Exhibit 4.2
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
By and Among
GEM GLOBAL YIELD FUND LIMITED
(the "Purchaser")
and
SURGILIGHT, INC.
(the "Company")
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Dated as of June 30, 2000
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TABLE OF CONTENTS
Page
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Article I Certain Definitions............................... 1
Article II Purchase of Debentures and Warrants............... 5
Article III Representations and Warranties.................... 7
Article IV Other Agreements of the Parties................... 11
Article V [Reserved]........................................ 20
Article VI Termination....................................... 21
Article VII Legal Fees and Default Interest Rate.............. 22
Article VIII Miscellaneous..................................... 22
Exhibit A Form of Convertible Debenture
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Conversion Procedures
Exhibit E Form of Escrow Agreement
Exhibit F Form of Power of Attorney
Exhibit G Form of Legal Opinion
Exhibit H Form of Termination Warrant
Schedule 1 List of Purchasers
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(e) Conflicts
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
Schedule 3.1(h) No Defaults of Violations
Schedule 6.1 Form 8-K Disclosure Obligations
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
THIS AGREEMENT, dated as of June 30, 2000 (this "Agreement"), is by and
among SurgiLight, Inc., a Delaware corporation with its executive offices at
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (the "Company"), and the
purchasers listed on Schedule 1 hereof (each individually, the "Purchaser" and
collectively, the "Purchasers").
WHEREAS, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire the Company's 3% Convertible Debentures, due June
2003 (the "Debentures").
IN CONSIDERATION of the mutual covenants, promises and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
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Section 1.1. Certain Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities by contract or otherwise.
"Agreement" shall mean this Convertible Debenture Purchase Agreement
and the Exhibits and Schedules annexed hereto.
"Business Day" means any day except Saturday, Sunday and any day which
is a legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government actions to close,
between the hours of 9:30 a.m. and 6:00 p.m. New York Time.
"Closing" shall have the meaning set forth in Section 2.2(b).
"Closing Date" shall mean the date of Closing, as set forth in Section
2.2(b).
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder as in effect on the date hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means shares now or hereafter authorized of the class
of common stock, no par value, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Company" shall have the meaning set forth in the introductory
paragraph.
"Debentures" means the 3% Convertible Debentures of the Company, due
June 2003, which are annexed hereto as Exhibit A and made a part hereof.
"Debenture Escrow Shares" shall have the meaning set forth in Section
2.2(c).
"Disclosure Documents" means the disclosure package consisting of the
Company's Annual Report on Form 10-KSB for the fiscal year ended January 31,
1999, the Quarterly Report on Form 10-QSB for the quarter ended April 30, 1999,
the Quarterly Report on Form 10-QSB for the quarter ended July 31, 1999, the
Quarterly Report on Form 10-QSB for the quarter ended October 31, 1999 (each as
filed with the Commission), delivered to the Purchasers in connection with the
offering by the Company of the Debentures and the Schedules to this Agreement
furnished by or on behalf of the Company pursuant to Section 3.1.
"Effective Date" shall have the meaning set forth in Section 2.2(b).
"Escrow Agent" means ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇; Tel: ▇▇▇-▇▇▇-▇▇▇▇; Fax: ▇▇▇-▇▇▇-▇▇▇▇.
"Event of Default" shall have the meaning set forth in the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GEM" means Global Emerging Markets, Ltd. with its registered address
at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇; Phone: ▇▇▇-▇▇▇-▇▇▇▇; Fax:
▇▇▇-▇▇▇-▇▇▇▇.
"▇▇▇▇" means GEM Advisors, Inc., with its registered address at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇; Phone: ▇▇▇-▇▇▇-▇▇▇▇; Fax:
▇▇▇-▇▇▇-▇▇▇▇.
"Indemnified Party" shall have the meaning set forth in Section
4.16(b).
"Indemnifying Party"shall have the meaning set forth in Section
4.16(b).
"KGL" shall have the meaning set forth in Section 4.28.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Limitations on Conversion" shall have the meaning set forth in
Section 4.19.
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"Losses" shall have the meaning set forth in Section 4.16(a).
"Material" shall mean having a financial consequence in excess of
$100,000.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(a).
"Minimum Stock Price" shall have the meaning set forth in Section
5.1(h).
"Minimum Stock Price Determination Date" shall have the meaning set
forth in Section 5.1(h).
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq Stock Market, Inc.(R)
"OTCBB" shall mean the OTC Bulletin Board(R).
"Per Debenture Consideration" shall have the meaning set forth in
Section 2.2(a). "Per Share Market Value" of the Common Stock means on any
particular date (a) the last sale price of shares of Common Stock on such date
or, if no such sale takes place on such date, the last sale price on the most
recent prior date, in each case as officially reported on the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading, or (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange, the closing bid price per share as reported by
Nasdaq, or (c) if the Common Stock is not then listed or admitted to trading on
the Nasdaq, the closing bid price per share of the Common Stock on such date as
reported on the OTCBB or if there is no such price on such date, then the last
bid price on the date nearest preceding such date, or (d) if the Common Stock is
not quoted on the OTCBB, the closing bid price for a share of Common Stock on
such date in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices) or if there is no such price on such date, then
the last bid price on the date nearest preceding such date, or (e) if the Common
Stock is no longer publicly traded, the fair market value of a share of Common
Stock as determined by an Appraiser (as defined in Section 4(c)(iv) of the
Debenture) selected in good faith by the holders of a majority of principal
amount of outstanding Debentures; provided, however, that the Company, after
receipt of the determination by such Appraiser, shall have the right to select
an additional Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
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"Purchase Price" shall have the meaning set forth in Section 2.2(a).
"Purchaser" and "Purchasers" shall have the meaning set forth in the
introductory paragraph.
"Required Approvals" shall have the meaning set forth in Section
3.1(f).
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
"Termination Warrants" means the common stock purchase warrants issued
to the Purchasers and/or their assigns, in the form annexed hereto as Exhibit H.
"Trading Day" means (a) a day on which the Common Stock is quoted on
Nasdaq, the OTCBB or the principal stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not quoted on Nasdaq, the OTCBB or
any stock exchange, a day on which the Common Stock is quoted in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
"Transaction Documents" means this Agreement, the Registration Rights
Agreement annexed hereto as Exhibit C, the Escrow Agreement annexed hereto as
Exhibit E, the Power or Attorney annexed hereto as Exhibit F, and all other
documents, instruments and writings required to have been delivered by the
Company at the Execution Date pursuant to this Agreement.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debenture.
"Warrant" means the common stock purchase warrant issued to the
Purchasers and/or their assigns, in the form annexed hereto as Exhibit B.
