as set forth in this Agreement and the
Debentures. The sum of (x) the number of shares of Common Stock then outstanding
plus all shares of Common Stock issuable upon exercise of all outstanding
options, warrants and convertible instruments, and (y) the Current Required
Minimum, shall be a reasonable number. In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60th day after
delivery of the proxy materials relating to such meeting and the 90th day after
request by a holder of Securities to issue the number of Underlying Shares in
accordance with the terms hereof) and (c) within five Business Days of obtaining
such stockholder authorization, file an appropriate amendment to the Company's
certificate or articles of incorporation to evidence such increase. Any failure
to amend the Company's Certificate or Articles of Incorporation by the 90th day
following request thereof or date otherwise required shall be a breach of this
provision, even if the Company shall have complied with each other requirement
of this paragraph.
13
3.6. Reservation and Listing of Underlying Shares. (a) The Company
----------------------------------------------
shall: (i) in the time and manner required by any national securities exchange,
market, trading or quotation facility on which the Common Stock is then traded,
prepare and file with such national securities exchange, market, trading or
quotation facility on which the Common Stock is then traded an additional shares
listing application covering a number of shares of Common Stock which is not
less than the Initial Minimum, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on any such national
securities exchange, market or trading or quotation facility on which the Common
Stock is then listed as soon as possible thereafter, and (iii) provide to the
Purchasers evidence of such listing, and the Company shall maintain the listing
of its Common Stock thereon. If the number of Underlying Shares issuable upon
conversion in full of the then outstanding Debentures exceeds 85% of the number
of Underlying Shares previously listed on account thereof with any such required
exchanges, then the Company shall take the necessary actions to immediately list
a number of Underlying Shares as equals no less than the then Current Required
Minimum.
(b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon conversion of the Debentures in full in accordance with
this Agreement, in such amount as may be required to fulfill its obligations in
full under the Transaction Documents, which reserve shall equal no less than the
then Current Required Minimum.
3.7. Conversion Procedures. The Transfer Agent Instructions and
----------------------
Conversion Notice (as defined in the Debentures) set forth the totality of the
procedures with respect to the conversion of the Debentures, including the form
of legal opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be reasonably necessary
to enable the Purchasers to convert their Debentures.
3.8. Conversion Obligations of the Company. The Company shall honor
--------------------------------------
conversions of the Debentures and shall deliver Underlying Shares in accordance
with the respective terms, conditions and time periods set forth in the
Debentures .
3.9. Subsequent Financing; Limitation on Registrations. (a) Subject
--------------------------------------------------
to Section 3.9(c) and (d), from the date hereof through the 90th Trading Day
following the Effective Date, the Company will not: (i) 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) any of its or its Affiliates'
equity or equity equivalent securities (including the issuance of any debt or
other instrument at any time over the life thereof convertible into or
exchangeable for Common Stock (any such offer, sale, grant, disposition or
announcement being referred to as a "Subsequent Placement") or (ii) file a
registration statement (other than on a Form S-8 and pursuant to the
Registration Rights Agreement) with the Commission with respect to any
securities of the Company.
14
(b) Subject to Section 3.9(c) and (d), from the date hereof
until the expiration of the 180th Trading Day after the Effective Date, the
Company shall not, directly or indirectly, effect any Susequent Placement
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 shall 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 sole
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 notify the Company
of their intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Placement substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Placement Notice; provided, that the Company shall provide the Purchasers with a
second Subsequent Placement Notice, and the Purchasers shall again have the
right of first refusal set forth above in this paragraph (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within 45 Trading Days after the date of the initial Subsequent Placement
Notice with the Person (or an Affiliate of such Person) identified in the
Subsequent Placement Notice. If the Purchasers shall indicate a willingness to
provide financing in excess of the amount set forth in the Subsequent Placement
Notice, then each Purchaser shall 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 number of Shares purchased by such Purchaser
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) The restrictive periods set forth in Section 3.9(a) and
(b), shall be extended for the number of Trading Days during such periods in
which: (i) trading in the Common Stock is suspended by any securities exchange
or market or quotation system on which the Common Stock is then listed, or (ii)
the Underlying Shares Registration Statement is not effective, or (iii) the
prospectus included in the Underlying Shares Registration Statement may not be
used by the Purchasers for the resale of Registrable Securities thereunder.
