SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 19, 2006, by
and among Charys Holding Company, Inc. (the "COMPANY") and the investors listed
on the Schedule of Buyers attached hereto (individually, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of convertible preferred stock of
the Company designated as Series D Cumulative Preferred Stock, the terms of
which are set forth in the certificate of designation for such series of
preferred stock (the "CERTIFICATE OF DESIGNATIONS") in the form attached hereto
as Exhibit A (together with any convertible Preferred Stock issued in
----------
replacement thereof in accordance with the terms thereof, the "PREFERRED
STOCK"), which Preferred Stock shall be convertible into the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), in accordance with the
terms of the Certificate of Designations.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate number of
Preferred Stock set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers (which aggregate number for all Buyers shall be up to 1,300
Preferred Stock and the shares of Common Stock into which such Preferred Stock
are convertible being referred to herein as the "CONVERSION SHARES") and (ii)
Warrants in substantially the form attached hereto as Exhibit B (the
----------
"WARRANTS"), to acquire that number of shares of Common Stock (as exercised,
collectively, the "WARRANT SHARES") set forth opposite such Buyer's name in
column (4) on the Schedule of Buyers.
D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
---------
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement), under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
E. At the Closing, the parties hereto shall execute and deliver an Escrow
Shares Escrow Agreement substantially in the form attached hereto as Exhibit D
---------
(the "ESCROW SHARES ESCROW AGREEMENT") pursuant to which the Company shall issue
and deliver to Gottbetter & Partners, LLP (the "ESCROW AGENT") Eight Million Six
Hundred Sixty Six Thousand Six Hundred and Sixty Six (8,666,666) shares of
Common Stock as "security stock" (the "ESCROW SHARES") and the Escrow Agent
shall distribute some or all of the Escrow Shares to the Buyer upon conversion
of the Preferred Stock and/or exercise of the Warrants;
F. The Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares are collectively referred to herein as the "SECURITIES".
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.
(a) Preferred Stock and Warrants. Subject to the satisfaction (or waiver) of
----------------------------
the conditions set forth in Sections 6 and 7 below, the Company shall issue and
sell to each Buyer, and each Buyer severally, but not jointly, agrees to
purchase from the Company on the Closing Date (as defined below), the number of
Preferred Stock, as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers, along with Warrants to acquire that number of Warrant Shares
as is set forth opposite such Buyer's name in column (4) on the Schedule of
Buyers.
(b) Closing. The closing (the "CLOSING") of the purchase of the Preferred
-------
Stock and the Warrants by the Buyers shall occur at the offices of Gottbetter &
Partners, LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The date and time
of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New York City Time, on
the date hereof, subject to the notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and each Buyer). As used herein
"Business Day" means any day other than a Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
(c) Purchase Price. The aggregate purchase price for the Preferred Stock and
--------------
the Warrants to be purchased by each Buyer (the "PURCHASE PRICE") shall be the
amount set forth opposite such Buyer's name in column (5) on the Schedule of
Buyers. Each Buyer shall pay $9,400 for each share of Preferred Stock and
related Warrants to be purchased by such Buyer at the Closing.
(d) Form of Payment. On the Closing Date, (A) each Buyer shall pay its
----------------
portion of the Purchase Price to the Company via the Escrow Agent for the
Preferred Stock and the Warrants to be issued and sold to such Buyer at the
Closing, by wire transfer of immediately available funds in accordance with the
Escrow Agent's written wire instructions and (B) the Company shall deliver to
each Buyer via the Escrow Agent the Preferred Stock (in such denominations as is
set forth opposite such Buyer's name in column (3) on the Schedule of Buyers),
along with the Warrants (exercisable for the number of shares of Common Stock as
is set forth opposite such Buyer's name in column (4) on the Schedule of
Buyers), each duly executed on behalf of the Company and registered in the name
of such Buyer or its designee.
2. REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) Organization; Authority. Such Buyer is an entity duly organized, validly
-----------------------
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
(b) No Public Sale or Distribution. Such Buyer is (i) acquiring the
----------------------------------
Preferred Stock and the Warrants, (ii) upon conversion of the Preferred Stock
will acquire the Conversion Shares, and (iii) upon exercise of the Warrants will
acquire the Warrant Shares, in each case, for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is not a broker-dealer registered, or required to be registered, with
the SEC under the 1934 Act. Such Buyer is acquiring the Securities hereunder in
the
2
ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(c) Accredited Investor Status. Such Buyer is an "accredited investor" as
----------------------------
that term is defined in Rule 501(a) of Regulation D.
(d) Reliance on Exemptions. Such Buyer understands that the Securities are
------------------------
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(e) Information. Such Buyer and its advisors, if any, have been furnished
-----------
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(f) No Governmental Review. Such Buyer understands that no United States
------------------------
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale. Such Buyer understands that except as provided in
--------------------
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "RULE 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged in connection with a bona
fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(g).
3
(h) Legends. Such Buyer understands that the certificates or other
-------
instruments representing the Preferred Stock and the Warrants and, until such
time as the resale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the "blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A. The Company shall bear all
fees and expenses related to the removal of the legend and issuance of any new
unlegended Securities.
(i) Validity; Enforcement. This Agreement and the Registration Rights
----------------------
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
(j) No Conflicts. The execution, delivery and performance by such Buyer of
-------------
this Agreement and the Registration Rights Agreement and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer or (ii)
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 such Buyer is a party), (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.
4
(k) Residency. Such Buyer is a resident of that jurisdiction specified below
---------
its address on the Schedule of Buyers.
(l) Certain Trading Activities. No Buyer has directly or indirectly, nor has
---------------------------
any Person acting on behalf of or pursuant to any understanding with such Buyer,
engaged in any transactions in the securities of the Company (including without
limitation, any Short Sales involving the Company's securities) since the time
that the Buyer was first contacted by the Company or Gottbetter Capital Finance,
LLC regarding an investment in the Company. Each Buyer covenants that neither it
nor any Person acting on its behalf or pursuant to any understanding with it
will engage in any transaction in the securities of the Company (including Short
Sales) prior to the time that the transactions contemplated by this Agreement
are publicly disclosed pursuant to Section 4(i). Short Sales include, without
limitation, all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the 1934 Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.
(m) General Solicitation. No Buyer is purchasing the Securities as a result
----------------------
of any advertisement, article, notice or other communication regarding the
Securities published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
otherwise set forth in the SEC Documents (as defined herein) or otherwise on the
schedule of exceptions delivered to the Buyers in connection with the execution
of this Agreement (the "Schedules"):
(a) Organization and Qualification. The Company and its "SUBSIDIARIES"
--------------------------------
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing and in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or current
prospects of the Company and its Subsidiaries, both taken as a whole and
individually as to any Subsidiary that is a Significant Subsidiary (as defined
in Regulation S-X), or on the transactions contemplated hereby or in the other
Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents (as defined below).
The Company has no Subsidiaries. The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and clear
of any liens, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.
(b) Authorization; Enforcement; Validity. The Company has the requisite
--------------------------------------
corporate power and authority to enter into and perform its obligations under
this Agreement, the Certificate of Designations, the Warrants, the Registration
Rights Agreement, the Escrow Shares Escrow Agreement and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by
5
this Agreement (collectively, the "TRANSACTION DOCUMENTS") and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Preferred Stock, the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion of the Preferred Stock, the issuance of the Warrants and the
reservation for issuance and issuance of the Warrant Shares issuable upon
exercise of the Warrants, have been duly authorized by the Company's Board of
Directors and (other than the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement and any other filings as may be required by any state securities
agencies) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. The Certificate of Designations in the form attached hereto as
Exhibit A shall be filed with the Secretary of State of the State of Delaware on
---------
or prior to Closing.
(c) Issuance of Securities. The issuance of the Preferred Stock and the
------------------------
Warrants are duly authorized and upon issuance in accordance with the terms of
the Transaction Documents shall be free from all taxes, liens and charges with
respect to the issue thereof, and the Preferred Stock shall be entitled to the
rights and preferences set forth in the Certificate of Designations. As of the
Closing, the Company shall have reserved from its duly authorized capital stock
not less than the sum of (i) the maximum number of shares of Common Stock
issuable upon conversion of the Preferred Stock (without taking into account any
limitations on the conversion of the Preferred Stock set forth in the
Certificate of Designations) and (ii) 4,333,333 shares of Common Stock issuable
upon exercise of the Warrants. Upon issuance or conversion in accordance with
the Certificate of Designations or exercise in accordance with the Warrants, as
the case may be, the Conversion Shares and the Warrant Shares, respectively,
will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock. Subject to the representations and warranties of the Buyers in
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of this Agreement
-------------
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Stock, the Warrants, and reservation
for issuance of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of the Certificate of Incorporation (as defined in Section
3(r)) of the Company or Bylaws (as defined in Section 3(r)) or the Certificate
of Designations of the Company or (ii) 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 or
any of its Subsidiaries is a party, except to the extent such conflict, default
or termination right would not reasonably be expected to have a Material Adverse
Effect, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the Over-The Counter Bulletin Board of the NASD
(the "PRINCIPAL MARKET") applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected except, in the case of clause (ii) or (iii) above, to the
extent such violations would not reasonably be expected to have a Material
Adverse Effect.
6
(e) Consents. The Company is not required to obtain any consent,
--------
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement and the other Transaction Documents, in
each case in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the Closing Date, and the Company is unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence.
(f) Acknowledgment Regarding Buyers' Purchase of Securities. The Company
-----------------------------------------------------------
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm's length purchaser with respect to this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby and that no Buyer
is (i) an officer or director of the Company, (ii) an "affiliate" of the Company
or any of its Subsidiaries (as defined in Rule 144) or (iii) to its knowledge, a
"beneficial owner" of more than 10% of the shares of Common Stock (as defined
for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "1934 ACT")). The Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company or any of its Subsidiaries (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with this Agreement and the
other Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into this
Agreement and the other Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the Company,
--------------------------------------------------
nor any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. The Company acknowledges that it has engaged Gottbetter
Capital Finance, LLC to structure the transaction in connection with the sale of
the Securities. The Company has not engaged any placement agent or other agent
in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
------------------------
their affiliates, or any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates or any Person acting on its or their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
----------------
Warrant Shares issuable upon exercise of the Warrants, will increase in certain
circumstances. The Company further
7
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Stock in accordance with this Agreement and the Certificate of
Designations and its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and
-------------------------------------------------------
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the jurisdiction of its incorporation which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(k) SEC Documents; Financial Statements. During the two (2) years prior to
-------------------------------------
the date hereof, the Company has timely filed or furnished all reports,
schedules, forms, statements and other documents required to be filed or
furnished by it with the SEC pursuant to the reporting requirements of the 1934
Act (all of the foregoing filed or furnished prior to the date hereof and all
exhibits included therein and financial statements, notes and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the "SEC DOCUMENTS"). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of each of the SEC
Documents not available on the ▇▇▇▇▇ system that have been requested by each
Buyer. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, 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 the
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto as in effect as
of the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(e) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstance under
which they are or were made.
(l) Absence of Certain Changes. Since the date of the Company's most recent
---------------------------
audited or reviewed financial statements contained in a Form 10-KSB or Form
10-QSB, there has been no material adverse change and no material adverse
development in the business, assets, liabilities, properties, operations,
condition (financial or otherwise), results of operations or prospects of the
Company or its Subsidiaries. Since the date of the Company's most recent audited
financial statements contained in a Form 10-KSB or Form 10-QSB, neither the
Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of $500,000 outside
of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $500,000.
8
Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3(l), "INSOLVENT" means, with respect to the Company, on a consolidated basis
with its Subsidiaries, (i) the present fair saleable value of the Company's and
its Subsidiaries' assets is less than the amount required to pay the Company's
and its Subsidiaries' total Indebtedness (as defined in Section 3(s)), (ii) the
Company and its Subsidiaries are unable to pay their debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (iii) the Company and its Subsidiaries intend to incur
or believe that they will incur debts that would be beyond their ability to pay
as such debts mature. The Company has not engaged in business or in any
transaction, and is not about to engage in business or in any transaction, for
which the Company's remaining assets constitute unreasonably small capital.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
--------------------------------------------------------------------
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
----------------------------------------
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, the Certificate of Designations, any other
certificate of designation, preferences or rights of any other outstanding
series of preferred stock of the Company or Bylaws or their organizational
charter or Articles of Incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any law, statute, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except in all cases for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company is not in violation of any of the rules,
regulations or requirements of the Principal Market and has no knowledge of any
facts or circumstances that would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. Since July
2004, (i) the Common Stock has been designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company nor any of its
---------------------------
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence
9
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
(p) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. The Company is in compliance with any and all
-------------------
applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. None of the officers, directors or
------------------------------
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.
(r) Equity Capitalization. As of the date hereof and not taking into account
---------------------
the issuance of the Preferred Stock or Warrants, the authorized capital stock of
the Company consists of (i) 300,000,000 shares of Common Stock, of which as of
the date hereof, 19,366,143 are outstanding, 15,407,500 shares are reserved for
issuance to third parties pursuant to pending transactions, 900,000 shares are
reserved for issuance upon conversion of the Company's Series B Preferred Stock
and Series C Preferred Stock, 6,263,939 shares are reserved for issuance upon
exercise of outstanding options, 3,890,469 shares are reserved for issuance upon
exercise of outstanding warrants, 6,366,666 shares are reserved for issuance
upon exercise of options and warrants reserved for issuance to third parties
pursuant to pending transactions and 18,250,000 shares are held as "security
stock" by Gottbetter & Partners on behalf of Highgate House Funds, Ltd. and (ii)
5,000,000 shares of preferred stock, $0.001 par value per share. There are
currently three series of preferred stock designated as follows: (i) 1,000,000
shares have been designated as Series A Preferred Stock, $0.001 par value per
share, all of which have been issued and outstanding; (ii) 400,000 shares have
been designated as Series B Preferred Stock, $0.001 per share, all of which have
been issued and are outstanding; and (iii) 500,000 shares of Series C Preferred
Stock, $0.001 par value per share, all of which have been issued and
outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. As of the date of this
Agreement, (i) none of the Company's capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, loan
or credit facilities or other agreements, documents or instruments evidencing
Indebtedness (as defined in Section 3(s)) of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no agreements or arrangements under which the Company or
any of its Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (v) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to purchase, repurchase, retire or redeem a security of the Company or any
of its Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that
10
will be triggered by the issuance of the Securities; (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (viii) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyers true, correct and complete
copies of the Company's Certificate of Incorporation, as amended and as in
effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.
(s) Indebtedness and Other Contracts. Neither the Company nor any of its
-----------------------------------
Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a
party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or
instrument could reasonably be expected to result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any contract, agreement
or instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company's officers, has or is expected to have a Material Adverse Effect. For
purposes of this Agreement: (x) "INDEBTEDNESS" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services
(including, without limitation, "capital leases" in accordance with generally
accepted accounting principles) (other than trade payables entered into in the
ordinary course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "CONTINGENT OBLIGATION" means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
----------------------
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body
11
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or its Subsidiaries' officers or directors
which is outside of the ordinary course of business or individually or in the
aggregate material to the Company.
(u) Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations.
-------------------
(i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company (as defined in Rule
501(f) of the ▇▇▇▇ ▇▇▇) or any of its Subsidiaries has notified the Company
or any such Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer's employment with
the Company or any such Subsidiary. No executive officer of the Company or
any of its Subsidiaries is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(iii) To the knowledge of the Company, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
(w) Title. The Company and its Subsidiaries have good and marketable title
-----
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under
lease by the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
facilities by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
------------------------------
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service ▇▇▇▇ registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS")
necessary to conduct their
12
respective businesses as now conducted. None of the Company's or its
Subsidiaries' Intellectual Property Rights have expired, terminated or been
abandoned, or are expected to expire, terminate or be abandoned, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or any of its Subsidiaries of Intellectual
Property Rights of others. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or any of its existing Subsidiaries regarding its Intellectual Property
Rights. The Company is unaware of any facts or circumstances which might give
rise to any of the foregoing infringements or claims, actions or proceedings.
The Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their Intellectual
Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
-------------------
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. The Company or one of its Subsidiaries has the
------------------
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has made or
-----------
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
(bb) Internal Accounting and Disclosure Controls. The Company and each of
----------------------------------------------
its Subsidiaries maintains 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
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the ▇▇▇▇ ▇▇▇) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls
13
and procedures designed in to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries have received any notice or correspondence
from any accountant relating to any potential material weakness in any part of
the system of internal accounting controls of the Company or any of its
Subsidiaries.
(cc) Off Balance Sheet Arrangements. There is no transaction, arrangement,
--------------------------------
or other relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.
(dd) Investment Company Status. The Company is not, and upon consummation of
-------------------------
the sale of the Securities will not be, an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
(ee) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
---------------
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.
(ff) Acknowledgement Regarding Buyers' Trading Activity. It is understood
-----------------------------------------------------
and acknowledged by the Company (i) that following the public disclosure of the
transactions contemplated by the Transaction Documents, in accordance with the
terms thereof, none of the Buyers have been asked by the Company or its
Subsidiaries to agree, nor has any Buyer agreed with the Company or its
Subsidiaries, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that any
Buyer, and counter parties in "derivative" transactions to which any such Buyer
is a party, directly or indirectly, presently may have a "short" position in the
Common Stock which were established prior to such Buyer's knowledge of the
transactions contemplated by the Transaction Documents, and (iii) that each
Buyer shall not be deemed to have any affiliation with or control over any arm's
length counter party in any "derivative" transaction. The Company further
understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents, in accordance with the
terms thereof, one or more Buyers may engage in hedging and/or trading
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Conversion Shares and the Warrant Shares deliverable with respect to
Securities are being determined and (b) such hedging and/or trading activities,
if any, can reduce the value of the existing stockholders' equity interest in
the Company both at and after the time the hedging and/or trading activities are
being conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the
Preferred Stock, the Warrants or any of the documents executed in connection
herewith.
(gg) Registration Eligibility. The Company is eligible to register the
-------------------------
Conversion Shares and the Warrant Shares for resale by the Buyers using Form
SB-2 promulgated under the 1933 Act.
(hh) Manipulation of Price. The Company and its Subsidiaries have not, and
-----------------------
to the Company's knowledge no one acting on their behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting
14
purchases of, any of the Securities, or (iii) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(ii) U.S. Real Property Holding Corporation. The Company is not, nor has
------------------------------------------
ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer's request.
(jj) Disclosure. The Company confirms that neither it nor any other Person
----------
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and confirms
that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the Buyers
regarding the Company and its Subsidiaries, their business and the transactions
contemplated by this Agreement and the other Transaction Documents, including
the Schedules and Exhibits hereto and thereto, furnished by or on behalf of the
Company is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made, not misleading. No press release issued by the Company or its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
contained at the time of release any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, assets, liabilities, properties, prospects, operations or conditions
(financial or otherwise), which, under applicable law, rule or regulation,
requires public disclosure at or before the date hereof or announcement by the
Company but which has not been so publicly announced or disclosed.
4. COVENANTS.
(a) Best Efforts. Each party shall use its reasonable best efforts timely to
------------
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to
-------------------
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.
(c) Reporting Status. Until the date on which the Buyers shall have sold all
----------------
the Conversion Shares and Warrant Shares, and none of the Preferred Stock or
Warrants is outstanding (the "REPORTING PERIOD"), the Company shall timely file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
----------------
Securities for working capital purposes including repayment of certain existing
debt (including the remaining principal balance
15
of the $4,000,000 Debenture due November 16, 2008 issued to Highgate House
Funds, Ltd.) and financing of acquisitions.
(e) Financial Information. The Company agrees to send the following to each
----------------------
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through ▇▇▇▇▇ and are
available to the public through the ▇▇▇▇▇ system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports and
Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or
any consolidated balance sheets, income statements, stockholders' equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries, and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(f) Listing. The Company shall promptly secure the listing of all of the
-------
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents on such exchange or
automated quotation system or an Eligible Market. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on an Eligible Market. The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall reimburse Gottbetter Capital Finance, LLC, or
----
its designee(s) (in addition to any other expense amounts paid to any Buyer
prior to the date of this Agreement) for all reasonable costs and expenses,
$20,000, incurred in connection with the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which amount
shall be non-accountable. The Company shall reimburse Castlerigg Master
Investments Ltd., or its designee(s) (in addition to any other expense amounts
paid to any Buyer prior to the date of this Agreement) $15,000 for all
reasonable costs and expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including legal fees and
disbursements in connection therewith and documentation and implementation of
the Transaction Documents), which amount shall be paid at the Closing. The
Company has paid $10,000 of legal fees to Gottbetter & Partners, LLP and shall
pay an additional $10,000 at Closing. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated by the Transaction Documents, including,
without limitation, any fees payable to Gottbetter Capital Finance, LLC. The
Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, reasonable attorney's fees and
out-of-pocket expenses) arising in connection with any claim relating to any
such payment.
(h) Pledge of Securities. The Company acknowledges and agrees that the
----------------------
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the
16
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or before
----------------------------------------------------------
8:30 a.m., New York Time, on the fourth Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching (unless the Company shall elect to defer
the filing of exhibits as permitted by the Exchange Act) the material
Transaction Documents (including, without limitation, this Agreement, the form
of Certificate of Designations, the form of Warrant and the Registration Rights
Agreement) (including all attachments, the "8-K FILING"). From and after the
filing of the 8-K Filing with the SEC, the Company shall have disclosed any
material nonpublic information delivered to the Buyers by the Company or any of
its Subsidiaries, or any of their respective officers, directors, employees,
stockholders, representatives or agents; provided, however, that the Company
shall be permitted to delay disclosure of pending acquisitions identified on the
Schedules hereto to a date not later than June 30, 2006. The Company shall not,
and shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express
written consent of such Buyer. In the event of a breach of the foregoing
covenant by the Company, or any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have any
liability to the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents, for any such
disclosure. Subject to the foregoing, none of the Company, its Subsidiaries or
any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
--------- --------
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the
case of clause (i) each Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
Without the prior written consent of any applicable Buyer, neither the Company
nor any of its Subsidiaries shall disclose the name of any Buyer in any filing,
announcement, release or otherwise.
(j) Corporate Existence. So long as any Buyer beneficially owns any
--------------------
Preferred Stock or Warrants, the Company shall not be party to any Fundamental
Transaction (as defined in the Certificate of Designations) unless the Company
is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Certificate of Designations and the Warrants.
(k) Reservation of Shares. The Company shall take all action necessary to at
---------------------
all times have authorized, and reserved for the purpose of issuance, no less
than 130% of (i) the maximum number of shares of Common Stock issuable upon
conversion of the Preferred Stock (assuming for purposes hereof, that the
Preferred Stock is convertible at the Conversion Price and without taking into
account any limitations on the conversion of the Preferred Stock set forth in
the Certificate of Designations) and (ii) the maximum number of shares of Common
Stock issuable upon exercise of the Warrants (assuming for purposes hereof the
Exercise Price (as defined in the Warrants), subject to adjustment for stock
splits and stock dividends and without taking into account any limitations on
the exercise of the Warrants set forth in the Warrants).
17
(l) Conduct of Business. The business of the Company and its Subsidiaries
---------------------
shall not be conducted in violation of any law, ordinance or regulation of any
government, or any department or agency thereof or any governmental entity,
except where such violations would not result, either individually or in the
aggregate, in a Material Adverse Effect.
(m) No Short Position. Each of the Buyers and any of its Affiliates do not
-----------------
have an open short position in the Common Stock.
(n) Legend. (i) Certificates evidencing the Warrant Shares and Conversion
------
Shares shall not contain any legend (including the legend set forth above), (A)
while a registration statement covering the resale of such security is effective
under the 1933 Act (provided, however, that the Buyer's prospectus delivery
requirements under the 1933 Act will remain applicable), or (B) following any
sale of such Warrant Shares and/or Conversion Shares pursuant to Rule 144, or
(C) if such Warrant Shares and/or Conversion Shares are eligible for sale under
Rule 144(k), or (D) if such legend is not required under applicable requirements
of the 1933 Act (including judicial interpretations and pronouncements issued by
the Staff of the SEC). Subject to the foregoing, upon written request of the
Buyer to have such legend removed, the Company shall cause its counsel to issue
a legal opinion to the Company's transfer agent promptly after the effective
date of any registration statement (the "EFFECTIVE DATE") if required by the
Company's transfer agent to effect the removal of the legend hereunder. The
Company agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 5(q), it will, no later than three (3)
Trading Days (as defined in the Certificate of Designations) following the
delivery by the Buyer to the Company or the Company's transfer agent of a
certificate representing Warrant Shares and/or Conversion Shares issued with a
restrictive legend, deliver or cause to be delivered to such Buyer a certificate
representing such Warrant Shares and/or Conversion Shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that
enlarge(s) the restrictions on transfer set forth herein.
(ii) The Company shall cause its securities counsel to deliver the
requisite legal opinion in order to ensure the expedient removal of the legend
on the Escrow Shares as soon as practicable after the effectiveness of the
Registration Statement.
(o) Removal of Legend. In addition to the Buyer's other available remedies
-----------------
and provided that the conditions permitting the removal of legend specified in
Section 4(o) are met, the Company shall pay to the Buyer, in cash, as partial
liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
and/or Conversion Shares (based on the Closing Sale Price (as defined in the
Certificate of Designations) of the Common Stock on the date such Warrant Shares
and/or Conversion Shares are submitted to the Company's transfer agent), $5 per
trading day (increasing to $10 per Trading Day five (5) trading days after such
damages have begun to accrue) for each Trading Day after the seventh (7th)
trading day following delivery by the Buyer to the Company or the Company's
transfer agent of a certificate representing Warrant Shares and/or Conversion
Shares issued with a restrictive legend, until such certificate is delivered to
the Buyer with such legend removed. Nothing herein shall limit the Buyer's right
to pursue actual damages for the failure of the Company and its transfer agent
to deliver certificates representing any securities as required hereby, and the
Buyer shall have the right to pursue all remedies available to it at law or in
equity, including, without limitation, a decree of specific performance and/or
injunctive relief.
(p) Publicity. The Company and the Buyer shall have the right to approve,
---------
before issuance any press release or any other public statement with respect to
the transactions contemplated hereby made by any party; provided, however, that
the Company shall be entitled, without the prior approval of the Buyer, to issue
any press release or other public disclosure with respect to such transactions
required under applicable securities or other laws or regulations provided, that
the Company shall use its commercially
18
reasonable best efforts to consult the Buyer in connection with any such press
release or other public disclosure prior to its release and Buyer shall be
provided with a copy thereof upon release thereof.
(q) Additional Issuances of Securities.
----------------------------------
(i) For purposes of this Section 4(q), the following definitions shall
apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
shares of Common Stock.
(2) "OPTIONS" means any rights, warrants or options to subscribe for
or purchase shares of Common Stock or Convertible Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
(4) "EXCLUDED SECURITIES" means any Common Stock issued or issuable:
(i) upon conversion of the Preferred Stock or the exercise of the
Warrants; (ii) pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized
underwriter which generates gross proceeds to the Company in
excess of $25,000,000 (other than an "at-the-market offering" as
defined in Rule 415(a)(4) under the 1933 Act and "equity lines");
and (iii) in connection with any acquisition by the Company,
whether through an acquisition of stock or a merger of any
business, assets or technologies the primary purpose of which is
not to raise equity capital
(ii) From the date hereof until 30 days after the effective date of the
Registration Statement (as defined in the Registration Rights Agreement) (the
"Effective Date") the Company will not, directly or indirectly, file any
registration statement with the SEC other than the Registration Statement. From
the date hereof until 30 days after the Effective Date, the Company will not,
directly or indirectly, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to purchase or
other disposition of) any of its equity or equity equivalent securities,
including without limitation any debt, preferred stock or other instrument or
security that is, at any time during its life and under any circumstances,
convertible into or exchangeable or exercisable for shares of Common Stock or
Common Stock Equivalents other than Excluded Securities (any such offer, sale,
grant, disposition or announcement being referred to as a "SUBSEQUENT
PLACEMENT") without complying with the obligations set forth in subsection (iii)
below.
(iii) From the Effective Date until the earlier of one (1) year following
the full redemption of the Preferred Stock or the maturity of the Preferred
Stock, the Company will not, directly or indirectly, effect any Subsequent
Placement unless the Company shall have first complied with this Section
4(q)(iii).
(1) The Company shall deliver to each Buyer a written notice (the
"OFFER NOTICE") of any proposed or intended issuance or sale or exchange (the
"OFFER") of the securities being offered (the "OFFERED SECURITIES") in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or entities
(if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to such Buyers the
Offered Securities in any Subsequent Placement, allocated among such Buyers (a)
based on such Buyer's pro rata portion of the aggregate principal amount of the
Preferred Stock purchased hereunder (the "BASIC AMOUNT"), and (b) with respect
to each Buyer that elects to purchase its Basic Amount, any additional portion
of the
19
Offered Securities attributable to the Basic Amounts of other Buyers as such
Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT").
(2) To accept an Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the tenth (10th) Business Day
after such Buyer's receipt of the Offer Notice (the "OFFER PERIOD"), setting
forth the portion of such Buyer's Basic Amount that such Buyer elects to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
--------- --------
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to
the total Basic Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.
(3) The Company shall have ten (10) Business Days from the expiration
of the Offer Period above to offer, issue, sell or exchange all or any part of
such Offered Securities as to which a Notice of Acceptance has not been given by
the Buyers (the "REFUSED SECURITIES"), but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 4(q)(iii)(3) above), then each Buyer may, at its sole option and in
its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that such Buyer elected to
purchase pursuant to Section 4(q)(iii)(2) above multiplied by a fraction, (i)
the numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to Section 4(q)(iii)(3) above
prior to such reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities. In the event that any Buyer so elects to
reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(q)(iii)(1) above.
(5) Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Buyers shall acquire from the Company,
and the Company shall issue to the Buyers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4(q)(iii)(4) above if the Buyers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Buyers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Buyers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Buyers and their
respective counsel.
20
(6) Any Offered Securities not acquired by the Buyers or other persons
in accordance with Section 4(q)(iii)(3) above may not be issued, sold or
exchanged until they are again offered to the Buyers under the procedures
specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of this
Section 4(q) shall not apply in connection with the issuance of any Excluded
Securities.
(r) Company's Failure to Timely Deliver Securities. In addition to the
---------------------------------------------------
foregoing, if within three (3) Trading Days after the Company's receipt of the
facsimile copy of an exercise or conversion notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise or conversion
(a "BUY-IN"), then the Company shall, within three (3) Business Days after the
Buyer's request and in the Buyer's discretion, either (i) pay cash to the Buyer
in an amount equal to the Buyer's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN
PRICE"), at which point the Company's obligation to deliver such Escrow Shares
resulting from such exercise or conversion shall terminate, or (ii) promptly
honor its obligation to deliver to the Buyer a certificate or certificates
representing such Escrow Shares and pay cash to the holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Sale Price on the date of
exercise. Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock or to otherwise issue shares of Common Stock upon
exercise of this Warrant in accordance with the terms hereof, and the holder
shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).
Notwithstanding the foregoing, the Company shall have no obligations to cause
its Escrow Agent to deliver Escrow Shares or to pay any Buy-In Price under this
Section 4(r) if the Company has timely delivered in good faith a bonafide
objection to such conversion or exercise notice.
5. REGISTER.
(a) Register. The Company shall maintain at its principal executive offices
--------
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Preferred Stock and the Warrants
in which the Company shall record the name and address of the Person in whose
name the Preferred Stock and the Warrants have been issued (including the name
and address of each transferee), the number of Preferred Stock held by such
Person, the number of Conversion Shares issuable upon conversion of the
Preferred Stock and the number of Warrant Shares issuable upon exercise of the
Warrants held by such Person. The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its
legal representatives.
(b) Share Denominations. The Escrow Agent shall retain and hold the Escrow
--------------------
Shares which shall be held in accordance with the terms of this Agreement and
the Escrow Shares Escrow Agreement. The Escrow Shares shall be in the share
denominations specified in Schedule II hereto, registered in the name of the
Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) The obligation of the Company hereunder to issue and sell the Preferred
Stock and the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be
21
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to the Escrow
Agent the Purchase Price by wire transfer of immediately available funds
pursuant to the written wire instructions provided by the Escrow Agent two
(2) Business Days prior to Closing.