"Warrant Escrow Shares" shall have the meaning as set forth in Section
2.2(c).
"Warrant Shares" means the shares of Common Stock for which the
Warrants can be exercised in accordance with the terms hereof and the Warrant.
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ARTICLE II
PURCHASE OF DEBENTURES AND WARRANTS
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Section 2.1. Execution of Documents; Delivery of Termination Warrants.
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(a) As soon as practicable after the execution by all parties (the
"Execution Date") of the Transaction Documents and the execution and delivery by
the Company of the Termination Warrants, the Company shall, in accordance with
the Registration Rights Agreement, file a duly completed registration statement
on the appropriate form with the Commission to register the resale of the
Underlying Shares and the Warrant Shares under the Securities Act.
(b) As consideration for entering into this Agreement, in the event
this Agreement is terminated for any reason pursuant to Section 6.1 herein, (i)
the Company shall pay the Purchasers, within three (e) Business Days of the date
of termination, an aggregate of Two Hundred Thousand Dollars (US$200,000) in
such allocation as set forth in Schedule 1, and (ii) the Purchasers shall retain
the Termination Warrants and any and all rights and privileges thereunder
without condition or obligation to the Company.
Section 2.2. Purchase of Debentures and Delivery of Warrants; Closing.
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(a) Subject to the terms and conditions set forth in this Agreement,
the Company hereby agrees to issue and sell to the Purchasers, and the
Purchasers hereby agree to purchase from the Company on the Closing Date the
amount of Debentures and the number of Warrants listed opposite each of the
Purchasers' names on Schedule 1. The Debentures shall have the respective
rights, preferences and privileges set forth in the form of Debenture annexed as
Exhibit A, at a price per Debenture of One Thousand Dollars (US$1,000) (the "Per
Debenture Consideration"). The Per Debenture Consideration multiplied by the
number of Debentures to be purchased by the Purchasers hereunder is hereinafter
referred to as the "Purchase Price". The total principal amount of Debentures to
be purchased by the Purchasers and the total Purchase Price shall be Three
Million Dollars (US$3,000,000). The Warrants shall have the respective terms and
conditions as set forth in the form of Warrant annexed as Exhibit B.
(b) The closing of the purchase and sale of the Debentures and
issuance of the Warrants (the "Closing") shall take place at the offices of the
Escrow Agent no later than five (5) Business Days after the registration
statement, in accordance with and subject to the Registration Rights Agreement,
the form of which is annexed as Exhibit C, is granted effectiveness by the
Commission, time being of the essence, unless the parties agree in writing to
extend such date. The effective date of the Registration Statement (the
"Effective Date") shall occur no later than one hundred-eighty (180) days after
the Execution Date (unless such day is not a Business Day, then the next
Business Day), unless all of the Purchasers agree in advance in writing to
extend such 180 day period and set forth the new effective date deadline. The
date of the Closing is hereinafter referred to as the "Closing Date".
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(c) At the Closing, the Company shall deliver to the Escrow Agent the
following:
(i) original and duly executed Debentures registered in the names
of the Purchasers in the amounts set forth in Schedule 1;
(ii) original and duly executed Warrants registered in the names
of the Purchasers in the amounts proportionate to the principal amount of
Debentures purchased by each Purchaser as set forth in Schedule 1;
(iii) The number of shares of duly issued Common Stock of the
Company equal to four (4) times the number of shares of Common Stock otherwise
issuable as if the Debentures were converted in their entirety on the Closing
Date, in share denominations of ten thousand (10,000) shares registered in the
name of each of the Purchasers in the amounts proportionate to the principal
amount of Debentures purchased by each Purchaser set forth in Schedule 1 for use
in the conversion of the Debentures (the "Debenture Escrow Shares");
(iv) The number of shares of duly issued Common Stock of the
Company equal to four (4) times the number of shares of Common Stock otherwise
issuable as if the Warrants were exercised in their entirety on the Closing Date
in share denominations of ten thousand (10,000) shares registered in the name of
each of the Purchasers in the amounts proportionate to the principal amount of
Debentures purchased by each Purchaser set forth in Schedule 1 for use in the
exercise of the Warrants (the "Warrant Escrow Shares"); the legal opinion in
substantially the form annexed hereto as Exhibit G, addressed to the Purchasers
and dated the Closing Date from the Counsel for the Company;
(vi) a certificate, dated the Closing Date, signed by the
Secretary or an Assistant Secretary of the Company and certifying (i) that
attached thereto is a true, correct and complete copy of (A) the Company's
Articles of Incorporation, as amended to the date thereof, (B) the Company's
By-Laws, as amended to the date thereof, (C) resolutions duly adopted by the
Board of Directors of the Company authorizing the execution and delivery of this
Agreement, the issuance and sale of the Debentures, Warrants and the Underlying
Shares and the appointment of the Attorney-in-Fact pursuant to Section 4.15
attached hereto as Exhibit F, and (D) a certificate of good standing from the
Secretary of State of Colorado and (ii) the incumbency of officers executing
this Agreement;
(vii) a certificate, dated the Closing Date, signed by the
President, certifying that the Company's representations and warranties in
Article III are true and correct in all material respects on the Closing Date.
(viii) all other documents, instruments and writings required to
have been delivered or necessary at or prior to Closing by the Company pursuant
to this Agreement.
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(d) Upon receipt by the Escrow Agent of those items set forth above,
the Purchasers shall deliver the following to the Escrow Agent:
(i) the Purchase Price in United States dollars in immediately
available funds by wire transfer to an account designated in writing by the
Escrow Agent prior to the Closing;
(ii) the Termination Warrants; and
(iii) all documents, instruments, and writings required to have
been delivered or necessary at or prior to Closing by the Purchasers pursuant to
this Agreement.
(e) Upon receipt of all of the items set forth in subparagraphs (c)
and (d) of this Section, the Escrow Agent shall deliver the Purchase Price, less
the fees set forth in Section 4.28 to the Company in accordance with its written
instructions, and shall deliver the items set forth in subparagraph (c), with
the exception of the Debenture Escrow Shares and Warrant Escrow Shares which
shall be held in accordance with the terms of this Agreement, the Debenture and
the Escrow Agreement, to the Purchasers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Section 3.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers as follows, all of which
survive Closing:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, 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 3.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the full corporate 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
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 reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
(a) the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, or (b) the Purchasers' rights under this
Agreement, the Escrow Agreement, the Debenture and the Warrants (a "Material
Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
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consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. (c)......Capitalization. The authorized, issued and
outstanding capital stock of the Company and each of the Subsidiaries is set
forth in Schedule 3.1(c). No shares of Common Stock are entitled to preemptive
or similar rights. Except as specifically set forth in Schedule 3.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Debentures hereunder, 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.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective articles of incorporation, bylaws or other charter documents
or resolutions.