(d) The restrictions contained in Section 3.9(a)(i) and (b)
above, shall not apply to: (i) the granting of options or warrants to employees,
officers and directors of the Company, and the issuance of Common Stock upon
exercise of such options or warrants granted under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) issuances of Common
Stock pursuant to a Strategic Transaction (as defined herein) and (iii)
issuances of Common Stock to the Initial Investors pursuant to the Initial
Transaction. A "Strategic Transaction" shall mean a transaction or relationship
in which the Company issues shares of Common Stock to a Person which is, itself
or through its subsidiaries, an operating company in a business related to the
business of the Company and in which the Company receives material benefits in
addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.
15
3.10. Certain Securities Laws Disclosures; Publicity. The Company
--------------------------------------------------
shall: (i) on the Closing Date, issue a press release reasonably acceptable to
the Purchasers disclosing the transactions contemplated hereby, (ii) file with
the Commission a Report on Form 8-K disclosing the transactions contemplated
hereby within twelve Business Days after the Closing Date, and (iii) timely file
with the Commission a Form D promulgated under the Securities Act. The Company
shall, no less than two Business Days prior to the filing of any disclosure
required by clauses (ii) and (iii) above, provide a copy thereof to the
Purchasers for their review. The Company and the Purchasers shall consult with
each other in issuing any other press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, except that if
such disclosure is required by law or stock market regulation, in which such
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 names of the
Purchasers, or include the names of the Purchasers in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Purchasers, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law or stock market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure.
3.11. Transfer of Intellectual Property Rights. Except in connection
-----------------------------------------
with the sale of all or substantially all of the assets of the Company or
licensing arrangements in the ordinary course of the Company's business, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and it would otherwise lapse if not renewed), without the prior
written consent of the Purchasers.
3.12. 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 payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.
3.13. Reimbursement. If any Purchaser becomes involved in any capacity
-------------
in any action, proceeding or investigation brought by or against any Person,
including stockholders of the Company, solely as a result of acquiring the
Securities under this Agreement, the Company will reimburse such Purchaser for
its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement. The
Company's reimbursement obligation under this Section shall not apply if any
action, proceeding or investigation arises out of or relates to any Purchaser's
gross negligence or willful misconduct.
16
3.14. Shareholders Rights Plan. No claim will be made or enforced by
-------------------------
the Company or any other Person that any Purchaser is an "Acquiring Person"
under any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.
ARTICLE IV
MISCELLANEOUS
4.1. 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 Robinson
Silverman $25,000 (less $5,000 already received) for the preparation and
negotiation of the Transaction Documents. The amount contemplated by the
immediately preceding sentence shall be retained by the Purchasers and shall not
be delivered to the Company at the Closing. Other than the amount contemplated
herein, and except as otherwise set forth in the Registration Rights Agreement,
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 stamp and other taxes and duties
levied in connection with the issuance of the Securities
4.2. Entire Agreement; Amendments. The Transaction Documents,
-------------------------------
together with the Exhibits and Schedules thereto and Transfer Agent
Instructions, 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.
4.3. 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 Business Day, (b) the next Business 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 Business Day
or later than 6:30 p.m. (New York City time) on any Business Day, (c) the
Business 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 addresses for such notices and
communications are those set forth on the signature pages hereof, or such other
address as may be designated in writing hereafter, in the same manner, by such
Person.
17
4.4. 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 both 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 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 accruing to it thereafter.
4.5. 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.
4.6. 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. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7. 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.
4.8. Governing Law; Venue; Waiver of Jury Trial. All questions
-----------------------------------------------
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York, Borough of Manhattan. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such Proceeding
is improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such Proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If either party shall commence a Proceeding to enforce any
provisions of a Transaction Document, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.