(iii) The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the
Closing Date.
(iv) The Company shall have obtained approval of the Principal Market
to list the Conversion Shares and the Warrant Shares.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of each Buyer hereunder to purchase the Preferred Stock
and the related Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company shall have duly executed and delivered to such Buyer
(A) each of the Transaction Documents and (B) the Preferred Stock (in such
numbers as is set forth across from such Buyer's name in column (3) of the
Schedule of Buyers and the related Warrants (in such numbers as is set
forth across from such Buyer's name in column (4) of the Schedule of
Buyers) being purchased by such Buyer at the Closing pursuant to this
Agreement.
(ii) Such Buyer shall have received the opinion of Paul, Hastings,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, the Company's outside counsel, dated as of the
Closing Date, in a form reasonably acceptable to Buyers.
(iii) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company issued by the
Secretary of State of Delaware as of a date within five (5) days of the
Closing Date.
(iv) The Company shall have delivered to such Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of
the State of Delaware within five (5) days of the Closing Date.
(v) The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date,
as to (i) the resolutions consistent with Section 3(b) as adopted by the
Company's board of directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in
effect at the Closing.
22
(vi) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as
of a specific date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such Buyer
shall have received a certificate, executed by the Chief Executive Officer
of the Company, dated as of the Closing Date, to the foregoing effect and
as to such other matters as may be reasonably requested by such Buyer.
(vii) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
(viii) The Common Stock (I) shall be designated for quotation or listed
on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the
Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Closing Date, either (A) in writing by the
SEC or the Principal Market or (B) by falling below the minimum maintenance
requirements of the Principal Market.
(ix) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities, including without limitation, those required by the Principal
Market.
(x) The Certificate of Designations in the form attached hereto as
Exhibit A shall have been filed with the Secretary of State of the State of
---------
Delaware and shall be in full force and effect, enforceable against the
Company in accordance with its terms and shall not have been amended.
(xi) The aggregate Purchase Price paid to the Company for the
Securities by the Buyers at the Closing shall not be less than Thirteen
Million One Hundred and Sixty Thousand ($13,160,000) Dollars even though
the Preferred Stock will have an aggregate stated Value of Fourteen Million
($14,000,000) Dollars.
(xii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
(xiii) The Company shall have placed the Escrow Shares into escrow with
Gottbetter & Partners, LLP, acting as escrow agent, pursuant to the terms
of the Escrow Shares Escrow Agreement.
23
8. TERMINATION.
In the event that the Closing shall not have occurred with respect to a Buyer on
or before five (5) Business Days from the date hereof due to the Company's or
such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided, however, that
if this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
------------------------------------------
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party 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, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such 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 HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
------------
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(c) Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other Transaction
------------------------------
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as
24
specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least a
majority of the Preferred Stock issued and issuable hereunder, and any amendment
to this Agreement made in conformity with the provisions of this Section 9(e)
shall be binding on all Buyers and holders of Securities, as applicable. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Preferred Stock then outstanding. No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration also is offered
to all of the parties to the Transaction Documents, holders of Preferred Stock
or holders of the Warrants, as the case may be. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.
(f) Notices. Any notices, consents, waivers or other communications required
-------
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Charys Holding Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy (for informational purposes only) to:
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
25
If to the Transfer Agent:
Fidelity Transfer Company
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
Gottbetter & Partners, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change
provided, that Gottbetter & Partners, LLP shall only receive notices sent to
--------
clients of its firm. Written confirmation of receipt (A) given by the recipient
of such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
------------------------
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Stock or the Warrants. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way
of a Fundamental Transaction (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Certificate of Designations and the Warrants). A Buyer may assign some or all of
its rights hereunder in connection with transfer of any of its Preferred Stock
or Warrants, subject to compliance with the securities laws, without the consent
of the Company, in which event such assignee shall be deemed to be a Buyer
hereunder with respect to such assigned rights.
(h) 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.
(i) Survival. Unless this Agreement is terminated under Section 8, the
--------
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 shall survive the Closing and the agreements and covenants set
forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
26
(j) Further Assurances. Each party shall do and perform, or cause to be done
------------------
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(k) Indemnification. In consideration of each Buyer's execution and delivery
---------------
of the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each affiliate of a Buyer that holds Preferred Stock or Warrants and
all of their stockholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, (b) any breach of any covenant, agreement
or obligation of the Company contained in the Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents; provided, that no
---------
Buyer shall be entitled to indemnification to the extent any of the foregoing is
caused by its gross negligence or willful misconduct. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be
------------------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
(m) Remedies. Each Buyer and each affiliate of a Buyer that holds Preferred
--------
Stock or Warrants shall have all rights and remedies set forth in the
Transaction Documents and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the
event that it fails to perform, observe, or discharge any or all of its
obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
----------------------------------
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a
27
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Buyer may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and rights
(o) Payment Set Aside. To the extent that the Company makes a payment or
-------------------
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The obligations of
----------------------------------------------------
each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
(q) Exculpation Among Buyers: Each Buyer acknowledges that it is not
--------------------------
relying upon any Person (including, without limitation, any other Buyer), other
than the Company and its officers and directors (acting in their capacity as
representatives of the Company), in deciding to invest and in making its
investment in the Company. Each Buyer agrees that no other Buyer nor the
respective controlling Persons, officers, directors, partners, members,
shareholders, agents or employees of any other Buyer shall be liable to such
Buyer for any losses incurred by such Buyer in connection with its investment in
the Company.
[SIGNATURE PAGE FOLLOWS]
28
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
CHARYS HOLDING COMPANY, INC.
By:
----------------------------
Name: ▇▇▇▇▇ ▇▇▇, ▇▇.
Title: Chief Executive Officer
29
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
GOTTBETTER CAPITAL MASTER, LTD.
By:
----------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Director
ENABLE GROWTH PARTNERS LP
By:
----------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇
Title: Principal and Portfolio Manager
ENABLE OPPORTUNITY PARTNERS LP
By:
----------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇
Title: Principal and Portfolio Manager
▇▇▇▇▇▇ DIVERSIFIED STRATEGY MASTER FUND
LLC
By:
----------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇
Title: Principal and Portfolio Manager
CASTLERIGG MASTER INVESTMENTS LTD.
By:
----------------------------
Name:
Title:
UBS ▇'▇▇▇▇▇▇ LLC F/B/O ▇'▇▇▇▇▇▇ PIPES
CORPORATE STRATEGIES MASTER LTD.
By:
----------------------------
Name:
Title:
30
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6)
AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PURCHASE LEGAL REPRESENTATIVE'S
ADDRESS AND PREFERRED WARRANT PRICE ADDRESS AND
BUYER FACSIMILE NUMBER SHARES SHARES FACSIMILE NUMBER
-------------------------------- ------------------------- ---------- ---------- ----------- ---------------------------
Gottbetter Capital Master, Ltd. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 500 1,666,666 $4,700,000 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
12th Floor Gottbetter & Partners, LLP
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: 212.400.6999 ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 212.400.6901
-----------------------------------------------------------------------------------------------------------------------------
Enable Growth Partners LP One Ferry Building 260 866,667 $2,444,000
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 415.677.1580
-----------------------------------------------------------------------------------------------------------------------------
Enable Opportunity Partners One Ferry Building 40 133,333 $376,000
LP ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 415.677.1580
-----------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ Diversified Strategy One Ferry Building 100 333,333 $940,000
Master Fund LLC ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 415.677.1580
-----------------------------------------------------------------------------------------------------------------------------
Castlerigg Master Investments ▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇ 300 1,000,000 $2,820,000
Ltd. ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 212.603.5710
-----------------------------------------------------------------------------------------------------------------------------
UBS ▇'▇▇▇▇▇▇ LLC F/B/O 100 333,333 $940,000
▇'▇▇▇▇▇▇ Pipes Corporate
Strategies Master Ltd.
-----------------------------------------------------------------------------------------------------------------------------
31
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
Gottbetter Capital Master, Ltd.
Stock Certificate Denominations for the 3,333,333 Escrow Shares in the name of
Gottbetter Capital Master, Ltd.:
1 certificates each for 333 shares
15 certificates each for 500 shares
18 certificates each for 1,000 shares
17 certificates each for 2,500 shares
15 certificates each for 5,000 shares
19 certificates each for 10,000 shares
10 certificates each for 25,000 shares
10 certificates each for 50,000 shares
10 certificates each for 100,000 shares
5 certificates each for 250,000 shares
32
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
Enable Growth Partners LP
Stock Certificate Denominations for the 1,733,333 Escrow Shares in the name of
Enable Growth Partners LP:
1 certificates each for 333 shares
15 certificates each for 500 shares
18 certificates each for 1,000 shares
17 certificates each for 2,500 shares
15 certificates each for 5,000 shares
19 certificates each for 10,000 shares
10 certificates each for 25,000 shares
5 certificates each for 50,000 shares
4 certificates each for 100,000 shares
2 certificates each for 250,000 shares
33
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
Enable Opportunity Partners LP
Stock Certificate Denominations for the 266,666 Escrow Shares in the name of
Enable Opportunity Partners LP:
1 certificates each for 333 shares
15 certificates each for 500 shares
18 certificates each for 1,000 shares
17 certificates each for 2,500 shares
15 certificates each for 5,000 shares
19 certificates each for 10,000 shares
10 certificates each for 25,000 shares
5 certificates each for 50,000 shares
4 certificates each for 100,000 shares
2 certificates each for 250,000 shares
34
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
▇▇▇▇▇▇ Diversified Strategy Master Fund, LLC
Stock Certificate Denominations for the 666,667 Escrow Shares in the name of
▇▇▇▇▇▇ Diversified Strategy Master Fund, LLC:
1 certificate for 1 share
2 certificate for 333 shares
15 certificates each for 500 shares
21 certificates each for 1,000 shares
17 certificates each for 2,500 shares
15 certificates each for 5,000 shares
22 certificates each for 10,000 shares
6 certificates each for 25,000 shares
1 certificates each for 50,000 shares
1 certificates each for 100,000 shares
35
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
Castlerigg Master Investments Ltd.
Stock Certificate Denominations for the 2,000,000 Escrow Shares in the name of
Castlerigg Master Investments Ltd:
10 certificates each for 500 shares
10 certificates each for 1,000 shares
10 certificates each for 2,500 shares
9 certificates each for 5,000 shares
9 certificates each for 10,000 shares
7 certificates each for 25,000 shares
1 certificates each for 50,000 shares
1 certificates each for 100,000 shares
1 certificates each for 500,000 shares
1 certificates each for 1,000,000 shares
36
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTOR
UBS ▇'▇▇▇▇▇▇ LLC F/B/O ▇'▇▇▇▇▇▇ Pipes Corporate Strategies Master Ltd.
Stock Certificate Denominations for the 666,667 Escrow Shares in the name of UBS
▇'▇▇▇▇▇▇ LLC F/B/O ▇'▇▇▇▇▇▇ Pipes Corporate Strategies Master Ltd.:
1 certificate for 1 share
2 certificate for 333 shares
15 certificates each for 500 shares
21 certificates each for 1,000 shares
17 certificates each for 2,500 shares
15 certificates each for 5,000 shares
22 certificates each for 10,000 shares
6 certificates each for 25,000 shares
1 certificates each for 50,000 shares
1 certificates each for 100,000 shares
37
EXHIBITS
--------
Exhibit A Form of Certificate of Designations
Exhibit B Form of Warrants
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Escrow Shares Escrow Agreement
38
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES D CONVERTIBLE PREFERRED STOCK OF
CHARYS HOLDING COMPANY, INC.
Charys Holding Company, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "COMPANY"), hereby certifies that, pursuant
to the authority vested in the Board of Directors of the Company (the "BOARD")
by the Certificate of Incorporation of the Company, as amended (the "CERTIFICATE
OF INCORPORATION"), the following resolution was adopted as of May 18, 2006 by
the Board pursuant to the Section 151 of the Delaware General Corporation Law
("DGCL"):
RESOLVED, that pursuant to the authority granted to and vested in the Board
in accordance with the provisions of the Certificate of Incorporation, as
amended, there shall be created a series of Preferred Stock, $0.001 par value,
which series shall have the following designations and number thereof, powers,
preferences, rights, qualifications, limitations and restrictions:
(1) Designation and Number of Shares. There shall hereby be created and
--------------------------------
established a series of Preferred Stock designated as "Series D Convertible
Preferred Stock" (the "SERIES D PREFERRED STOCK"). The authorized number of
shares of Series D Preferred stock shall be 1,300 shares; provided, that
---------
whatever number of shares of Series D Preferred Stock is not issued and sold in
the offering of Series D Preferred Stock being undertaken contemporaneously with
the creation of the Series D Preferred Stock pursuant to the Securities
Purchase, shall be cancelled, retired and eliminated by the Company from the
shares of Series D Preferred Stock which the Company shall be authorized to
issue. Any such shares of Series D Preferred Stock so cancelled, retired and
eliminated shall have the status of authorized and unissued shares of preferred
stock, issuable in undesignated series and may be redesignated and reissued in
any series other than as Series D Preferred Stock provided that no such
redesignated or reissued shares can be Senior Preferred unless authorized
pursuant to Section 12 hereof.
(2) Dividends and Special Payments. (a) The holders of the shares of Series
------------------------------
D Preferred Stock (each, a "HOLDER" and collectively, the "HOLDERS") shall be
entitled to receive, when, as and if declared by the Board out of funds legally
available for the purpose, quarterly dividends ("DIVIDENDS") payable on the
Stated Value (as defined below) of each share of Series D Preferred Stock at the
Dividend Rate (as defined below). Dividends on the shares of Series D Preferred
Stock shall commence accruing and be cumulative on the Initial Issuance Date and
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months and shall be payable in arrears for each Calendar Quarter on the first
day of the succeeding Calendar Quarter during the period beginning on the
Initial Issuance Date and ending on, and including the Maturity Date (each, a
"DIVIDEND DATE") with the first Dividend Date being August 1, 2006. Prior to the
payment of Dividends on a Dividend Date, Dividends on the shares of Series D
Preferred Stock shall accrue at the Dividend Rate. If a Dividend Date is not a
Business Day (as defined below), then the Dividend shall be due and payable on
the Business Day immediately following such Dividend Date. Dividends shall be
payable in cash. Notwithstanding the foregoing, if on a Dividend Date, the
Company is not permitted under the DGCL (or under any agreement that would
prohibit the payment of such Dividends provided such agreement was in existence
as of the date hereof or entered into subsequent to the date hereof with the
consent of the Required Holders) to pay such Dividends, the Company shall be
permitted to delay payment of such Dividends until the earliest date on which
the Company would be legally permitted to make such payment.
(b) The Holders shall be entitled to receive, when, as and if declared by
the Board out of funds legally available for the purpose, monthly special
payments of $416.67 ("SPECIAL PAYMENTS") for each share of Series D Preferred
Stock. Special Payments on the shares of Series D Preferred Stock shall commence
accruing on November 1, 2006 and shall be payable in arrears for each Calendar
Month on the last day of the Calendar Month during the period beginning on
November 1, 2006 and including the
Maturity Date (each, a "PAYMENT DATE") with the first Payment Date being
November 30, 2006. Prior to the payment of the Special Payment on a Payment
Date, Special Payments on the shares of Series D Preferred Stock shall accrue.
If a Special Payment Date is not a Business Day (as defined below), then the
Special Payment shall be due and payable on the Business Day immediately
following such Special Payment Date. Special Payments shall be paid in cash.
Notwithstanding the foregoing, if on a Special Payment Date, the Company is not
permitted under the DGCL (or under any agreement that would prohibit the payment
of such Special Payment provided such agreement was in existence as of the date
hereof or entered into subsequent to the date hereof with the consent of the
Required Holders) to pay such Special Payments, the Company shall be permitted
to delay payment of such Special Payments until the earliest date on which the
Company would be legally permitted to make such payment. Any conversions of the
Series D Preferred Stock into Common Stock shall be credited against the Special
Payments. As an example, if a Holder converted $400 of the Conversion Amount in
March, then the payment on March 31st of the Special Payment shall be $16.67.