(d) Issuance of Debentures and Warrants. The Debentures and Warrants
have been duly and validly authorized for issuance, offer and sale pursuant to
this Agreement and, when issued and delivered as provided hereunder against
payment in accordance with the terms hereof, shall be valid and binding
obligations of the Company enforceable in accordance with their terms. The
Company has and at all times while the Debentures and Warrants are outstanding
has and will continue to maintain an adequate reserve of shares of Common Stock
to enable it to perform its obligations under this Agreement, the Debentures and
Warrants. When issued in accordance with the terms hereof and the Debentures and
the Warrants, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable. There are not outstanding any equity or equity
equivalent security substantially similar to the Debentures, including any
security with a floating conversion price substantially similar to the
Debentures.
(e) No Conflicts. Except as set forth in Schedule 3.1(e), the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its or its
Subsidiaries' articles of incorporation, resolutions or bylaws or (ii) be
subject to obtaining the consents referred to in Section 3.1(f), 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 of, any agreement, indenture or
instrument to which the Company is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including Federal and State securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults, terminations,
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amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have 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.
(f) Consents and Approvals. Except as set forth in Schedule 3.1(f),
neither the Company nor any Subsidiary is required to obtain any consent,
permit, waiver, authorization or order of, 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 this Agreement, other than the applicable filings under State and
federal securities laws (collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as set forth in Schedule 3.1(g),
there is no action, suit, notice of violation, proceeding, inquiry or
investigation pending or threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, State,
county, local or foreign) which (i) relates to or challenges the legality,
validity or timely enforceability of this Agreement or the Debentures and
Warrants, (ii) could, individually or in the aggregate, have a Material Adverse
Effect or (iii) could, individually or in the aggregate, materially impair the
ability of the Company to perform fully on a timely basis its obligations under
this Agreement.
(h) No Default or Violation. Except as set forth in Schedule 3.1(h),
neither the Company nor any Subsidiary (i) is in default under or 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, except
such conflicts or defaults as do not have a Material Adverse Effect, (ii) is in
violation of any order of any court, arbitrator or governmental body, except for
such violations as do not have a Material Adverse Effect, or (iii) is in
violation of any statute, rule or regulation of any governmental authority which
could (individually or in the aggregate) (x) adversely affect the legality,
validity or enforceability of this Agreement, (y) have a Material Adverse Effect
or (z) adversely impair the Company's ability or obligation to perform fully on
a timely basis its obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the Company
to any investment banker, broker, placement agent or bank with respect to the
consummation of the transactions contemplated hereby except as provided in
Section 4.28.
(j) Disclosure Documents. The Disclosure Documents are accurate in all
material respects 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.
(k) Reporting Company. The Company's Common Stock is registered under
the Exchange Act, the Company is subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act, and the Company is current in
its reporting requirements.
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Each of the Purchasers acknowledge and agree that the Company makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Section 3.1 herein.
Section 3.2. Representations and Warranties of the Purchasers. The
Purchasers hereby represent and warrant to the Company as follows:
(a) Organization and Qualification. Each of the Purchasers is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation.
(b) Authorization; Enforcement. Each of the Purchasers has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
purchase of the Debentures and the Warrants by the Purchasers hereunder have
been duly authorized by all necessary action on the part of each of the
Purchasers. This Agreement has been duly executed and delivered by each of the
Purchasers or on its behalf and constitutes the valid and legally binding
obligation of the Purchasers, enforceable against each of the Purchasers in
accordance with its terms; except as such enforceability may be limited by
applicable bankruptcy, insolvency, liquidation, fraudulent transfer,
reorganization, moratorium and remedies or by other equitable principles of
general application or similar laws relating to or affecting generally the
enforcement of creditors' rights.
(c) Investment Intent. Each Purchaser is acquiring the Debentures,
Warrants, Underlying Shares and the Warrant Shares for its own account for
investment purposes only and not with a view to or for distributing or reselling
such Debentures, Warrants, Underlying Shares or Warrant Shares or any part
thereof or interest therein, without prejudice, however, to the Purchasers'
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Debentures, Warrants, Underlying
Shares or Warrant Shares in compliance with applicable federal and State
securities laws.
(d) Purchasers' Status. At the time each of the Purchasers was offered
the Debentures and/or the Warrants, it was, and at the date hereof, it is, and
at the Closing Date, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(e) Experience of Purchasers. Each of the Purchasers, 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 Debentures, and has so
evaluated the merits and risks of such investment.
(f) Ability of Purchaser to Bear Risk of Investment. Each of the
Purchasers is able to bear the economic risk of an investment in the Debentures
and, at the present time, is able to afford a complete loss of such investment.
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(g) Prohibited Transactions. The Debentures to be purchased by each of
the Purchasers are not being acquired, directly or indirectly, with the assets
of any "employee benefit plan", within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(h) Access to Information. Each of the Purchasers acknowledges receipt
of the Disclosure Documents and further acknowledges that it 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 Debentures and the Warrants and the merits and
risks of investing in the Debentures and the Warrants; (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 in the Debentures and the Warrants; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire which is necessary to make an informed investment decision with
respect to the Debentures and the Warrants.
(i) Reliance. Each of the Purchasers understands and acknowledges that
(i) the Debentures and the Warrants are being offered and sold, and the
Underlying Shares and Warrant Shares are being offered, to it without
registration under the Securities Act in a transaction that is exempt from the
registration provisions of the Securities Act and (ii) the availability of such
exemption, depends in part on, and that the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and each of the Purchasers
hereby consents to such reliance.
(j) Corporate Domicile. Each of the Purchasers is a foreign
corporation and has its residence or corporate domicile outside the United
States.
(k) Current Funds. Purchasers have, and will have at Closing, readily
available the current funds required to purchase the Debentures.
The Company acknowledges and agrees that each of the Purchasers makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Section 3.2 herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
Section 4.1. Manner of Offering. The Debentures and Warrants are being
issued pursuant to Rule 506 of Regulation D of the Securities Act. The
Debentures, Warrants, Underlying Shares and the Warrant Shares will bear
restrictions on transfer, and will carry a restrictive legend with respect to
the exemption from registration under the Securities Act. The transfer and
resale of the Debentures, the Warrants and the Underlying Shares may be made
only pursuant to registration under the Securities Act or an exemption from such
registration.