18
4.9. Survival. The representations, warranties, agreements and
--------
covenants contained herein shall survive the Closing and the delivery and
conversion of the Debentures.
4.10. 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) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11. Severability. In case any one or more of the provisions of this
------------
Agreement shall 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 which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
4.12. Remedies. In addition to being entitled to exercise all rights
--------
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company 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 its 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.
4.13. Independent Nature of Purchasers' Obligations and Rights. The
----------------------------------------------------------
rights and obligations of each Purchaser under any Transaction Document are
several and not joint with the rights and obligations of the other Purchaser and
a Purchaser shall not be responsible in any way for the performance of the
obligations of the other Purchaser under any Transaction Document. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto shall 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 with respect to
such obligations or the transactions contemplated by the Transaction Documents.
Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation the rights arising out of this Agreement or
out of the other Transaction Documents, and it shall not be necessary for the
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOWS]
19
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
DEMARCO ENERGY SYSTEMS OF AMERICA, INC.
By: /S/ Victor M. DeMarco
-------------------------
Name: Victor M. DeMarco
Title: President/Chief Operating Officer
Address for Notice:
DeMarco Energy Systems of America, Inc.
12885 Hwy 183, STE 108-A
Austin, Texas 78750
Facsimile No.: (512) 335-6380
Attn: Chief Executive Officer
With a Copy to:
Locke Liddell & Sapp LLP
100 Congress Avenue
Suite 300
Austin, Texas 78701
Facsimile No.: (512) 305-4800
Attn: Curtis R. Ashmos, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
AJW PARTNERS, LLC
By: SMS Group, LLC
By: /S/ Corey S. Ribotsky
------------------------
Name: Corey S. Ribotsky
Title: Manager
Aggregate Purchase Price for Closing
Debentures $125,000
Aggregate Purchase Price for Additional
Debentures $53,572
Address for Notice:
AJW Partners, LLC
155 First Street
Suite B
Mineola, New York 11501
Facsimile No.: (516) 739-7115
Attn: Corey S. Ribotsky
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 or (212) 541-1432
Attn: Eric L. Cohen, Esq.
21
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
By: /S/ Glenn A. Arbeitman
-------------------------
Name: Glenn A. Arbeitman
Title: Manager
Aggregate Purchase Price for Closing
Debentures $125,000
Aggregate Purchase Price for Additional
Debentures $53,572
Address for Notice:
New Millennium Capital Partners II, LLC
155 First Street
Suite B
Mineola, New York 11501
Facsimile No.: (516) 739-7115
Attn: Glenn A. Arbeitman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 or (212) 541-1432
Attn: Eric L. Cohen, Esq.
22
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
PEGASUS CAPITAL PARTNERS, LLC
By: /S/ Corey S. Ribotsky
-------------------------
Name: Corey S. Ribotsky
Title: Manager
Aggregate Purchase Price for Closing
Debentures $100,000
Aggregate Purchase Price for Additional
Debentures $42,856
Address for Notice:
Pegasus Capital Partners, LLC
155 First Street
Suite B
Mineola, New York 11501
Facsimile No.: (516) 739-7115
Attn: Corey Ribotsky
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 or (212) 541-1432
Attn: Eric L. Cohen, Esq.
23
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
AJW/NEW MILLENNIUM OFFSHORE LTD.
By: /S/ Corey S. Ribotsky
-------------------------
Name: Corey S. Ribotsky
Title: Manager
Aggregate Purchase Price for Closing
Debentures $350,000
Aggregate Purchase Price for Additional
Debentures $150,000
Address for Notice:
AJW/New Millennium Offshore Ltd.
155 First Street
Suite B
Mineola, New York 11501
Facsimile No.: (516) 739-7115
Attn: Corey Ribotsky
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 or (212) 541-1432
Attn: Eric L. Cohen, Esq.
24
SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
DEMARCO ENERGY SYSTEMS OF AMERICA, INC.
and
THE INVESTORS SIGNATORY HERETO
Dated as of March 26, 2002
25