If a Holder converted $10 of the Conversion Amount in March, then the payment on
March 31st of the Special Payment shall be $406.67. If the Holder converted
$500 in March and $100 in April, then the payment of the Special Payment on
April 30 shall be $233.34.
(3) Conversion. Shares of Series D Preferred Stock shall be convertible into
----------
the Company's common shares, $0.001 par value per share (the "COMMON SHARES"),
on the terms and conditions set forth in this Section 3.
(a) Certain Defined Terms. For purposes of this Certificate of
---------------------
Designations, the following terms shall have the following meanings:
(i) "APPROVED SHARE PLAN" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, consultant
or director for services provided to the Company.
(ii) "BLOOMBERG" means Bloomberg Financial Markets.
(iii) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized
or required by law to remain closed.
(iv) "CALENDAR QUARTER" means each of the following periods: the
period beginning on and including May 1 and ending on and including July
30; the period beginning on and including August 1 and ending on and
including October 31; the period beginning on and including November 1 and
ending on and including January 31; and the period beginning on and
including February 1 and ending on and including April 30.
(v) "CHANGE OF CONTROL" means any Fundamental Transaction other than
(A) any reorganization, recapitalization or reclassification in which
holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly
traded securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation)
of such entity or entities, (B) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company or (C) a Fundamental Transaction that has been previously
authorized by a written consent of the Required Holders prior to the
consummation of such Fundamental Transaction.
2
(vi) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported
by Bloomberg, or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 5:00:00 p.m., New York Time,
as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing
bid price or last trade price, respectively, of such security on the
principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of
such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively,
of any market makers for such security as reported in the "pink sheets" by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing
Bid Price or the Closing Sale Price, as the case may be, of such security
on such date shall be the fair market value as mutually determined by the
Company and the Required Holders. If the Company and the Required Holders
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 3(d)(iii). All such
determinations shall be appropriately adjusted for any share dividend,
share split, share combination or other similar transaction during the
applicable calculation period.
(vii) "CONVERSION AMOUNT" means the Stated Value.
(viii) "CONVERSION PRICE" means, with respect to the shares of Series
D Preferred Stock, as of any Conversion Date or other date of
determination, $3.00, subject to adjustment as provided herein.
(ix) "CONVERTIBLE SECURITIES" means any shares or securities (other
than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Shares.
(x) "DIVIDEND RATE" means eight percent (8%) per annum.
(xii) "ELIGIBLE MARKET" means the Principal Market, NYSE, the Nasdaq
National Market, The American Stock Exchange or The Nasdaq Capital Market.
(xiii) "ESCROW AGENT" means Gottbetter & Partners, LLP.
(xiv) "EXCLUDED SECURITIES" means Common Shares issued or deemed to be
issued by the Company or Options: (A) in connection with an Approved Share
Plan or (B) upon issuance of the shares of Series D Preferred Stock or upon
conversion of the shares of Series D Preferred Stock or upon exercise of
the Warrants; (C) issued upon exercise of Options or Convertible Securities
which are outstanding on the date immediately preceding the Subscription
Date, provided that such issuance of Common Shares upon exercise of such
Options or Convertible Securities is made pursuant to the terms of such
Options or Convertible Securities in effect on the date immediately
preceding the Subscription Date and the exercise, conversion or similar
price and the number of shares underlying such Option or Convertible
Security are not amended or changed after the date immediately proceeding
the Subscription Date and the other material terms of such Options or
Convertible Securities are not otherwise amended or changed after the date
immediately preceding the Subscription Date; (D) issued in connection with
any share split, share
3
dividend, recapitalization or similar transaction by the Company for which
adjustment is made pursuant to Section 3(f)(ii); and (E) designated for
issuance in connection with transactions identified on Schedule 3(r) to the
Securities Purchase Agreement.
(xv) "FUNDAMENTAL TRANSACTION" means that (i) the Company shall,
directly or indirectly, in one or more related transactions, (A)
consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (B) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties
or assets of the Company to another Person, or (C) allow another Person to
make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of the outstanding Common Shares (not including any
Common Shares held by the Person or Persons making or party to, or
associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), (D) consummate a share purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding Common Shares (not including any Common Shares held by the
other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such share purchase
agreement or other business combination), or (E) reorganize, recapitalize
or reclassify its Common Shares or (ii) any "person" or "group" (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of 50% of the issued and outstanding
Common Stock or the aggregate ordinary voting power represented by issued
and outstanding Common Stock.
(xvi) "INITIAL ISSUANCE DATE" means May 19, 2006.
(xvii) LIQUIDATION EVENT" means the voluntary or involuntary
liquidation, dissolution or winding up of the Company or such Subsidiaries
the assets of which constitute all or substantially all of the business of
the Company and its Subsidiaries taken as a whole, in a single transaction
or series of transactions.
(xviii) "MATURITY DATE" means, with respect to a Preferred Share,
thirty (30) months after the Initial Issuance Date, unless extended
pursuant to Section 3(d)(vii).
(xix) "NYSE" means The New York Stock Exchange, Inc.
(xx) "OPTIONS" means any rights, warrants or options to subscribe for
or purchase Common Shares or Convertible Securities.
(xxi) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common shares or
equivalent equity security are quoted or listed on an Eligible Market, or,
if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the date
of consummation of the Fundamental Transaction.
(xxii) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xxiii) "PRINCIPAL MARKET" means The National Association of
Securities Dealers Inc.'s Over-The-Counter Bulletin Board.
4
(xxiv) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement by and among the Company and the initial Holders of the
Series D Preferred Stock relating to the filing of a registration statement
covering the resale of the Common Shares issuable upon conversion of the
Series D Preferred Stock and exercise of the Warrants, as such agreement
may be amended from time to time as provided in such agreement.
(xxv) "REQUIRED HOLDERS" means the Holders of shares of Series D
Preferred Stock representing at least a majority of the aggregate shares of
Series D Preferred Stock then outstanding.
(xxvi) "SEC" means the Securities and Exchange Commission.
(xxvii) SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement by and among the Company and the initial Holders, dated
as of the Subscription Date, as such agreement further may be amended from
time to time as provided in such agreement.
(xxviii) STATED VALUE" means $10,000 (as subject to adjustment in the
case of any stock splits, stock combination or similar recapitalization
affecting the Series D Preferred Stock).
(xxix) "SUBSCRIPTION DATE" means May 19, 2006.
(xxx) "SUCCESSOR ENTITY" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the
Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose common
shares or equivalent equity security are quoted or listed for trading on an
Eligible Market, Successor Entity shall mean such Person's Parent Entity.
(xxxi) "TRADING DAY" means any day on which the Common Shares are
traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Shares, then on the principal
securities exchange or securities market on which the Common Shares are
then traded; provided that "Trading Day" shall not include any day on which
the Common Shares are scheduled to trade on such exchange or market for
less than 4.5 hours or any day that the Common Shares are suspended from
trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 5:00:00
p.m., New York Time).
(xxxii) "TRANSACTION DOCUMENTS" means the Securities Purchase
Agreement, this Certificate of Designations, the Warrants, the Registration
Rights Agreement and the Escrow Shares Escrow Agreement delivered in
accordance with the Securities Purchase Agreement.
(xxxiii) "WARRANTS" means the warrants to purchase Common Shares
issued by the Company pursuant to the Securities Purchase Agreement, and
shall include all Warrants issued in exchange thereof or replacement
thereof.
(xxxiv) "WEIGHTED AVERAGE PRICE" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York City
Time, and ending at 4:00:00 p.m., New York City Time, as reported by
Bloomberg through its "Volume at Price" function or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter
5
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00 p.m.,
New York City Time, as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported
in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation
Bureau, Inc.). If the Weighted Average Price cannot be calculated for such
security on such date on any of the foregoing bases, the term "Weighted
Average Price" shall be being substituted for the term "Closing Bid Price."
All such determinations shall be appropriately adjusted for any share
dividend, share split or other similar transaction during such period.
(b) Holder's Conversion Right. Subject to the provisions of Section 6
-------------------------
and Section 14, at any time or times on or after the Initial Issuance Date, any
Holder shall be entitled to convert any whole number of shares of Series D
Preferred Stock into fully paid and nonassessable Common Shares in accordance
with Section 3(d) at the Conversion Rate (as defined below).
(c) Conversion Rate. The number of Common Shares issuable upon
---------------
conversion of each shares of Series D Preferred Stock pursuant to Section 3(b)
shall be determined according to the following formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
No fractional shares of Common Stock are to be issued upon the
conversion of any shares of Series D Preferred Stock, but rather the
number of shares of Common Stock to be issued shall be rounded to the
nearest whole number.
(d) Mechanics of Conversion. The conversion of shares of Series D
-----------------------
Preferred Stock shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert shares of Series D
------------------------------
Preferred Stock into Common Shares on any date (the "CONVERSION DATE"), the
Holder shall transmit by facsimile or email (or otherwise deliver), for
receipt on or prior to 5:00 p.m., New York City Time, at least one Business
Day prior to such Conversion Date, a copy of a properly completed notice of
conversion executed by the registered Holder of the shares of Series D
Preferred Stock subject to such conversion in the form attached hereto as
Exhibit I (the "CONVERSION NOTICE") to the Company and the Escrow Agent.
---------
(ii) Escrow Agent's Response. On or before the first (1st) Business
-----------------------
Day following the date of receipt by the Escrow Agent of such Conversion
Notice (the "SHARE DELIVERY DATE"), and provided the Company shall not have
objected as provided for in subsection (iii) below, the Escrow Agent shall
issue and deliver to the address as specified in the Conversion Notice,
certificates for the number of Escrow Shares to which the Holder shall be
entitled.
(iii) Dispute Resolution. The Company shall have one (1) Business Day
------------------
from transmission of the Conversion Notice by the Holder to object to the
calculation of the Conversion Rate. If the Company fails to object to the
calculation of the number of Escrow Shares to be released or otherwise with
respect to the Conversion Notice, within said time, then the Company shall
be deemed to have waived any objections to said calculation and the
6
Conversion Notice. In the case of a dispute, the Company shall instruct the
Escrow Agent to transfer to the Holder the number of Common Shares that is
not disputed, if any, and shall transmit an explanation of the disputed
determinations or arithmetic calculations to the Holder and Escrow Agent
via facsimile within one (1) Business Day of receipt of such Holder's
Conversion Notice or other date of determination. If such Holder and the
Company are unable to agree on the arithmetic calculation of the Conversion
Rate within one (1) Business Day of such disputed determination or
arithmetic calculation being transmitted to the Holder, then the Company
shall promptly submit via facsimile (A) the disputed determination of the
Closing Sale Price to an independent, reputable investment bank selected by
the Company and approved by the Required Holders or (B) the disputed
arithmetic calculation of the Conversion Rate to the Company's independent,
outside accountant. The Company shall cause, at the Company's expense, the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holders of
the results no later than one (1) Business Day from the time it receives
the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error.
(iv) Record Holder. The Person or Persons entitled to receive the
-------------
Common Shares issuable upon a conversion of shares of Series D Preferred
Stock shall be treated for all purposes as the record holder or holders of
such Common Shares on the Conversion Date.
(v) Mandatory Redemption at Maturity. If any shares of Series D
--------------------------------
Preferred Stock remain outstanding on the Maturity Date, the Company shall
redeem such shares of Series D Preferred Stock in cash in an amount equal
to the outstanding Conversion Amount for such shares of Series D Preferred
Stock plus any accrued but unpaid Dividends less any Special Payments
declared and paid on such shares outstanding (the "MATURITY DATE REDEMPTION
PRICE"). The Company shall pay the Maturity Date Redemption Price on the
Maturity Date by wire transfer of immediately available funds to an account
designated in writing by such Holder. If the Company fails to redeem all of
the shares of Series D Preferred Stock outstanding on the Maturity Date by
payment of the Maturity Date Redemption Price for each such share, then in
addition to any remedy such Holder may have under any Transaction Document,
(I) the applicable Maturity Date Redemption Price payable in respect of
such unredeemed shares of Series D Preferred Stock shall bear interest at
the rate of 3.0% per month, prorated for partial months, until paid in
full, and (II) any Holder shall have the option to require the Company to
convert any or all of such Holder's shares of Series D Preferred Stock and
for which the Maturity Date Redemption Price (together with any interest
thereon) has not been paid into (on a per preferred share basis) shares of
Common Stock equal to the number which results from dividing the Maturity
Date Redemption Price (together with any interest thereon) by the
Conversion Price. If the Company has failed to pay the Maturity Date
Redemption Price in a timely manner as described above, then the Maturity
Date shall be automatically extended for any shares of Series D Preferred
Stock until the date the Holders receive such shares of Common Stock or
Maturity Date Redemption Price. All redemptions shall be made on a pro-rata
basis to all holders of outstanding shares of Series D Preferred Stock.
(vi) Book-Entry. Notwithstanding anything to the contrary set forth
----------
herein, upon conversion of shares of Series D Preferred Stock in accordance
with the terms hereof, any Holder thereof shall not be required to
physically surrender the certificate representing the shares of Series D
Preferred Stock to the Company unless (A) the full or remaining number of
shares of Series D Preferred Stock represented by the certificate are being
converted or (B) such Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of shares of Series D Preferred Stock upon physical surrender of
7
any shares of Series D Preferred Stock. The Holders and the Company shall
maintain records showing the number of shares of Series D Preferred Stock
so converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Holders and the Company, so as not
to require physical surrender of the certificate representing the shares of
Series D Preferred Stock upon each such conversion. In the event of any
dispute or discrepancy, such records of the Company establishing the number
of shares of Series D Preferred Stock to which the record holder is
entitled shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if shares of Series D Preferred Stock
represented by a certificate are converted as aforesaid, a Holder may not
transfer the certificate representing the shares of Series D Preferred
Stock unless such Holder first physically surrenders the certificate
representing the shares of Series D Preferred Stock to the Company,
whereupon the Company will forthwith issue and deliver upon the order of
such Holder a new certificate of like tenor, registered as such Holder may
request, representing in the aggregate the remaining number of shares of
Series D Preferred Stock represented by such certificate. A Holder and any
assignee, by acceptance of a certificate, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of any
shares of Series D Preferred Stock, the number of shares of Series D
Preferred Stock represented by such certificate may be less than the number
of shares of Series D Preferred Stock stated on the face thereof. Each
certificate for shares of Series D Preferred Stock shall bear the following
legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS
OF THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF
PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION
3(d)(vi) OF THE CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE.
(e) Taxes. The Company shall pay any and all documentary, stamp,
-----
transfer (but only in respect of the registered holder thereof) and other
similar taxes that may be payable with respect to the issuance and delivery of
Common Shares upon the conversion of shares of Series D Preferred Stock.
(f) Adjustments to Conversion Price. The Conversion Price will be
-------------------------------
subject to adjustment from time to time as provided in this Section 3(f).
(i) Adjustment of Conversion Price upon Issuance of Common Shares. If
-------------------------------------------------------------
and whenever on or after the Subscription Date, the Company issues or
sells, or in accordance with this Section 3(f) is deemed to have issued or
sold, any Common Shares (including the issuance or sale of Common Shares
owned or held by or for the account of the Company but excluding Excluded
Securities) for a consideration per share (the "NEW ISSUANCE PRICE") less
than a price (the "APPLICABLE PRICE") equal to the Conversion Price in
effect immediately prior to such time (a "DILUTIVE ISSUANCE"), then
immediately after such issue or sale, the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price. For purposes
of determining the adjusted Conversion Price under this Section 3(f)(i),
the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants or
-------------------
sells any Options (other than Options which are Excluded Securities)
and the lowest price per share for which one Common Share is issuable
upon the exercise of any such Option or upon conversion, exchange or
exercise of any Convertible Securities issuable upon
8
exercise of such Option is less than the Applicable Price, then such
Common Share shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section
3(f)(i)(A), the "lowest price per share for which one Common Share is
issuable upon the exercise of any such Option or upon conversion,
exchange or exercise of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to any one Common Share upon granting or sale of
the Option, upon exercise of the Option and upon conversion, exchange
or exercise of any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Shares or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Shares upon conversion, exchange or exercise
of such Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities (other than
Convertible Securities which are Excluded Securities) and the lowest
price per share for which one Common Share is issuable upon such
conversion, exchange or exercise thereof is less than the Applicable
Price, then such Common Share shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the issuance
of sale of such Convertible Securities for such price per share. For
the purposes of this Section 3(f)(i)(B), the "lowest price per share
for which one Common Share is issuable upon such conversion, exchange
or exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one Common Share upon the issuance or sale of the
Convertible Security and upon the conversion, exchange or exercise of
such Convertible Security. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Shares
upon conversion, exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Conversion
Price had been or are to be made pursuant to other provisions of this
Section 3(f)(i), no further adjustment of the Conversion Price shall
be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If the purchase
--------------------------------------------
or exercise price provided for in any Options (other than Options
which are Excluded Securities), the additional consideration, if any,
payable upon the issue, conversion, exchange or exercise of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable or exercisable for
Common Shares changes at any time, the Conversion Price in effect at
the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold. For purposes of
this Section 3(f)(i)(C), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of the shares
of Series D Preferred Stock are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Shares deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as
of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in
effect.