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Section 4.2. Furnishing of Information. As long as each of the Purchasers
owns Debentures, the Warrants, Underlying Shares or the Warrant Shares, the
Company will furnish to it, promptly after they have been prepared all annual,
quarterly reports and other reports and filings required by Section 13(a) or
15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall on a continuing
basis (i) advise each of the Purchasers promptly after obtaining knowledge
thereof, and, if requested by any of the Purchasers, confirm such advice in
writing, of (A) the issuance by any State securities commission of any stop
order suspending the qualification or exemption from qualification of the
Debentures, the Warrants the Underlying Shares or the Warrant Shares for
offering or sale in any jurisdiction, or the initiation of any proceeding for
such purpose by any State securities commission or other regulatory authority,
or (B) any event that makes any statement of a material fact made in the
Disclosure Documents untrue or that requires the making of any additions to or
changes in the Disclosure Documents in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading, (ii)
use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption from qualification of the Debentures,
the Underlying Shares or the Warrant Shares under any State securities or Blue
Sky laws, and (iii) if at any time any State securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Debentures, the Warrants or the Common Stock
under any such laws, use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.
Section 4.4. Copies and Use of Disclosure Documents. The Company shall
furnish each of the Purchasers, without charge, as many copies of the Disclosure
Documents, and any amendments or supplements thereto, as each of the Purchasers
may reasonably request. The Company consents to the use of the Disclosure
Documents, and any amendments and supplements thereto, by each of the Purchasers
in connection with resales of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares other than pursuant to an effective registration statement.
Section 4.5. Modification to Disclosure Documents. If any event shall occur
as a result of which, in the reasonable judgment of the Company or any of the
Purchasers, it becomes necessary or advisable to amend or supplement the
Disclosure Documents in order to make the statements therein, in the light of
the circumstances at the time the Disclosure Documents were delivered to any of
the Purchasers, not misleading, or if it is necessary to amend or supplement the
Disclosure Documents to comply with applicable law, the Company shall promptly
prepare an appropriate amendment or supplement to the Disclosure Documents (in
form and substance reasonably satisfactory to both the Purchasers and Company)
so that (i) as so amended or supplemented the Disclosure Documents will not
include an untrue statement of material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to any of the Purchasers, not
misleading and (ii) the Disclosure Documents will comply with applicable law.
Section 4.6. [Reserved].
12
Section 4.7. Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate 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
Debentures, the Warrants, Underlying Shares, or the Warrant Shares in a manner
that would require the registration under the Securities Act of the sale of the
Debentures and the Warrants to the Purchasers.
Section 4.8. Furnishing of Rule 144A Materials. The Company shall, for so
long as any of the Debentures, the Warrants, Underlying Shares or Warrant Shares
remain outstanding and during any period in which it is not subject to Section
13 or 15(d) of the Exchange Act, make available to any registered holder of
Debentures, the Warrants, Underlying Shares or Warrant Shares in connection with
any sale thereof and any prospective purchaser of such Debentures, Warrants,
Underlying Shares or Warrant Shares from such Person, the following information
in accordance with Rule 144A(d)(4) under the Securities Act: a brief statement
of the nature of the business of the Company and the products and services it
offers and the Company's most recent audited balance sheet and profit and loss
and retained earnings statements, and similar audited financial statements for
such part of the two preceding fiscal years as the Company has been in
operation.
. Section 4.9. Solicitation Materials. The Company shall not (i) distribute
any offering materials in connection with the offering and sale of the
Debentures, the Warrants, Underlying Shares or Warrant Shares other than the
Disclosure Documents and any amendments and supplements thereto prepared in
compliance herewith or (ii) solicit any offer to buy or sell the Debentures, the
Warrants, Underlying Shares or Warrant Shares by means of any form of general
solicitation or advertising.
Section 4.10 Subsequent Financial Statements. The Company shall furnish to
the Purchasers, promptly after they are filed with the Commission, a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Documents until the earlier of
the full conversion of the Debentures or the Maturity Date of the Debentures.
Section 4.11. Prohibition on Certain Actions. From the date hereof through
the Closing Date, the Company shall not and shall cause the Subsidiaries not to,
without the prior written consent of the Purchasers, (i) amend its Articles of
Incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Purchasers; (ii) split, combine or reclassify its outstanding
capital stock; (iii) declare, authorize, set aside or pay any dividend or other
distribution with respect to the Common Stock; (iv) redeem, repurchase or offer
to repurchase or otherwise acquire shares of its Common Stock; or (v) enter into
any agreement with respect to any of the foregoing.
Section 4.12. Listing of Common Stock. The Company shall use its best
efforts to maintain the quote for its Common Stock on the OTCBB (or listing on a
national securities exchange or market on which the Common Stock is listed)
during the period that the Debentures may be converted hereunder by the
Purchasers or the Warrants may be exercised, and shall provide to the Purchasers
evidence of such listing.
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Section 4.13. Escrow. The Company and the Purchasers agree to enter into,
simultaneous with the execution of this Agreement, the escrow agreement attached
hereto and made part hereof as Exhibit E (the "Escrow Agreement").
Section 4.14. Conversion and Exercise Procedures and Maintenance of
Escrowed Shares for Conversions and Exercises. Exhibit D attached hereto and
made a part hereof sets forth the procedures with respect to the conversion of
the Debentures and the exercise of the Warrants, including the forms of Notice
of Conversion and Notice of Exercise to be provided upon conversion or exercise,
instructions as to the procedures for conversion or exercise, the form of legal
opinion, if necessary, that shall be rendered to the Company and such other
information and instructions as may be reasonably necessary to enable any of the
Purchasers to exercise its right of conversion or exercise smoothly and
expeditiously. The Company agrees that, at any time the conversion price of the
Debentures is such that the number of Debenture Escrow Shares is less than 200%
of the number of shares of Common Stock that would be needed to satisfy full
conversion of all of the Debentures given the then current conversion price (the
"Full Conversion Shares"), upon ten (10) Business Days written notice of such
circumstance to the Company by the Purchasers and/or Escrow Agent, it will issue
additional share certificates in the names of each of the Purchasers in
denominations of 10,000 shares, and deliver same to the Escrow Agent, such that
the new number of Debenture Escrow Shares is equal to 200% of the Full
Conversion Shares.
Section 4.15 Attorney-in-Fact. To effectuate the terms and provisions of
this Agreement, the Escrow Agreement, the Debenture and the Warrants, the
Company hereby agrees to give a power of attorney as is evidenced by Exhibit F
attached hereto. All acts done under such power of attorney are hereby ratified
and approved and neither the Attorney-in-Fact nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law, as long as the Attorney-in-Fact is
operating within the scope of the power of attorney and this Agreement and its
exhibits. The power of attorney being coupled with an interest shall be
irrevocable while any amount of the Debenture remains unpaid, any amount of the
Warrants remain unexercised or any portion of this Agreement or the Escrow
Agreement remains unsatisfied. In addition, the Company shall give the
Attorney-in-Fact a corporate resolution executed by the Board of Directors of
the Company which authorizes future issuances of the Underlying Shares for the
Debentures, and which resolution states that it is irrevocable while any amount
of the Debenture remains unpaid, any amount of the Warrants remain unexercised
or any portion of this Agreement or the Escrow Agreement remains unsatisfied.