(D) Calculation of Consideration Received. In case any Option
-------------------------------------
(other than
9
Options which are Excluded Securities) is issued in connection with
the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of
$0.001. If any Common Shares, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the gross amount
received by the Company therefor. If any Common Shares, Options or
Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by
the Company will be the fair value of such consideration, except where
such consideration consists of marketable securities, in which case
the amount of consideration received by the Company will be the
arithmetic average of the Closing Sale Prices of such securities
during the ten (10) consecutive Trading Days ending on the date of
receipt of such securities. The fair value of any consideration other
than cash or marketable securities will be determined jointly by the
Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five (5) Business Days after
the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company and the Required Holders.
The determination of such appraiser shall be deemed binding upon all
parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record of the holders of
-----------
Common Shares for the purpose of entitling them (I) to receive a
dividend or other distribution payable in Common Shares, Options or
Convertible Securities or (II) to subscribe for or purchase Common
Shares, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the Common Shares
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(ii) Adjustment of Conversion Price upon Subdivision or Combination of
-----------------------------------------------------------------
Common Shares. If the Company at any time after the Subscription Date
-------------
subdivides (by any share split, share dividend, recapitalization or
otherwise) its outstanding Common Shares into a greater number of shares,
the Conversion Price in effect immediately prior to such subdivision will
be proportionately reduced. If the Company at any time combines (by
combination, reverse share split or otherwise) its outstanding Common
Shares into a smaller number of shares and the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iii) Other Events. If any event occurs of the type contemplated by
------------
the provisions of this Section 3(f) but not expressly provided for by such
provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the
Holders; provided that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 3(f).
(iv) Notices.
-------
(A) Immediately upon any adjustment of the Conversion Price
pursuant to this Section 3(f), the Company will give written notice
thereof to each Holder, setting forth in
10
reasonable detail, and certifying, the calculation of such adjustment.
In the case of a dispute as to the determination of such adjustment,
then such dispute shall be resolved in accordance with the procedures
set forth in Section 3(d)(iii).
(B) The Company will give written notice to each Holder at least
ten (10) Business Days prior to the date on which the Company closes
its books or takes a record (I) with respect to any dividend or
distribution upon the Common Shares, (II) with respect to any pro rata
subscription offer to holders of Common Shares or (III) for
determining rights to vote with respect to any Fundamental Transaction
or Liquidation Event, provided that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to such Holder.
(C) The Company will also give written notice to each Holder no
later than (i) ten (10) Business Days prior to the date on which any
Fundamental Transaction or Liquidation Event will take place and (ii)
the date upon which such Fundamental Transaction or Liquidation Event
is announced to the public; provided that such information shall be
made known to the public prior to or in conjunction with such notice
being provided to such Holder.
(4) Redemption at Option of Holders.
--------------------------------
(a) Triggering Event. A "TRIGGERING EVENT" shall be deemed to have
----------------
occurred at such time as any of the following events:
(i) the failure of the applicable Registration Statement to be
declared effective by the SEC on or prior to the date that is one hundred
twenty (120) days after the applicable Scheduled Effective Deadline (as
defined in the Registration Rights Agreement);
(ii) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is
unavailable to the Holder for sale of all of the Registrable Securities in
accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) days in any 365-day
period;
(iii) the suspension from trading or failure of the Common Shares to
be listed on an Eligible Market for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) Trading Days in any
365-day period;
(iv) the Company's failure to pay to the Holder any amounts when and
as due pursuant to this Certificate of Designations or any other
Transaction Document (as defined in the Securities Purchase Agreement);
(v) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Subsidiary of a
voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (ii) a
decree or order adjudging the Company or any Subsidiary as bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Subsidiary under any applicable Federal or State law or
(iii) appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar
11
official of the Company or any Subsidiary or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days;
(vi) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it
to the entry of a decree or order for relief in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or
State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
any Subsidiary or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action;
(vii) the Company breaches any material representation, warranty,
covenant or other term or condition of any Transaction Document, except, in
the case of a breach or a covenant which is curable, only if the Holder
gives five (5) Business Days prior notice of such breach and it remains
uncured for a period of at least five (5) Business Days;
(viii) If by July 15, 2006, the Company fails to consummate the
acquisition of Crochet & Borel Services, Inc. by the Company; or
(ix) (A) the indictment or conviction of any of the named executive
officers (as defined in Item 402(a)(3) of Regulation S-K) or any of the
directors of the Company of a violation of federal or state securities laws
or (B) the settlement in an amount over $1,000,000 by any such officer or
director of an action relating to such officer's violation of federal or
state securities laws, breach of fiduciary duties or self-dealing.
(b) Redemption Option Upon Triggering Event. In addition to all other
---------------------------------------
rights of the Holders contained herein, after a Triggering Event, each Holder
shall have the right, at such Holder's option, to require the Company to redeem
all or a portion of such Holder's shares of Series D Preferred Stock at a price
per Preferred Share equal to the greater of 115% of (x) the Conversion Amount
less any Special Payments declared and paid and (y) the product of (A) the
Conversion Rate in effect at such time as such Holder delivers a Notice of
Redemption at Option of Holder (as defined below) and (B) the Closing Sale Price
of the Common Shares on the Trading Day immediately preceding such Triggering
Event, in the case of each of clauses (x) and (y) above, plus any accrued but
unpaid Dividends per Preferred Share (the "REDEMPTION PRICE").
(c) Mechanics of Redemption at Option of Buyer. Within two (2) Business
------------------------------------------
Days after the occurrence of a qualifying Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("NOTICE OF
TRIGGERING EVENT") to each Holder. At any time after the earlier of a Holder's
receipt of a Notice of Triggering Event and such Holder becoming aware of a
Triggering Event, any Holder of shares of Series D Preferred Stock then
outstanding may require the Company to redeem up to all of such Holder's shares
of Series D Preferred Stock by delivering written notice thereof via facsimile
and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF HOLDER") to the
Company, which Notice of Redemption at Option of Holder shall indicate the
number of shares of Series
12
D Preferred Stock that such Holder is electing to redeem and a description of
the facts relating to the Triggering Event pursuant to which the Holder is
electing to redeem the shares of Series D Preferred Stock.
(d) Payment of Redemption Price. Upon the Company's receipt of a
---------------------------
Notice(s) of Redemption at Option of Holder from any Holder, the Company shall
promptly notify each Holder by facsimile of the Company's receipt of such
notice(s). The Company shall deliver on the fifth (5th) Business Day after the
Company's receipt of the first Notice of Redemption at Option of Holder the
applicable Redemption Price to all Holders that deliver a Notice of Redemption
at Option of Holder prior to the fifth (5th) Business Day after the Company's
receipt of the first Notice of Redemption at Option of Holder; provided that, if
required by Section 3(d)(vi), a Holder's Certificates for the Series D Preferred
Stock shall have been delivered to the Transfer Agent. To the extent redemptions
required by this Section 4 are deemed or determined by a court of competent
jurisdiction to be prepayments of the shares of Series D Preferred Stock by the
Company, such redemptions shall be deemed to be voluntary prepayments. If the
Company is unable to redeem all of the shares of Series D Preferred Stock
submitted for redemption, the Company shall (i) redeem a pro rata amount from
each Holder based on the number of shares of Series D Preferred Stock submitted
for redemption by such Holder relative to the total number of shares of Series D
Preferred Stock submitted for redemption by all Holders and (ii) in addition to
any remedy such Holder may have under this Certificate of Designation and the
Securities Purchase Agreement, pay to each Holder interest at the rate of 3.0%
per month (prorated for partial months) in respect of each unredeemed shares of
Series D Preferred Stock tendered for redemption until paid in full. The Holders
and Company agree that in the event of the Company's inability to redeem any
shares of Series D Preferred Stock tendered for redemption under this Section 4,
the Holders' damages resulting therefrom would be uncertain and difficult to
estimate because of the parties' inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holders. Accordingly, any redemption premium due under this
Section 4 is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holders' actual loss of its investment opportunity and not as a
penalty.
(e) Void Redemption. In the event that the Company does not pay the
---------------
Redemption Price within the time period set forth in Section 4(d), at any time
thereafter and until the Company pays such unpaid applicable Redemption Price in
full, a Holder shall have the option to, in lieu of redemption, require the
Company to promptly return to such Holder any or all of the shares of Series D
Preferred Stock that were submitted for redemption by such Holder under this
Section 4 and for which the applicable Redemption Price (together with any
interest thereon) has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Optional Redemption Notice, (i) the Notice of
Redemption at Option of Holder shall be null and void with respect to those
shares of Series D Preferred Stock subject to the Void Optional Redemption
Notice, (ii) the Company shall immediately return any shares of Series D
Preferred Stock subject to the Void Optional Redemption Notice, and (iii) the
Conversion Price of such returned shares of Series D Preferred Stock shall be
adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the Void Optional Redemption Notice is delivered to the Company and (B)
the lowest Weighted Average Price of the Common Shares during the period
beginning on the date on which the Notice of Redemption at Option of Holder is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice is delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a dispute as to the
-----------------------
determination of the arithmetic calculation of the Redemption Price, such
dispute shall be resolved pursuant to Section 3(d)(iii) above with the term
"Redemption Price" being substituted for the term "Conversion Rate". A Holder's
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not effect the Company's obligations to make any
payments which have accrued prior to
13
the date of such notice. In the event of a redemption pursuant to this Section 4
of less than all of the shares of Series D Preferred Stock represented by a
particular Certificate, the Company shall promptly cause to be issued and
delivered to the Holder of such shares of Series D Preferred Stock a Certificate
representing the remaining shares of Series D Preferred Stock which have not
been redeemed, if necessary.
(5) Other Rights of Holders.
------------------------
(a) Approval. The Company shall not enter into or be party to a
--------
Fundamental Transaction unless the Required Holders, which must include
Castlerigg Master Investments Ltd. so long as it is the beneficial owner of the
Preferred Stock, shall have consented thereto.
(b) Purchase Rights. If at any time the Company grants, issues or sells
---------------
any Options, Convertible Securities or rights to purchase shares, warrants,
securities or other property pro rata to the record holders of any class of
Common Shares (the "PURCHASE RIGHTS"), then the Holders will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held
the number of Common Shares acquirable upon complete conversion of the shares of
Series D Preferred Stock (without taking into account any limitations or
restrictions on the convertibility of the shares of Series D Preferred Stock)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Shares are to be determined for the grant,
issue or sale of such Purchase Rights.
(c) Limitations on Senior Management Securities. The Company shall not
-------------------------------------------
permit any of its senior management to sell or transfer, directly or indirectly,
any Common Stock, Option, Convertible Security or any other instrument
convertible into or exercisable or exchangeable for Common Stock, or to convert
or exercise any such convertible or exercisable instrument (except as may be
issued pursuant to the terms of an Approved Share Plan) beneficially owned by
such Person, unless (i) the Required Holders shall have executed a written
consent to such sale, transfer or exercise or (ii) the Weighted Average Price of
the Common Stock shall have equaled or exceeded 175% of the initial Conversion
Price (subject to appropriate adjustments for stock splits, stock dividends,
stock combinations and other similar transactions after the Subscription Date)
for each of the sixty (60) consecutive Trading Days' (the "LIMITATION MEASURING
PERIOD") prior to the date of such sale, transfer or exercise (the "SENIOR
MANAGEMENT LIMITATION"). Notwithstanding anything stated herein to the
contrary, the Securities may be pledged by Senior Management in connection with
a bona fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities (or resulting foreclosure on such
Securities by such lender) shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and Senior Management shall not be
required to provide the Holder with any notice thereof or otherwise make any
delivery to the Holder pursuant to this Agreement or any other Transaction
Document.
(6) Limitation on Beneficial Ownership. The Company shall not effect and
----------------------------------
shall have no obligation to effect any conversion of shares of Series D
Preferred Stock, and no Holder shall have the right to convert any shares of
Series D Preferred Stock, to the extent that after giving effect to such
conversion, the beneficial owner of such shares (together with such Person's
affiliates) would have acquired, through conversion of shares of Series D
Preferred Stock or otherwise, beneficial ownership of a number of Common Shares
that exceeds 4.99% ("MAXIMUM PERCENTAGE") of the number of Common Shares
outstanding immediately after giving effect to such conversion. For purposes of
the foregoing sentence, the number of Common Shares beneficially owned by a
Person and its affiliates shall include the number of Common Shares issuable
upon conversion of the shares of Series D Preferred Stock that are subject to a
pending conversion notice for which the determination of whether the Maximum
Percentage had been
14
exceeded is being determined, but shall exclude the number of Common Shares
which would be issuable upon (A) conversion of any remaining, nonconverted
shares of Series D Preferred Stock beneficially owned by such Person or any of
its affiliates not subject to a pending conversion notice and (B) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants) beneficially owned by
such Person or any of its affiliates that are similarly subject to a limitation
on conversion or exercise analogous to the limitation contained in this Section
6. Except as set forth in the preceding sentence, for purposes of this Section
6, beneficial ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended. For purposes of this Section 6,
in determining the number of outstanding Common Shares, a Holder may rely on the
number of outstanding Common Shares as reflected in (1) the Company's most
recent Form 8-K, Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB as the case
may be, (2) a more recent public announcement by the Company, or (3) any other
notice by the Company or its Transfer Agent setting forth the number of Common
Shares outstanding. Upon the written request of any Holder, the Company shall
promptly, but in no event later than one (1) Business Day following the receipt
of such notice, confirm orally and in writing to any such Holder the number of
Common Shares then outstanding. In any case, the number of outstanding Common
Shares shall be determined after giving effect to all conversions of shares of
Series D Preferred Stock by such Holder and its affiliates that had occurred
since the date as of which such number of outstanding Common Shares was
reported. By written notice to the Company, the Holder may increase or decrease
the Maximum Percentage to any other percentage specified in such notice;
provided that (i) any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and not to any other Holder.
(7) Authorized Shares.
------------------
(a) Reservation. The Company shall have sufficient authorized and
-----------
unissued Common Shares for each of the share of Series D Preferred Stock equal
to the sum of (i) the maximum number of Common Shares necessary to effect the
conversion at the Conversion Rate with respect to the Conversion Amount of each
share of Series D Preferred Stock as of the Initial Issuance Date and (ii) the
maximum number of Common Shares necessary to effect the exercise of all of the
Warrants. So long as any of the shares of Series D Preferred Stock are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Shares, solely for the
purpose of effecting the conversion of the shares of Series D Preferred Stock,
the number of Common Shares as shall from time to time be necessary to effect
the conversion of all of the shares of Series D Preferred Stock then
outstanding; provided, that at no time shall the number of Common Shares so
----------
available be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions) (the
"REQUIRED AMOUNT"). The initial number of shares of Common Shares reserved for
conversions of the shares of Series D Preferred Stock and each increase in the
number of shares so reserved shall be allocated pro rata among the Holders based
on the number of shares of Series D Preferred Stock held by each Holder at the
time of issuance of the shares of Series D Preferred Stock or increase in the
number of reserved shares, as the case may be (the "AUTHORIZED SHARE
ALLOCATION"). In the event a Holder shall sell or otherwise transfer any of such
Holder's shares of Series D Preferred Stock, each transferee shall be allocated
a pro rata portion of the number of reserved Common Shares reserved for such
transferor. Any Common Shares reserved and allocated to any Person which ceases
to hold any shares of Series D Preferred Stock shall be allocated to the
remaining Holders of shares of Series D Preferred Stock, pro rata based on the
number of shares of Series D Preferred Stock then held by such Holders.
(b) Insufficient Authorized Shares. If at any time while any of the
------------------------------
shares of Series D Preferred Stock remain outstanding the Company does not have
a sufficient number of authorized and unissued Common Shares to satisfy its
obligation to have available for issuance upon conversion of the
15
shares of Series D Preferred Stock at least a number of Common Shares equal to
the Required Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall as
promptly as practicable take all action necessary to increase the Company's
authorized Common Shares to an amount sufficient to allow the Company to have
available the Required Amount for the shares of Series D Preferred Stock then
outstanding.
(c) Escrow Shares. The Company shall place 8,666,666 Common Shares
-------------
into escrow (the "ESCROW SHARES") with the Escrow Agent. At any time the
Conversion Rate of the Series D Preferred Stock is such that the number of
Escrow Shares is less than the number of Common Shares that would be needed to
satisfy full conversion of the Series D Preferred Stock then outstanding, given
the then current Conversion Rate (the "FULL CONVERSION SHARES"), upon five (5)
Business Days written notice of such circumstance to the Company by the Holder
and the Escrow Agent, the Company shall issue additional share certificates in
the name of the Holders in denominations specified by the Buyer, and deliver
same to the Escrow Agent, such that the new number of Escrow Shares with respect
to the Series D Preferred Stock is equal to the Full Conversion Shares.
(8) Voting Rights. Holders of shares of Series D Preferred Stock shall have
--------------
no voting rights, except as required by law, including but not limited to the
DGCL, and as expressly provided in this Certificate of Designations.
(9) Change of Control Redemption Right. No sooner than fifteen (15) days nor
----------------------------------
later than ten (10) days prior to the consummation of a Change of Control, but
not prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holders (a "CHANGE OF CONTROL NOTICE"); provided, that with respect to a
---------
Fundamental Transaction whereby the Company shall consolidate or merge with or
into another Person whereby the Company is the surviving entity and in which
holders of the Company's voting power immediately prior to such consolidation or
merger continue after such consolidation or merger to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, then, notwithstanding the foregoing, the Change of Control Notice
shall not be required to be delivered prior to the public announcement of such
Change of Control. At any time during the period (the "CHANGE OF CONTROL
PERIOD") beginning after a Holder's receipt of a Change of Control Notice and
ending on the date that is twenty (20) Trading Days after the consummation of
such Change of Control, such Holder may require the Company to redeem all or any
portion of such Holder's shares of Series D Preferred Stock by delivering
written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE") to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount
the Holder is electing to redeem. Any shares of Series D Preferred Stock subject
to redemption pursuant to this Section 9 shall be redeemed by the Company in
cash at a price equal to 110% of the greater of (i) the product of (x) the sum
of the Conversion Amount being redeemed together with any accrued but unpaid
Dividends and Special Payments per Preferred Share and (y) the quotient
determined by dividing (A) the greater of (I) the Closing Sale Price of the
Common Shares immediately following the public announcement of such proposed
Change of Control, (II) the Closing Sale Price of the Common Shares immediately
prior to the announcement of such proposed Change of Control and (III) the
Closing Sale Price immediately prior to the consummation of such proposed Change
of Control by (B) the Conversion Price and (ii) the sum of the Conversion Amount
being redeemed together with any accrued but unpaid Dividends and Special
Payments per Preferred Share (the "CHANGE OF CONTROL REDEMPTION PRICE"). The
Company shall make payment of the Change of Control Redemption Price
concurrently with the consummation of such Change of Control if such a Change of
Control Redemption Notice is received prior to the consummation of such Change
of Control and within five (5) Trading Days after the Company's receipt of such
notice otherwise (the "CHANGE OF CONTROL REDEMPTION DATE"). To the extent
redemptions required by this Section 9 are deemed or determined by a court of
competent jurisdiction to
16
be prepayments of the shares of Series D Preferred Stock by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 9, until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 9 may be
converted, in whole or in part, by the Holder into Common Shares, or in the
event the Conversion Date is after the consummation of the Change of Control,
shares or equity interests of the Successor Entity substantially equivalent to
the Company's Common Shares. The parties hereto agree that in the event of a
Change of Control and the Company's redemption of any portion of the Series D
Preferred Stock under this Section 9 as a result thereof, the Holder's damages
would be uncertain and difficult to estimate because of the parties' inability
to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any
redemption premium due under this Section 9 is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty. In the event that the Company does
not pay the Change of Control Redemption Price on the Change of Control
Redemption Date, then the Holder shall have the right to void the redemption
using the same procedures set forth in Section 4(e) but substituting the term
"Change of Control Redemption Price" for "Redemption Price" and substituting the
term "Change of Control Redemption Notice" for "Notice of Redemption at Option
of Holder".
(10) Liquidation, Dissolution, Winding-Up. In the event of a Liquidation
-------------------------------------
Event, the Holders shall be entitled to receive in cash out of the assets of the
Company, whether from capital or from earnings available for distribution to its
shareholders (the "LIQUIDATION FUNDS"), before any amount shall be paid to the
holders of any of the capital shares of the Company of any class junior in rank
to the shares of Series D Preferred Stock in respect of the preferences as to
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per shares of Series D Preferred Stock equal to 120% of the
Conversion Amount plus the amount of any accrued but unpaid Dividends and
Special Payments per shares of Series D Preferred Stock; provided that, if the
Liquidation Funds are insufficient to pay the full amount due to the Holders and
holders of shares of other classes or series of preferred shares of the Company
that are of equal rank with the shares of Series D Preferred Stock as to
payments of Liquidation Funds (the "PARI PASSU SHARES"), then each Holder and
holder of Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such Holder and holders
of Pari Passu Shares, as the case may be, as a liquidation preference, in
accordance with their respective certificate of designations (or equivalent), as
a percentage of the full amount of Liquidation Funds payable to all holders of
shares of Series D Preferred Stock and Pari Passu Shares. To the extent
necessary, the Company shall cause such actions to be taken by any of its
Subsidiaries so as to enable, to the maximum extent permitted by law, the
proceeds of a Liquidation Event to be distributed to the Holders in accordance
with this Section. All the preferential amounts to be paid to the Holders under
this Section shall be paid or set apart for payment before the payment or
setting apart for payment of any amount for, or the distribution of any
Liquidation Funds of the Company to the holders of shares of other classes or
series of preferred shares of the Company junior in rank to the shares of Series
D Preferred Stock in connection with a Liquidation Event as to which this
Section applies. The purchase or redemption by the Company of shares of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a Liquidation Event.
(11) Preferred Rank. All Common Shares shall be of junior rank to all shares
---------------
of Series D Preferred Stock with respect to the preferences as to dividends,
distributions and payments upon the liquidation, dissolution and winding up of
the Company. The rights of the Common Shares shall be subject to the preferences
and relative rights of the shares of Series D Preferred Stock. Without the prior
express written consent of the Required Holders, the Company shall not hereafter
authorize or issue additional or other capital shares that are of senior or
pari-passu rank to the shares of Series D Preferred Stock in respect of the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company (collectively "SENIOR PREFERRED") The Company
shall be permitted to issue preferred shares
17
that are junior in rank to the shares of Series D Preferred Stock in respect of
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company, provided, that the maturity date (or
--------
any other date requiring redemption, repayment or any other payment, including
without limitation, dividends, in respect of any such preferred shares) of any
such junior preferred shares is not on or before 91 days after the Maturity
Date. In the event of the merger or consolidation of the Company with or into
another corporation, the shares of Series D Preferred Stock shall maintain their
relative powers, designations and preferences provided for herein (except that
the shares of Series D Preferred Stock may be pari passu with, but not junior
to, any capital shares of the successor entity) and no merger shall result
inconsistent therewith. The Series D Preferred Stock shall be junior to, and
shall be subject to the preferences and relative rights of holders of the
Company's Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock as to distributions and payments upon the liquidation,
dissolution and winding up of the Company.
(12) Vote to Change the Terms of or Issue Series D Preferred Stock. In
-------------------------------------------------------------
addition to any other rights provided by law, except where the vote or written
consent of the holders of a greater number of shares is required by law or by
another provision of the Certificate of Incorporation, without first obtaining
the affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders, voting together as a single
class, the Company shall not: (u) amend or repeal any provision of, or add any
provision to, the Certificate of Incorporation or bylaws, or file any
certificate of designations or articles of amendment of any series of preferred
shares, if such action would adversely alter or change the preferences, rights,
privileges or powers of, or restrictions provided for the benefit of the Series
D Preferred Stock, regardless of whether any such action shall be by means of
amendment to the Certificate of Incorporation or by merger, consolidation or
otherwise; (v) increase or decrease (other than by conversion) the authorized
number of the Series D Preferred Stock; (w) create or authorize (by
reclassification or otherwise) any new class or series of shares that has a
preference over or is on a parity with the Series D Preferred Stock with respect
to dividends or the distribution of assets on the liquidation, dissolution or
winding up of the Company; (x) purchase, repurchase or redeem any Common Shares
(other than pursuant to equity incentive agreements with employees giving the
Company the right to repurchase shares upon the termination of services); (y)
pay dividends or make any other distribution on the Common Shares; or (z)
whether or not prohibited by the terms of the Series D Preferred Stock,
circumvent a right of the Series D Preferred Stock.
(13) Lost or Stolen Certificates. Upon receipt by the Company of evidence
----------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Certificates representing the shares of Series D Preferred
Stock, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Certificate(s), the Company
shall execute and deliver new Certificate(s) of like tenor and date; provided,
however, the Company shall not be obligated to re-issue Certificates if the
Holder contemporaneously requests the Company to convert such shares of Series D
Preferred Stock into Common Shares.
(14) Remedies, Characterizations, Other Obligations, Breaches and Injunctive
-----------------------------------------------------------------------
Relief. The remedies provided in this Certificate of Designations shall be
-------
cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief). No remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy.
Nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder thereof and shall not, except as expressly provided
herein, be subject to any other
18
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holders and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened
breach, the Holders shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
(15) Failure or Indulgence Not Waiver. No failure or delay on the part of a
--------------------------------
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(16) Notice. Whenever notice is required to be given under this Certificate
-------
of Designations, unless otherwise provided herein, such notice must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Charys Holding Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Transfer Agent:
Fidelity Transfer Company
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to a holder of Securities, to its address and facsimile number set forth in
the records of the Company, with a copy (for informational purposes only) to:
Gottbetter & Partners, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
19
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(17) Transfer of Series D Preferred Stock. A Holder may assign some or all
------------------------------------
of the shares of Series D Preferred Stock and the accompanying rights hereunder
held by such Holder without the consent of the Company; provided that such
assignment is in compliance with applicable securities laws.
(18) Series D Preferred Stock Register. The Company shall maintain at its
---------------------------------
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holders), a register for the Series D Preferred
Stock, in which the Company shall record the name, address and facsimile number
of the persons in whose name the shares of Series D Preferred Stock have been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Series D Preferred Stock is registered on the
register as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, but in all events recognizing any properly made
transfers.
(19) Dispute Resolution. In the case of a dispute regarding any of the
------------------
provisions hereof, the Company shall submit such dispute via facsimile within
two Business Days of receipt of the notice giving rise to such dispute, as the
case may be, to the Holder. If the Holder and the Company are unable to agree
upon such dispute within three Business Days of such dispute being submitted to
the Holder, then the Company shall, within two Business Days thereafter submit
via facsimile such dispute to an independent, reputable investment bank selected
by the Company and approved by the Holder or to the Company's independent,
outside accountant. The Company shall cause at its expense the investment bank
or the accountant, as the case may be, and notify the Company and the Holder of
the results no later than ten Business Days from the time it receives the
dispute. Such investment bank's or accountant's determination or calculation, as
the case may be, shall be binding upon all parties absent demonstrable error.
(20) Disclosure. Upon receipt or delivery by the Company of any notice in
----------
accordance with the terms of this Certificate of Designations, unless the
Company has in good faith determined that the matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries, the Company shall within one (1) Business Day after any such
receipt or delivery publicly disclose such material, nonpublic information on a
Current Report on Form 8-K or otherwise. In the event that the Company believes
that a notice contains material, nonpublic information relating to the Company
or its Subsidiaries, the Company so shall indicate to the Holders
contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holders shall be allowed to presume that all matters relating to
such notice do not constitute material, nonpublic information relating to the
Company or its Subsidiaries.
20
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer
of the Company, has executed this Certificate of Designations this day of
May, 2006.
CHARYS HOLDING COMPANY, INC.
By:
------------------------------
Name:
Title:
21
EXHIBITI
--------
CHARYS HOLDING COMPANY, INC. CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
the Series D Convertible Preferred Stock of Charys Holding Company, Inc. (the
"CERTIFICATE OF DESIGNATIONS"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series D Convertible Preferred Stock, par value $0.001 per share
(the "SERIES D PREFERRED STOCK"), of Charys Holding Company, Inc., a Delaware
corporation (the "COMPANY"), indicated below into Common Shares, par value
$0.001 per share (the "COMMON SHARES"), of the Company, as of the date specified
below.
Date of Conversion:
Number of shares of Series D Preferred Stock to be converted:
Share certificate no(s). of Series D Preferred Stock to be converted:
Tax ID Number (If applicable):
Applicable Conversion Price:
Number of Common Shares to be issued:
Authorization:
By:
----------------------------
Name:
----------------------------
Title:
-------------------------
Dated:
Account Number (if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
22
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO AN
AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 001
Number of Shares of Common Stock: 1,666,666
Date of Issuance: May 19, 2006 ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, GOTTBETTER CAPITAL MASTER, LTD.,
the registered holder hereof or its permitted assigns (the "HOLDER"), is
entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any
time or times on or after the date hereof but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below), One Million Six Hundred
Sixty-Six Thousand Six Hundred Sixty-Six (1,666,666) fully paid nonassessable
shares of Common Stock (as defined below) (the "WARRANT SHARES"). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. This Warrant is one of the Warrants to
purchase Common Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of May 19, 2006 (the
"SUBSCRIPTION DATE"), by and among the Company and the investors (the "BUYERS")
referred to therein (the "SECURITIES PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
---------------------
(a) Mechanics of Exercise. Subject to the terms and
-----------------------
conditions hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the date hereof, in whole or in part, by (i) delivery of a written notice,
in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the
---------
Holder's election to exercise this Warrant and (ii) (A) payment to Gottbetter &
Partners, LLP (the "ESCROW AGENT") of an amount equal to the applicable Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of
immediately available funds or (B) by notifying the Escrow Agent that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the second Business Day following the date on which the Escrow Agent has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Escrow Agent
shall transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company. On or before the
third Business Day following the date on which the Company has received all of
the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Escrow Agent
shall (X) provided that the Company's transfer agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Company's transfer agent is not participating
in the DTC Fast Automated Securities Transfer Program, transfer and dispatch by
overnight courier to the address as specified in the Exercise Notice,
certificates for the approximate number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Escrow Agent of a Cashless Exercise referred to in Section
1(d), the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of the certificates
evidencing such Warrant Shares. If this Warrant is submitted in connection with
any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than five Business Days after any exercise
and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be transferred upon the exercise of this Warrant,
but rather the number of shares of Common Stock to be transferred shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
which may be payable with respect to the issuance and delivery of Warrant Shares
upon exercise of this Warrant. In the event that the Escrow Agent does not have
a sufficient number of shares of Common Stock to transfer to the Holder upon the
exercise of this Warrant (including, but not limited to, by reason of additional
Warrant Shares required to be issued pursuant to Section 2 herein, and such
Warrant Shares had not previously been delivered to the Escrow Agent), then the
Company shall within 1 Business Day of the date of delivery of an Exercise
Notice deliver such additional number of Warrant Shares to the Escrow Agent.
- 2 -
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $6.24, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In
---------------------------------------------------
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of an exercise notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such Escrow Shares resulting from such
exercise shall terminate, or (ii) promptly honor its obligation to deliver to
the Buyer a certificate or certificates representing such Escrow Shares and pay
cash to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). Notwithstanding the foregoing, the Company shall have no
obligations to cause its Escrow Agent to deliver Escrow Shares or to pay any
Buy-In Price under this Section 1(c) if the Company has timely delivered in good
faith a bonafide objection to such conversion or exercise notice.