Section 4.16 Indemnification.
(a) Indemnification.
(i) The Company shall, notwithstanding termination of this
Agreement and without limitation as to time, indemnify and hold harmless GEM,
▇▇▇▇ and each Purchaser, their respective officers, directors, agents and
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employees of each of them, each Person who controls GEM, ▇▇▇▇ or each such
Purchaser (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) and the officers, directors, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable law, from
and against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of, or relating to, a breach
or breaches of any representation, warranty, covenant or agreement by the
Company under this Agreement, the other Transaction Documents, the Debentures or
the Warrants.
Each Purchaser, severally and not jointly, shall
notwithstanding termination of this Agreement and without limitation
as to time, indemnify and hold harmless the Company, its officers,
directors, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act of Section 20
of the Exchange Act) and the officers, directors, agents and employees
of each such controlling Person, to the fullest extent permitted by
application law, from and against any and all Losses, as incurred,
arising out of, or relating to, a breach or breaches of any
representation, warranty, covenant or agreement by such Purchaser
under this Agreement, the other Transaction Documents, the Debentures
or the Warrants.
(b) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense of the
claim against the Indemnified Party but will retain the right to control the
overall Proceedings out of which the claim arose and such counsel employed by
15
the Indemnified Party shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party to which the
Indemnified Party is entitled hereunder (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section) shall be paid to
the Indemnified Party, as incurred, within ten (10) Business Days of written
notice thereof to the Indemnifying Party.
No right of indemnification under this Section 4.16 shall be available
as to a particular Indemnified Party if there is a non-appealable final judicial
determination that such Losses arise solely out of the negligence or bad faith
of such Indemnified Party in performing the obligations of such Indemnified
Party under this Agreement or a breach by such Indemnified Party of its
obligations under this Agreement.
(c) Contribution. If a claim for indemnification under Section 4.16(a)
is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section 4.16
would apply by its terms (other than by reason of exceptions provided in this
Section 4.16(c)), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other and the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether there was
a judicial determination that such Losses arise in part out of the negligence or
bad faith of the Indemnified Party in performing the obligations of such
Indemnified Party under this Agreement or the Indemnified Party's breach of its
obligations under this Agreement. The amount paid or payable by a party as a
result of any Losses shall be deemed to include any attorneys' or other fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party.
(d) Nonexclusive. The indemnity and contribution agreements contained
in this Section are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
Section 4.17 Exclusivity. For a period of one (1) year from the date of
this Agreement, the Company shall not offer or issue any equity or equity
equivalent securities substantially similar to the Debentures, including any
security with a floating conversion price substantially similar to the
Debentures.
16
Section 4.18 Blue Sky Qualification. In accordance with the Registration
Rights Agreement annexed hereto as Exhibit C, the Company shall qualify the
Underlying Shares and the Warrant Shares under the securities or Blue Sky laws
of such jurisdictions as any of the Purchasers may reasonably request and shall
continue such qualification at all times through the second anniversary of the
last Closing Date; provided, however, that neither the Company nor its
Subsidiaries shall be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified or to take any action that would
subject the Company to general service of process in any such jurisdiction where
it is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
Section 4.19 Purchasers' Ownership of Common Stock. In addition to and not
in lieu of the limitations on conversion set forth in the Debentures, the
conversion and exercise rights of each of the Purchasers set forth in the
Debentures and the Warrants, as applicable, shall be limited, solely to the
extent required, from time to time, such that, unless each of the Purchasers
give written notice 75 days in advance to the Company of their intention to
exceed the Limitation on Conversions as defined herein, with respect to all or a
specified amount of the Debentures and the corresponding number of the
Underlying Shares, in no instance shall the maximum number of shares of Common
Stock which the Purchasers (singularly, together with any Persons who in the
determination of such Purchasers, together with such Purchasers, constitute a
group as defined in Rule 13d-5 of the Exchange Act) may receive in respect of
any conversion of the Debentures, or exercise of the Warrants, exceed, at any
one time, an amount equal to the remainder of (i) 4.99% of the then issued and
outstanding shares of Common Stock of the Company following such conversion or
exercise minus (ii) the number of shares of Common Stock of the Company then
owned by any of the Purchasers (including any shares of Common Stock deemed
beneficially owned due to ownership of the Debentures and Warrants) (the
foregoing being herein referred to as the "Limitation on Conversion"); provided,
however, that the Limitation on Conversion shall not apply to any forced or
automatic conversion by the Company pursuant to Section 4(i) and Section 5 of
the Debentures and, provided, further, that if ten (10) Business Days have
elapsed since any of the Purchasers shall have declared an Event of Default (as
that term is defined in the Debenture) and the Company shall not have cured such
Event of Default, the provisions of this Section 4.19 shall be null and void
from and after such date. The Company shall, promptly upon its receipt of a
notice of conversion tendered by any of the Purchasers (or its sole designee)
under the Debentures, as applicable, and upon its receipt of a notice of
exercise under the terms of the Warrants, notify such Purchaser by telephone and
by facsimile of the number of shares of Common Stock outstanding on such date
and the number of Underlying Shares which would be issuable to such Purchaser
(or its sole designee, as the case may be) if the conversion requested in such
notice of conversion or exercise requested in such notice of exercise were
effected in full, whereupon, notwithstanding anything to the contrary set forth
in the Debentures or the Warrants, such Purchaser may within one (1) Business
Day of its receipt of the Company notice required by this Section 4.19 by
facsimile revoke such conversion or exercise to the extent (in whole or in part)
that it determines that such conversion or exercise would result in such
Purchaser owning shares of Common Stock in excess of the Limitation on
Conversion.