(d) Cashless Exercise. Notwithstanding anything contained
------------------
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
- 3 -
Net Number = (A x B) - (A x C)
-----------------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of Common Stock
(as reported by Bloomberg) on the five Trading Days immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the
--------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Escrow Agent shall promptly transfer to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership.
------------------------------------------------
The Escrow Agent shall not effect the exercise of this Warrant, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own (directly or indirectly through Warrant
Shares or otherwise) in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Securities and the SPA Warrants, by the Holder
and its affiliates since the
- 4 -
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.
(ii) Principal Market Regulation. The Company shall not
---------------------------
be obligated to issue any shares of Common Stock upon exercise of this Warrant
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise or otherwise, as applicable, of the SPA Securities and Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval or
written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
- 5 -
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
---------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If
----------------------------------------------------
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options
- 6 -
or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
- 7 -
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "VALUATION
EVENT"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of
---------------------------------------------------------
Common Stock. If the Company at any time on or after the Subscription Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect
- 8 -
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the Company at
any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment under
this Section 2(b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type
-------------
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
--------------------------------------
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) ("OTHER SHARES OF
COMMON STOCK") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
- 9 -
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
---------------
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the "PURCHASE RIGHTS"), then, upon exercise of this
Warrant, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the proportionate number of shares of Common
Stock acquirable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or
-------------------------
is party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
SPA Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of
- 10 -
Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 120% (or such lesser amount limited by the SEC) of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
-----------------------------------------
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be
---------------------
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-----------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
- 11 -
(d) Issuance of New Warrants. Whenever the Company is
---------------------------
required to issue a new Warrant pursuant to the terms of this Warrant, such new
Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the
------------
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of the terms of this Warrant
will continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and
--------------
construed and enforced in accor-dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
- 12 -
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
-----------------------
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
-------------------------------------------------------------
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
--------
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the
--------------------
following terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the "OV"
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request
- 13 -
and (ii) an expected volatility equal to the greater of 60% and the 100 day
volatility obtained from the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.10 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
- 14 -
(h) "ELIGIBLE MARKET" means the Principal Market, the
American Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital
Market or the Nasdaq National Market.
(i) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by such number of holders of outstanding shares of Common
Stock resulting in such Person (together with any affiliates of such Person)
holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person resulting in such other Person (together with any affiliates of
such person) holding more than the 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination,
or (v) reorganize, recapitalize or reclassify its Common Stock.
(k) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Preferred Stock issued
pursuant to the Securities Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
of the shares of Common Stock ("WARRANT SHARES") of Charys
-----------------
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
a "Cash Exercise" with respect to
------------ --------------- -----------------
Warrant Shares; and/or
a "Cashless Exercise" with respect to
------------ ------------------- ---------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $ to the Company in accordance with the terms
-------------------
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
----------
Date: ,
--------------- -- ------
------------------------------------
Name of Registered Holder
By:
-------------------------------
Name:
Title:
ACKNOWLEDGMENT
Gottbetter & Partners, LLP hereby acknowledges this Exercise Notice and
will transfer shares of Common Stock.
--------------------
GOTTBETTER & PARTNERS. LLP
By:
-------------------------------------
Name:
Title:
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO AN
AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 002
Number of Shares of Common Stock: 866,667
Date of Issuance: May 19, 2006 ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ENABLE GROWTH PARTNERS LP, the
registered holder hereof or its permitted assigns (the "HOLDER"), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the "WARRANT"), at any time or
times on or after the date hereof but not after 11:59 p.m., New York Time, on
the Expiration Date (as defined below), Eight Hundred Sixty Six Thousand Six
Hundred Sixty-Seven (866,667) fully paid nonassessable shares of Common Stock
(as defined below) (the "WARRANT SHARES"). Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section
16. This Warrant is one of the Warrants to purchase Common Stock (the "SPA
WARRANTS") issued pursuant to Section 1 of that certain Securities Purchase
Agreement, dated as of May 19, 2006 (the "SUBSCRIPTION DATE"), by and among the
Company and the investors (the "BUYERS") referred to therein (the "SECURITIES
PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
--------------------
(a) Mechanics of Exercise. Subject to the terms and
-----------------------
conditions hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the date hereof, in whole or in part, by (i) delivery of a written notice,
in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the
---------
Holder's election to exercise this Warrant and (ii) (A) payment to Gottbetter &
Partners, LLP (the "ESCROW AGENT") of an amount equal to the applicable Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of
immediately available funds or (B) by notifying the Escrow Agent that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the second Business Day following the date on which the Escrow Agent has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Escrow Agent
shall transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company. On or before the
third Business Day following the date on which the Company has received all of
the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Escrow Agent
shall (X) provided that the Company's transfer agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Company's transfer agent is not participating
in the DTC Fast Automated Securities Transfer Program, transfer and dispatch by
overnight courier to the address as specified in the Exercise Notice,
certificates for the approximate number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Escrow Agent of a Cashless Exercise referred to in Section
1(d), the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of the certificates
evidencing such Warrant Shares. If this Warrant is submitted in connection with
any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than five Business Days after any exercise
and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be transferred upon the exercise of this Warrant,
but rather the number of shares of Common Stock to be transferred shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
which may be payable with respect to the issuance and delivery of Warrant Shares
upon exercise of this Warrant. In the event that the Escrow Agent does not have
a sufficient number of shares of Common Stock to transfer to the Holder upon the
exercise of this Warrant (including, but not limited to, by reason of additional
Warrant Shares required to be issued pursuant to Section 2 herein, and such
Warrant Shares had not previously been delivered to the Escrow Agent), then the
Company shall within 1 Business Day of the date of delivery of an Exercise
Notice deliver such additional number of Warrant Shares to the Escrow Agent.
- 2 -
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $6.24, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In
---------------------------------------------------
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of an exercise notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such Escrow Shares resulting from such
exercise shall terminate, or (ii) promptly honor its obligation to deliver to
the Buyer a certificate or certificates representing such Escrow Shares and pay
cash to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). Notwithstanding the foregoing, the Company shall have no
obligations to cause its Escrow Agent to deliver Escrow Shares or to pay any
Buy-In Price under this Section 1(c) if the Company has timely delivered in good
faith a bonafide objection to such conversion or exercise notice.
(d) Cashless Exercise. Notwithstanding anything contained
------------------
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
- 3 -
Net Number = (A x B) - (A x C)
-----------------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of Common Stock
(as reported by Bloomberg) on the five Trading Days immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the
--------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Escrow Agent shall promptly transfer to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership.
------------------------------------------------
The Escrow Agent shall not effect the exercise of this Warrant, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own (directly or indirectly through Warrant
Shares or otherwise) in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Securities and the SPA Warrants, by the Holder
and its affiliates since the
- 4 -
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.
(ii) Principal Market Regulation. The Company shall not
---------------------------
be obligated to issue any shares of Common Stock upon exercise of this Warrant
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise or otherwise, as applicable, of the SPA Securities and Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval or
written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
- 5 -
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
---------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If
----------------------------------------------------
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options
- 6 -
or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
- 7 -
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "VALUATION
EVENT"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of
---------------------------------------------------------
Common Stock. If the Company at any time on or after the Subscription Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect
- 8 -
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the Company at
any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment under
this Section 2(b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type
-------------
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
--------------------------------------
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) ("OTHER SHARES OF
COMMON STOCK") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
- 9 -
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
---------------
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the "PURCHASE RIGHTS"), then, upon exercise of this
Warrant, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the proportionate number of shares of Common
Stock acquirable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or
-------------------------
is party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
SPA Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of
- 10 -
Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 120% (or such lesser amount limited by the SEC) of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
-----------------------------------------
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be
---------------------
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-----------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
- 11 -
(d) Issuance of New Warrants. Whenever the Company is
---------------------------
required to issue a new Warrant pursuant to the terms of this Warrant, such new
Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the
------------
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of the terms of this Warrant
will continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and
--------------
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
- 12 -
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
-----------------------
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
-------------------------------------------------------------
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
--------
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the
--------------------
following terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the "OV"
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request
- 13 -
and (ii) an expected volatility equal to the greater of 60% and the 100 day
volatility obtained from the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.10 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
- 14 -
(h) "ELIGIBLE MARKET" means the Principal Market, the
American Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital
Market or the Nasdaq National Market.
(i) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by such number of holders of outstanding shares of Common
Stock resulting in such Person (together with any affiliates of such Person)
holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person resulting in such other Person (together with any affiliates of
such person) holding more than the 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination,
or (v) reorganize, recapitalize or reclassify its Common Stock.
(k) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Preferred Stock issued
pursuant to the Securities Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
of the shares of Common Stock ("WARRANT SHARES") of Charys
-----------------
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
a "Cash Exercise" with respect to
------------ --------------- -----------------
Warrant Shares; and/or
a "Cashless Exercise" with respect to
------------ ------------------- ---------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $ to the Company in accordance with the terms
-------------------
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
----------
Date: ,
--------------- -- ------
--------------------------------------
Name of Registered Holder
By:
---------------------------------
Name:
Title:
ACKNOWLEDGMENT
Gottbetter & Partners, LLP hereby acknowledges this Exercise Notice and
will transfer shares of Common Stock.
--------------------
GOTTBETTER & PARTNERS. LLP
By:
-------------------------------------
Name:
Title:
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO
AN AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 003
Number of Shares of Common Stock: 133,333
Date of Issuance: May 19, 2006 ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ENABLE OPPORTUNITY PARTNERS LP,
the registered holder hereof or its permitted assigns (the "HOLDER"), is
entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any
time or times on or after the date hereof but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below), One Hundred Thirty Three
Thousand Three Hundred Thirty Three (133,333) fully paid nonassessable shares of
Common Stock (as defined below) (the "WARRANT SHARES"). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 16. This Warrant is one of the Warrants to purchase Common
Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of May 19, 2006 (the "SUBSCRIPTION
DATE"), by and among the Company and the investors (the "BUYERS") referred to
therein (the "SECURITIES PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
---------------------
(a) Mechanics of Exercise. Subject to the terms and
-----------------------
conditions hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the date hereof, in whole or in part, by (i) delivery of a written notice,
in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the
---------
Holder's election to exercise this Warrant and (ii) (A) payment to Gottbetter &
Partners, LLP (the "ESCROW AGENT") of an amount equal to the applicable Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of
immediately available funds or (B) by notifying the Escrow Agent that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the second Business Day following the date on which the Escrow
Agent has received each of the Exercise Notice and the Aggregate Exercise Price
(or notice of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the
Escrow Agent shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company. On or
before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the
Escrow Agent shall (X) provided that the Company's transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the Holder, credit such aggregate number
of shares of Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (Y) if the Company's transfer
agent is not participating in the DTC Fast Automated Securities Transfer
Program, transfer and dispatch by overnight courier to the address as specified
in the Exercise Notice, certificates for the approximate number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A) above or notification to the Escrow Agent of a Cashless Exercise
referred to in Section 1(d), the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is
submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than five
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be transferred upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
transferred shall be rounded up to the nearest whole number. The Company shall
pay any and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. In the event that the
Escrow Agent does not have a sufficient number of shares of Common Stock to
transfer to the Holder upon the exercise of this Warrant (including, but not
limited to, by reason of additional Warrant Shares required to be issued
pursuant to Section 2 herein, and such Warrant Shares had not previously been
delivered to the Escrow Agent), then the Company shall within 1 Business Day of
the date of delivery of an Exercise Notice deliver such additional number of
Warrant Shares to the Escrow Agent.
- 2 -
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $6.24, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In
---------------------------------------------------
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of an exercise notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such Escrow Shares resulting from such
exercise shall terminate, or (ii) promptly honor its obligation to deliver to
the Buyer a certificate or certificates representing such Escrow Shares and pay
cash to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). Notwithstanding the foregoing, the Company shall have no
obligations to cause its Escrow Agent to deliver Escrow Shares or to pay any
Buy-In Price under this Section 1(c) if the Company has timely delivered in good
faith a bonafide objection to such conversion or exercise notice.
(d) Cashless Exercise. Notwithstanding anything contained
------------------
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
- 3 -
Net Number = (A x B) - (A x C)
-----------------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of Common Stock
(as reported by Bloomberg) on the five Trading Days immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the
--------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Escrow Agent shall promptly transfer to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership.
------------------------------------------------
The Escrow Agent shall not effect the exercise of this Warrant, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own (directly or indirectly through Warrant
Shares or otherwise) in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Securities and the SPA Warrants, by the Holder
and its affiliates since the
- 4 -
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.
(ii) Principal Market Regulation. The Company shall not
---------------------------
be obligated to issue any shares of Common Stock upon exercise of this Warrant
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise or otherwise, as applicable, of the SPA Securities and Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval or
written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
- 5 -
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
---------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If
----------------------------------------------------
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options
- 6 -
or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
- 7 -
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "VALUATION
EVENT"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of
---------------------------------------------------------
Common Stock. If the Company at any time on or after the Subscription Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect
- 8 -
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the Company at
any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment under
this Section 2(b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type
-------------
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
--------------------------------------
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) ("OTHER SHARES OF
COMMON STOCK") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
- 9 -
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
---------------
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the "PURCHASE RIGHTS"), then, upon exercise of this
Warrant, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the proportionate number of shares of Common
Stock acquirable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or
-------------------------
is party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
SPA Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of
- 10 -
Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 120% (or such lesser amount limited by the SEC) of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
-----------------------------------------
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be
---------------------
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-----------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
- 11 -
(d) Issuance of New Warrants. Whenever the Company is
---------------------------
required to issue a new Warrant pursuant to the terms of this Warrant, such new
Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the
------------
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of the terms of this Warrant
will continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and
--------------
construed and enforced in accor-dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
- 12 -
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
-----------------------
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
-------------------------------------------------------------
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
--------
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the
--------------------
following terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the "OV"
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request
- 13 -
and (ii) an expected volatility equal to the greater of 60% and the 100 day
volatility obtained from the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.10 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
- 14 -
(h) "ELIGIBLE MARKET" means the Principal Market, the
American Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital
Market or the Nasdaq National Market.
(i) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by such number of holders of outstanding shares of Common
Stock resulting in such Person (together with any affiliates of such Person)
holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person resulting in such other Person (together with any affiliates of
such person) holding more than the 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination,
or (v) reorganize, recapitalize or reclassify its Common Stock.
(k) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Preferred Stock issued
pursuant to the Securities Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By:
----------------------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
of the shares of Common Stock ("WARRANT SHARES") of Charys
-----------------
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
a "Cash Exercise" with respect to
------------ --------------- -----------------
Warrant Shares; and/or
a "Cashless Exercise" with respect to
------------ ------------------- ---------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $ to the Company in accordance with the terms
-------------------
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
----------
Date: ,
--------------- -- ------
----------------------------------
Name of Registered Holder
By:
-----------------------------
Name:
Title:
ACKNOWLEDGMENT
Gottbetter & Partners, LLP hereby acknowledges this Exercise Notice and
will transfer shares of Common Stock.