17
Section 4.20 Purchasers' Rights if Trading in Common Stock is Suspended. In
the event that at any time after the Closing and during the period when the
Registration Statement is to remain effective under the Securities Act in
accordance with the Registration Rights Agreement, trading in the shares of the
Common Stock is suspended (and not reinstated within ten (10) Trading Days) on
such stock exchange or market upon which the Common Stock shall then be listed
for trading (other than as a result of the suspension of trading in securities
on such market generally or temporary suspensions pending the release of
material information), or the Common Stock is deleted from the OTCBB (and not
reinstated within ten (10) Trading Days), then, at any of the Purchasers' option
exercisable by written notice to the Company, the Company shall redeem, as
applicable, all of the Debentures, Warrants, Underlying Shares and Warrant
Shares owned by such Purchaser at an aggregate purchase price equal to the sum
of:
(i) the product of (1) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (a) the day of such notice, (b) the
date of payment in full of the repurchase price calculated under this Section
4.20, or (c) the day when the Common Stock was suspended, delisted or deleted
from trading, whichever is greater, multiplied by (2) the aggregate number of
Underlying Shares and Warrant Shares owned by such Purchaser;
(ii) the greater of (A) the outstanding principal amount and
accrued and unpaid interest on the Debentures owned by such Purchaser and (B)
the product of (1) the average Per Share Market Value for the five (5) Trading
Days immediately preceding (a) the day of such notice, (b) the date of payment
in full of the repurchase price calculated under this Section 4.20, or (c) the
day when the Common Stock was suspended, delisted or deleted from trading,
whichever is greater, multiplied by (2) the aggregate number of Underlying
Shares issuable upon the conversion of the outstanding Debentures owned by the
Purchaser;
(iii) the product of (A) the difference, but not below zero,
between (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (a) the day of such notice, (b) the date of payment in
full of the repurchase price calculated under this Section 4.20, or (c) the day
when the Common Stock was suspended, delisted or deleted from trading, whichever
is greater, and (2) the then-current exercise price of the Warrant, multiplied
by (B) the number of Warrant Shares issuable upon exercise of the Warrant owned
by the Purchaser; and
(iv) interest on such amounts set forth in (i) - (iii) above
accruing from the seventh (7th) day after such notice until the repurchase price
under this Section 4.20 is paid in full, at the rate of fifteen percent (15%)
per annum.
Section 4.21 No Violation of Applicable Law. Notwithstanding any provision
of this Agreement to the contrary, if the redemption of the Debentures, the
Warrants, the Underlying Shares or the Warrant Shares otherwise required under
this Agreement, the Debenture, the Warrant, or the Registration Rights Agreement
would be prohibited by the relevant provisions of Delaware law, such redemption
shall be effected as soon as it is permitted under such law; provided, however,
that interest payable by the Company with respect to any such redemption shall
continue to accrue in accordance with Section 4.20.
18
Section 4.22 Redemption Restrictions. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of Debentures, the Warrants,
Underlying Shares or the Warrant Shares otherwise required under this Agreement,
the Debenture, the Warrant, or the Registration Rights Agreement would be
prohibited in the absence of consent from any lender of the Company or any of
the Subsidiaries, or by the holders of any class of securities of the Company,
the Company shall use its best efforts to obtain such consent as promptly as
practicable after the redemption is required. Interest payable by the Company
with respect to any such redemption shall continue to accrue in accordance with
Section 4.20 until such consent is obtained. Nothing contained in this Section
4.22 shall be construed as a waiver by any of the Purchasers of any rights it
may have by virtue of any breach of any representation or warranty of the
Company herein as to the absence of any requirement to obtain any such consent.
Section 4.23 No Other Registration Rights. During the period commencing the
date hereof and ending on the earlier to occur of (i) the one year anniversary
of the Closing and (ii) the date the Registration Statement required to be filed
by the Company in accordance with the Registration Rights Agreement is declared
effective under the Securities Act by the Commission, the Company may not file
any registration statement that provides for the registration of shares of
Common Stock to be sold by other shareholders of the Company without the prior
written consent of the Purchasers or their assigns. Such registration rights
shall not apply to registration statements relating solely to (i) employee
benefit plans notwithstanding the inclusion of a resale prospectus for
securities received under such employee benefit plan, or (ii) business
combinations.
Section 4.24. Merger or Consolidation. Until the earlier of the full
conversion of the Debentures or the Maturity Date of the Debentures (as that
term is defined in the Debenture), the Company and each Subsidiary will not, in
a single transaction or a series of related transactions, (i) consolidate with
or merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless (w) either (A) the Company shall be
the survivor of such merger or consolidation or (B) the surviving Person shall
expressly assume by supplemental agreement all of the obligations of the Company
under the Debentures and the Warrants and this Agreement; (x) immediately before
and immediately after giving effect to such transaction (including any
indebtedness incurred or anticipated to be incurred in connection with the
transaction), no Default or Event of Default shall have occurred and be
continuing; (y) if the Company is not the surviving entity, such surviving
entity's common shares shall be listed on either The New York Stock Exchange,
American Stock Exchange, or Nasdaq National Market or Nasdaq SmallCap Market and
(z) the Company has delivered to the Purchasers an officers' certificate and
opinion of counsel, each stating that such consolidation, merger or transfer
complies with this Agreement, that the surviving Person agrees to be bound
thereby and that all conditions precedent in this Agreement relating to such
transactions have been satisfied.
Section 4.25 Registration of Underlying Shares and Warrant Shares. Pursuant
to the terms of the Registration Rights Agreement between the Company and the
Purchasers, the Company shall cause the Underlying Shares and Warrant Shares to
19
be registered under the Securities Act, and so long as any Debentures remain
outstanding or any Warrants remain unexercised, the Company agrees to keep such
registration current with the Commission and with such states of the United
States as the Holders (as that term is defined in the Debenture) of the
Debenture or Warrants shall reasonably request in writing. All costs and
expenses of registration shall be borne by the Company.
Section 4.26 Liquidated Damages. The Company understands and agrees that an
Event of Default as contained in this Agreement, the Transaction Documents
and/or the Debenture will result in substantial economic loss to the Purchasers
which will be extremely difficult to calculate with precision. Therefore, after
the Closing, if for any reason the Company fails to cure any Event of Default
within the time given to cure such Event of Default, if any, as compensation and
liquidated damages for such default, and not as a penalty, the Company agrees to
pay liquidated damages to the Purchasers in an amount equal to the two times
(2x) the Purchase Price. The Company shall upon demand pay the Purchasers, such
liquidated damages by wire transfer in immediately available funds to an account
designated by the Purchasers. Nothing herein shall limit the right of any of the
Purchasers to pursue actual damages (less the amount of any liquidated damages
received pursuant to the foregoing) for the Company's failure to cure an Event
of Default, consistent with the terms of this Agreement. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE COMPANY'S OBLIGATIONS
UNDER THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
Section 4.27 Selling Restrictions; Short Sales. On any day, each Purchaser
shall not sell Debenture Shares and Warrant Shares which in the aggregate for
such Purchaser on such day exceeds fifteen percent (15%) of the average of the
Common Stock's previous five (5) Trading Days' daily trading volume. The
Purchaser shall not use shares issued upon conversion of the Debentures to cover
any short sale by the Purchaser of the Company's Common Stock.
Section 4.28. Fees. The Company will pay the following fees and expenses in
connection with this transaction: (a) US$15,000 to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇,
LLP ("KGL") for document production fees, receipt of which is acknowledged, (b)
$500 to KGL for expenses, receipt of which is acknowledged, (c) US$5,000 to KGL
as escrow agent fee, and (d) a commission to ▇▇▇▇ equal to three percent (3%) of
the Purchase Price. All fees and expenses will be paid at Closing and the Escrow
Agent shall deduct such fees and expenses directly from escrow.
Section 4.29. Additional Fees. If the Company or any of its Affiliates
enters into any future financing with any Purchaser within a period of one (1)
year from the date hereof, the Company agrees to pay to GEM or ▇▇▇▇,
respectively, simultaneously with the closing of such financing and amount equal
to three percent (3%) of the aggregate amount of the portion of such financing
purchased by or for the account of such Person.
ARTICLE V
[RESERVED]
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ARTICLE VI
TERMINATION
-----------
Section 6.1. Termination by the Company or the Purchasers. This Agreement
shall be automatically terminated prior to Closing if:
(a) there shall be in effect any statute, rule, law or regulation,
including an amendment to Regulation D or an interpretive release promulgated or
issued thereunder, that prohibits the consummation of the Closing or if the
consummation of the Closing would violate any non-appealable final judgment,
order, decree, ruling or injunction of any court of or governmental authority
having competent jurisdiction;
(b) the Closing shall not have occurred by 5:30 Eastern Time one
hundred-eighty (180) days after the Execution Date (unless such day is not a
Business Day, then the next Business Day);
(c) the Company's Common Stock is not registered under Section 12 of
the Exchange Act;
(d) the Company is not current in its reporting obligations under
Section 13 or 15(d) of the Exchange Act;
(e) an event occurs prior to the Closing requiring the Company to
report such event to the SEC on Form 8-K and not otherwise set forth in Schedule
6.1 provided however such events shall only include the following items under
Form 8-K: Item 1; Item 2; Item 3; or Item 4 (however, as to Item 4, only if
requiring disclosure under Item 304 (a)(1)(iv) under Regulation on S-K); or
trading in the Common Stock has been suspended, delisted, or otherwise ceased by
the Commission or the NASD or other exchange or market on which the Common Stock
is listed or quoted (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the Company)
and not reinstated within ten (10) Trading Days.
Section 6.2 Termination by the Company. This Agreement may be terminated
prior to Closing by the Company, by giving written notice of such termination to
the Purchasers, if any of the Purchasers have materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
the Registration Rights Agreement and such breach is not cured within ten (10)
Business Days following receipt by such Purchaser of notice of such breach and
the other Purchasers decline to be substituted for the breaching Purchaser's
investment.
21
ARTICLE VII
LEGAL FEES AND DEFAULT INTEREST RATE
------------------------------------
In the event any Party commences legal action to enforce its rights under
this Agreement, the Debentures, the Warrants or the Escrow Agreement, the
non-prevailing party shall pay all reasonable costs and expenses (including but
not limited to reasonable attorney's fees, accountant's fees, appraiser's fees
and investigative fees) incurred in enforcing such rights. In the event of an
uncured Default by any party hereunder, interest shall accrue on all unpaid
amounts due the aggrieved party at the rate of 15% per annum, compounded
annually.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1 Fees and Expenses. Except as set forth above, 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 the fees of the Escrow Agent and all stamp and other taxes
and duties levied in connection with the issuance of the Debentures and Warrants
(and upon conversion or exercise thereof, the Underlying Shares and Warrant
Shares) pursuant hereto. Each of the Purchasers shall be responsible for its own
tax liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company shall pay (i) all costs, expenses, fees and all taxes incident to
and in connection with: (A) the preparation, printing and distribution of the
Registration Statement and all amendments and supplements thereto (including,
without limitation, financial statements and exhibits), and all preliminary and
final Blue Sky memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith, (B) the issuance
and delivery of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and the Warrant Shares, (C) the exemption from
registration of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares for offer and sale to the
Purchasers under the securities or Blue Sky laws of the applicable jurisdiction,
(D) furnishing such copies of the Registration Statement and all amendments and
supplements thereto, as may reasonably be requested for use in connection with
resales of the Debentures and Warrants and, upon conversion or exercise thereof,
the Underlying Shares and the Warrant Shares, and (E) the preparation of
certificates for the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares (including, without
limitation, printing and engraving thereof), (ii) all fees and expenses of the
counsel and accountants of the Company and (iii) all expenses and listing fees
on securities exchanges, if any.
Section 8.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits, Annexes and Schedules hereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
This Agreement shall be deemed to have been drafted and negotiated by both
parties hereto and no presumptions as to interpretation, construction or
enforceability shall be made by or against either party in such regard.
22
Section 8.3 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been made upon facsimile transmission (with transmission confirmation report) at
the number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day
following such delivery (if delivered other than on a Business Day during normal
business hours where such notice is to be received) whichever shall first occur.
The addresses for such communications shall be:
If to the Company: SurgiLight, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇. ▇. ▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With copies to: The Business Law Group
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchasers: See Schedule 1 - Schedule of Purchasers
(attached hereto)
With copies to: ▇▇▇▇▇▇ Gottbetter & ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Escrow Agent: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
23
Section 8.5 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 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.
Section 8.6. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 8.8. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9. Governing Law; Venue; Service of Process. The parties hereto
acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of New York. The parties
hereto agree that the internal laws of the State of New York shall govern this
Agreement and the exhibits hereto, including, but not limited to, the
enforcement of the amount of interest to be charged on the outstanding principal
amount of the Debentures and as to all issues related to usury. Any action to
enforce the terms of this Agreement or any of its exhibits shall be exclusively
brought in the State and/or federal courts in the City, County and State of New
York. Service of process in any action by Purchasers to enforce the terms of
this Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Company at its principal address set forth in this Agreement.
Section 8.10. Survival. The representations and warranties of the Company
and the Purchasers contained in Article III and the agreements and covenants of
the parties contained in Article IV and this Article VIII shall survive the
Closing (or any earlier termination of this Agreement).
Section 8.11. Counterpart Signatures. 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.
24
Section 8.12. Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, unless counsel for the disclosing party
deems such public statement to be required by applicable federal and/or State
securities laws. Except as otherwise required by applicable law or regulation,
the Company will not disclose to any third party the names of the Purchasers.
Section 8.13. 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.
Section 8.14. Limitation of Remedies. With respect to claims by the
Company, or persons acting by or through the Company, for remedies at law or at
equity, relating to or arising out of a breach of this Agreement, liability, if
any, shall, in no event, include loss of profits, or incidental, indirect,
exemplary, punitive, special or consequential damages of any kind.
[ SIGNATURE PAGE FOLLOWS ]
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
SURGILIGHT, INC.
By: /s/
---------------------------------
▇. ▇. ▇▇▇
President
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By: /s/
--------------------------------
Name:
Title:
26
EXHIBIT D
Conversion and Exercise Procedures
----------------------------------
1. At any time, and from time to time during the term of this Agreement, any
Purchaser may deliver to the Escrow Agent written notice (a "Notice of
Conversion" or "Notice of Exercise") that it has elected to convert the
Debentures or exercise the Warrants, registered in the names of such
Purchaser, in whole or in part, in accordance with the terms of the
Debenture or Warrants, and the Notice of Conversion to be in the form
annexed to Exhibit A , and the Notice of Exercise to be in the form annexed
to Exhibit B hereto. A fee of $350 shall accompany every Notice of
Conversion or Notice of Exercise delivered to the Escrow Agent.
2. Holder shall send by fax the executed Holder Notice of Conversion or Notice
of Exercise to the Escrow Agent by 4:00 p.m. New York Time on the date of
the Conversion or Exercise. The Escrow Agent shall send the Holder Notice
of Conversion or Notice of Exercise by facsimile to the Company by the end
of the Business Day.
The Company shall have two (2) Business Days from the transmission of the Notice
of Conversion by the Escrow Agent to object only to the calculation of the
number of Debenture Escrow Shares and Warrant Escrow Shares (collectively the
"Escrow Shares") to be released. If the Company fails to object to the
calculation of the number of Escrow Shares to be released within said time, then
the Company shall be deemed to have waived any objections to the calculation of
the number of Escrow Shares set forth in the Purchaser's Notice and directed
Escrow Agent to release same. The Company's only basis for any objection
hereunder shall be to the calculation of the number of Escrow Shares to be
released. In the event of such an objection, the Parties shall have one (1)
Business Day to agree on the number of Escrow Shares to be released pursuant to
said Conversion. In the event that the Parties cannot agree on the number of
Escrow Shares to be released in said time, then the Company shall commence a
legal action in the appropriate State or federal court in the State and County
of New York, within five (5) Business Days of the transmittal of the Notice of
Conversion by the Escrow Agent to the Company. If the Company does not commence
such legal action within said five (5) Business Days, the Escrow Agent shall
release the number of shares stated in the Notice of Conversion to the Purchaser
and the Company's objection shall be deemed withdrawn and waived with prejudice.
If the Escrow Agent does not receive said objection notice within the time
period set forth above from the Company, the Escrow Agent shall release from
escrow and deliver to the Purchaser certificates or instruments representing the
number of Escrow Shares issuable to the Purchaser in accordance with such
conversion on the second Business Day from the transmittal to the Company of the
Notice of Conversion. In the event that the certificates evidencing the Escrow
Shares held by the Escrow Agent are not in denominations appropriate for such
delivery to the Purchaser, the Escrow Agent shall request the Company to cause
its transfer agent and registrar to reissue certificates in smaller
denominations. The Escrow Agent shall, however, immediately release to the
Purchaser certificates representing such lesser number of shares as the
denominations in its possession will allow that is closest to but no more than
the actual number to be released to the Purchaser. Upon receipt of the reissued
shares in lesser denominations from the Company's transfer agent, the Escrow
Agent shall release to the Purchaser the balance of the shares due to the
Purchaser.
4. Holder shall send the original Debenture and Holder Notice of Conversion to
the Escrow Agent via FedEx or other commercial overnight courier, along
with a fee of $350, with instructions regarding names and amount of
certificates for the issuance of the Underlying Shares, and instructions as
to the re-issuance of the balance of the Debentures, if conversion is not
in full. However, if the Escrow Agent is holding the Debenture, the Notice
of Conversion may be faxed to the Escrow Agent and the fee may be
transmitted via wire transfer. In the event that the Escrow Agent has
custody of the Debenture, the Escrow Agent shall notify the Company and the
Holder in writing of the balance of the Debenture remaining and the Company
and the Holder shall acknowledge such notice in writing, in lieu of a new
Debenture being issued for the balance.
5. Company will issue the new Debentures (if any) and will send such new
Debentures by overnight courier within five (5) Business Days to the Escrow
Agent. The Escrow Agent shall send the Common Shares to the Holder in
accordance with Holder's instructions within two (2) Business Days of
receipt of the Notice of Conversion and will send the new Debentures (if
any) to the Holder upon receipt.
(1) The Escrow Agent agrees to notify in writing by facsimile the Company each
time it releases Escrow Shares to the Purchaser. Until any such release and
notification to the Company, the Escrow Shares shall not be deemed to be validly
issued and outstanding shares of capital stock of the Company. Such notification
shall be given when the Escrow Agent delivers the Notice of Conversion to the
Company.
(2) Upon receipt of a Notice of Exercise for the Warrants, the Warrants and
exercise price for the Warrants, the Escrow Agent shall notify the Company of
the exercise of the Warrants pursuant to paragraph 2. Within two (2) Business
Days of the receipt of the Notice of Exercise, the Escrow Agent shall wire the
exercise price to the Company pursuant to the instructions provided by the
Company and shall release the Warrant Shares to the Holder. The Escrow Agent
shall return the original Warrants to the Company for cancellation, or
re-issuance for the balance if applicable. The Company will issue the new
Warrants (if any) and will send such new Warrants by overnight courier within
five (5) Business Days to the Escrow Agent.
(3) The Company agrees that, at any time the conversion price of the Debentures
is such that the number of Debenture Escrow Shares is less than 200% of the
number of shares of Common Stock that would be needed to satisfy full conversion
of all of the Debentures given the then current conversion price (the "Full
Conversion Shares"), upon five (5) days written notice of such circumstance to
the Company by the Purchaser and/or Escrow Agent, it will issue additional share
certificates, in the names of each of the Purchaser, and deliver same to the
Escrow Agent, such that the new number of Debenture Escrow Shares is equal to
200% of the Full Conversion Shares.
SCHEDULE 1
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Full Amount of Number of Termination Termination
Debentures to be Warrant Shares Amount
Name and Address of Purchaser Purchased Exercisable
------------------------------ ----------------- --------------------- ---------------
GEM Global Yield Fund Limited $3,000,000 200,000 US$200,000
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▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇
Tel: ▇▇.▇▇▇.▇▇▇.▇▇▇▇
Fax: ▇▇.▇▇▇.▇▇▇.▇▇▇▇
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