--------------------
GOTTBETTER & PARTNERS. LLP
By:
----------------------------------------------
Name:
Title:
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO
AN AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 004
Number of Shares of Common Stock: 333,333
Date of Issuance: May 19, 2006 ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ▇▇▇▇▇▇ DIVERSIFIED STRATEGY MASTER
FUND LLC, the registered holder hereof or its permitted assigns (the "HOLDER"),
is entitled, subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any
time or times on or after the date hereof but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below), Three Hundred Thirty-Three
Thousand Three Hundred Thirty-Three (333,333) fully paid nonassessable shares of
Common Stock (as defined below) (the "WARRANT SHARES"). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 16. This Warrant is one of the Warrants to purchase Common
Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of May 19, 2006 (the "SUBSCRIPTION
DATE"), by and among the Company and the investors (the "BUYERS") referred to
therein (the "SECURITIES PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
---------------------
(a) Mechanics of Exercise. Subject to the terms and
-----------------------
conditions hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the date hereof, in whole or in part, by (i) delivery
of a written notice, in the form attached hereto as Exhibit A (the "EXERCISE
---------
NOTICE"), of the Holder's election to exercise this Warrant and (ii) (A) payment
to Gottbetter & Partners, LLP (the "ESCROW AGENT") of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to which
this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire
transfer of immediately available funds or (B) by notifying the Escrow Agent
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the second Business Day following the date on which the Escrow
Agent has received each of the Exercise Notice and the Aggregate Exercise Price
(or notice of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the
Escrow Agent shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company. On or
before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the
Escrow Agent shall (X) provided that the Company's transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the Holder, credit such aggregate number
of shares of Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (Y) if the Company's transfer
agent is not participating in the DTC Fast Automated Securities Transfer
Program, transfer and dispatch by overnight courier to the address as specified
in the Exercise Notice, certificates for the approximate number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A) above or notification to the Escrow Agent of a Cashless Exercise
referred to in Section 1(d), the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is submitted
in connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than five Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be transferred upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
transferred shall be rounded up to the nearest whole number. The Company shall
pay any and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. In the event that the
Escrow Agent does not have a sufficient number of shares of Common Stock to
transfer to the Holder upon the exercise of this Warrant (including, but not
limited to, by reason of additional Warrant Shares required to be issued
pursuant to Section 2 herein, and such Warrant Shares had not previously been
delivered to the Escrow Agent), then the Company shall within 1 Business Day of
the date of delivery of an Exercise Notice deliver such additional number of
Warrant Shares to the Escrow Agent.
- 2 -
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $6.24, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In
---------------------------------------------------
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of an exercise notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such Escrow Shares resulting from such
exercise shall terminate, or (ii) promptly honor its obligation to deliver to
the Buyer a certificate or certificates representing such Escrow Shares and pay
cash to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). Notwithstanding the foregoing, the Company shall have no
obligations to cause its Escrow Agent to deliver Escrow Shares or to pay any
Buy-In Price under this Section 1(c) if the Company has timely delivered in good
faith a bonafide objection to such conversion or exercise notice.
(d) Cashless Exercise. Notwithstanding anything contained
------------------
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
- 3 -
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of Common Stock
(as reported by Bloomberg) on the five Trading Days immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the
--------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Escrow Agent shall promptly transfer to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership.
------------------------------------------------
The Escrow Agent shall not effect the exercise of this Warrant, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own (directly or indirectly through Warrant
Shares or otherwise) in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the SPA Securities and the SPA Warrants, by
the Holder and its affiliates since the
- 4 -
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.
(ii) Principal Market Regulation. The Company shall not
---------------------------
be obligated to issue any shares of Common Stock upon exercise of this Warrant
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise or otherwise, as applicable, of the SPA Securities and Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval
or written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
- 5 -
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
---------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If
----------------------------------------------------
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options
- 6 -
or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
- 7 -
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "VALUATION
EVENT"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of
---------------------------------------------------------
Common Stock. If the Company at any time on or after the Subscription Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect
- 8 -
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the Company at
any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment
under this Section 2(b) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type
-------------
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
--------------------------------------
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) ("OTHER SHARES OF
COMMON STOCK") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
- 9 -
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
---------------
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the "PURCHASE RIGHTS"), then, upon exercise of this
Warrant, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the proportionate number of shares of Common
Stock acquirable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or
-------------------------
is party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
SPA Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of
- 10 -
Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 120% (or such lesser amount limited by the SEC) of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
-----------------------------------------
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be
---------------------
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-----------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
- 11 -
(d) Issuance of New Warrants. Whenever the Company is
---------------------------
required to issue a new Warrant pursuant to the terms of this Warrant, such new
Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the
------------
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of the terms of this Warrant
will continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and
--------------
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
- 12 -
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
-----------------------
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
-------------------------------------------------------------
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder of
this Warrant shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
--------
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the
--------------------
following terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the "OV"
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request
- 13 -
and (ii) an expected volatility equal to the greater of 60% and the 100 day
volatility obtained from the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.10 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
- 14 -
(h) "ELIGIBLE MARKET" means the Principal Market, the
American Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital
Market or the Nasdaq National Market.
(i) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by such number of holders of outstanding shares of Common
Stock resulting in such Person (together with any affiliates of such Person)
holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person resulting in such other Person (together with any affiliates of
such person) holding more than the 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination,
or (v) reorganize, recapitalize or reclassify its Common Stock.
(k) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Preferred Stock issued
pursuant to the Securities Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
of the shares of Common Stock ("WARRANT SHARES") of Charys
-----------------
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
a "Cash Exercise" with respect to
------------ -------------- -----------------
Warrant Shares; and/or
a "Cashless Exercise" with respect to
------------ ------------------- ---------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $ to the Company in accordance with the terms
-------------------
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
----------
Date: ,
--------------- -- -------
-------------------------------------
Name of Registered Holder
By:
------------------------------
Name:
Title:
ACKNOWLEDGMENT
Gottbetter & Partners, LLP hereby acknowledges this Exercise Notice and
will transfer shares of Common Stock.
--------------------
GOTTBETTER & PARTNERS. LLP
By:
-------------------------------------
Name:
Title:
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO
AN AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 005
Number of Shares of Common Stock: 1,000,000
Date of Issuance: May 19, 2006 ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CASTLERIGG MASTER INVESTMENTS
LTD., the registered holder hereof or its permitted assigns (the "HOLDER"), is
entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any
time or times on or after the date hereof but not after 11:59 p.m., New York
Time, on the Expiration Date (as defined below), One Million (1,000,000) fully
paid nonassessable shares of Common Stock (as defined below) (the "WARRANT
SHARES"). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 16. This Warrant is one of the
Warrants to purchase Common Stock (the "SPA WARRANTS") issued pursuant to
Section 1 of that certain Securities Purchase Agreement, dated as of May 19,
2006 (the "SUBSCRIPTION DATE"), by and among the Company and the investors (the
"BUYERS") referred to therein (the "SECURITIES PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
---------------------
(a) Mechanics of Exercise. Subject to the terms and
-----------------------
conditions hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the date hereof, in whole or in part, by (i) delivery of a written notice,
in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the
----------
Holder's election to exercise this Warrant and (ii) (A) payment to Gottbetter &
Partners, LLP (the "ESCROW AGENT") of an amount equal to the applicable Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of
immediately available funds or (B) by notifying the Escrow Agent that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the second Business Day following the date on which the Escrow
Agent has received each of the Exercise Notice and the Aggregate Exercise Price
(or notice of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the
Escrow Agent shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the CompanyOn or
before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the
Escrow Agent shall (X) provided that the Company's transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the Holder, credit such aggregate number
of shares of Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (Y) if the Company's transfer
agent is not participating in the DTC Fast Automated Securities Transfer
Program, transfer and dispatch by overnight courier to the address as specified
in the Exercise Notice, certificates for the approximate number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A) above or notification to the Escrow Agent of a Cashless Exercise
referred to in Section 1(d), the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is
submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than five
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be transferred upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
transferred shall be rounded up to the nearest whole number. The Company shall
pay any and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. In the event that the
Escrow Agent does not have a sufficient number of shares of Common Stock to
transfer to the Holder upon the exercise of this Warrant (including, but not
limited to, by reason of additional Warrant Shares required to be issued
pursuant to Section 2 herein, and such Warrant Shares had not previously been
delivered to the Escrow Agent), then the Company shall within 1 Business Day of
the date of delivery of an Exercise Notice deliver such additional number of
Warrant Shares to the Escrow Agent.
- 2 -
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $6.24, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In
---------------------------------------------------
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of an exercise notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such Escrow Shares resulting from such
exercise shall terminate, or (ii) promptly honor its obligation to deliver to
the Buyer a certificate or certificates representing such Escrow Shares and pay
cash to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). Notwithstanding the foregoing, the Company shall have no
obligations to cause its Escrow Agent to deliver Escrow Shares or to pay any
Buy-In Price under this Section 1(c) if the Company has timely delivered in good
faith a bonafide objection to such conversion or exercise notice.
(d) Cashless Exercise. Notwithstanding anything contained
------------------
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
- 3 -
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of Common Stock
(as reported by Bloomberg) on the five Trading Days immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the
--------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Escrow Agent shall promptly transfer to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership.
------------------------------------------------
The Escrow Agent shall not effect the exercise of this Warrant, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own (directly or indirectly through Warrant
Shares or otherwise) in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the SPA Securities and the SPA Warrants, by
the Holder and its affiliates since the
- 4 -
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.
(ii) Principal Market Regulation. The Company shall not
---------------------------
be obligated to issue any shares of Common Stock upon exercise of this Warrant
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise or otherwise, as applicable, of the SPA Securities and Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval
or written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
- 5 -
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
---------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If
----------------------------------------------------
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options
- 6 -
or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
- 7 -
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "VALUATION
EVENT"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of
---------------------------------------------------------
Common Stock. If the Company at any time on or after the Subscription Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect
- 8 -
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the Company at
any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment
under this Section 2(b) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type
-------------
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
--------------------------------------
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) ("OTHER SHARES OF
COMMON STOCK") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
- 9 -
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
---------------
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the "PURCHASE RIGHTS"), then, upon exercise of this
Warrant, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the proportionate number of shares of Common
Stock acquirable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or
-------------------------
is party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
SPA Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of
- 10 -
Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 120% (or such lesser amount limited by the SEC) of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
-----------------------------------------
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be
---------------------
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-----------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
- 11 -
(d) Issuance of New Warrants. Whenever the Company is
---------------------------
required to issue a new Warrant pursuant to the terms of this Warrant, such new
Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the
------------
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of the terms of this Warrant
will continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and
--------------
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
- 12 -
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
-----------------------
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
-------------------------------------------------------------
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder of
this Warrant shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
--------
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the
--------------------
following terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the "OV"
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request
- 13 -
and (ii) an expected volatility equal to the greater of 60% and the 100 day
volatility obtained from the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.10 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
- 14 -
(h) "ELIGIBLE MARKET" means the Principal Market, the
American Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital
Market or the Nasdaq National Market.
(i) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by such number of holders of outstanding shares of Common
Stock resulting in such Person (together with any affiliates of such Person)
holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person resulting in such other Person (together with any affiliates of
such person) holding more than the 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination,
or (v) reorganize, recapitalize or reclassify its Common Stock.
(k) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Preferred Stock issued
pursuant to the Securities Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
of the shares of Common Stock ("WARRANT SHARES") of Charys
-----------------
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
a "Cash Exercise" with respect to
------------ -------------- -----------------
Warrant Shares; and/or
a "Cashless Exercise" with respect to
------------ -------------------- ---------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $ to the Company in accordance with the terms
-------------------
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
----------
Date: ,
--------------- -- ------
-------------------------------------
Name of Registered Holder
By:
------------------------------
Name:
Title:
ACKNOWLEDGMENT
Gottbetter & Partners, LLP hereby acknowledges this Exercise Notice and
will transfer shares of Common Stock.
--------------------
GOTTBETTER & PARTNERS. LLP
By:
-------------------------------------
Name:
Title:
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED PURSUANT TO AN
AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
CHARYS HOLDING COMPANY, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 006
Number of Shares of Common Stock: 333,333
Date of Issuance: May 19, 2006 ("ISSUANCE DATE")
Charys Holding Company, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, UBS ▇'▇▇▇▇▇▇ LLC F/B/O ▇'▇▇▇▇▇▇
PIPES CORPORATE STRATEGIES MASTER LTD., the registered holder hereof or its
permitted assigns (the "HOLDER"), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the "WARRANT"), at any time or times on or after the date
hereof but not after 11:59 p.m., New York Time, on the Expiration Date (as
defined below), Three Hundred Thirty-Three Thousand Three Hundred Thirty-Three
(333,333) fully paid nonassessable shares of Common Stock (as defined below)
(the "WARRANT SHARES"). Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in Section 16. This Warrant is
one of the Warrants to purchase Common Stock (the "SPA WARRANTS") issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
May 19, 2006 (the "SUBSCRIPTION DATE"), by and among the Company and the
investors (the "BUYERS") referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
1. EXERCISE OF WARRANT.
---------------------
(a) Mechanics of Exercise. Subject to the terms and
-----------------------
conditions hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on any day on or
after the date hereof, in whole or in part, by (i) delivery
of a written notice, in the form attached hereto as Exhibit A (the "EXERCISE
---------
NOTICE"), of the Holder's election to exercise this Warrant and (ii) (A) payment
to Gottbetter & Partners, LLP (the "ESCROW AGENT") of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to which
this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire
transfer of immediately available funds or (B) by notifying the Escrow Agent
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the second Business Day following the date on which the Escrow
Agent has received each of the Exercise Notice and the Aggregate Exercise Price
(or notice of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the
Escrow Agent shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company. On or
before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the
Escrow Agent shall (X) provided that the Company's transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the Holder, credit such aggregate number
of shares of Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (Y) if the Company's transfer
agent is not participating in the DTC Fast Automated Securities Transfer
Program, transfer and dispatch by overnight courier to the address as specified
in the Exercise Notice, certificates for the approximate number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A) above or notification to the Escrow Agent of a Cashless Exercise
referred to in Section 1(d), the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is submitted
in connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than five Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be transferred upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
transferred shall be rounded up to the nearest whole number. The Company shall
pay any and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. In the event that the
Escrow Agent does not have a sufficient number of shares of Common Stock to
transfer to the Holder upon the exercise of this Warrant (including, but not
limited to, by reason of additional Warrant Shares required to be issued
pursuant to Section 2 herein, and such Warrant Shares had not previously been
delivered to the Escrow Agent), then the Company shall within 1 Business Day of
the date of delivery of an Exercise Notice deliver such additional number of
Warrant Shares to the Escrow Agent.
- 2 -
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
---------------
PRICE" means $6.24, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. In
---------------------------------------------------
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of an exercise notice the Company shall cause the
Escrow Agent to fail to transfer the Escrow Shares to the Buyer, and if on or
after such third Trading Day the Buyer is required to purchase (in an open
market transaction or otherwise) shares of Common Stock in order to deliver in
satisfaction of a sale initiated by the Buyer in anticipation of receiving from
the Company the shares of Common Stock issuable upon such exercise (a "BUY-IN"),
then the Company shall, within three (3) Business Days after the Buyer's request
and in the Buyer's discretion, either (i) pay cash to the Buyer in an amount
equal to the Buyer's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which
point the Company's obligation to deliver such Escrow Shares resulting from such
exercise shall terminate, or (ii) promptly honor its obligation to deliver to
the Buyer a certificate or certificates representing such Escrow Shares and pay
cash to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief). Notwithstanding the foregoing, the Company shall have no
obligations to cause its Escrow Agent to deliver Escrow Shares or to pay any
Buy-In Price under this Section 1(c) if the Company has timely delivered in good
faith a bonafide objection to such conversion or exercise notice.
(d) Cashless Exercise. Notwithstanding anything contained
------------------
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
- 3 -
Net Number = (A x B) - (A x C)
-----------------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the average of the Closing Sale Price of the shares of Common Stock
(as reported by Bloomberg) on the five Trading Days immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the
--------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Escrow Agent shall promptly transfer to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership.
------------------------------------------------
The Escrow Agent shall not effect the exercise of this Warrant, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own (directly or indirectly through Warrant
Shares or otherwise) in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Securities and the SPA Warrants, by the Holder
and its affiliates since the
- 4 -
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.
(ii) Principal Market Regulation. The Company shall not
---------------------------
be obligated to issue any shares of Common Stock upon exercise of this Warrant
if the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion or
exercise or otherwise, as applicable, of the SPA Securities and Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"), except that such limitation shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval or
written opinion is obtained, no purchaser of the Warrants pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which is the
aggregate number of Warrants issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Warrants, the transferee, if a
registered Holder of such Warrants, shall be allocated a pro rata portion of
such Purchaser's Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of Warrants shall exercise all of such holder's Warrants into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining registered holders of Warrants on a pro rata basis in proportion to
the aggregate number of shares of Common Stock underlying the then held by each
such holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
- 5 -
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
---------------------------------------------------------
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If
----------------------------------------------------
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company grants any Options
---------------------
and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities" shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of
the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon the exercise
of such Options
- 6 -
or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
------------------------------------
any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(a)(ii), the "lowest price per share for which
one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of
the Exercise Price or number of Warrant Shares shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
-----------------------------------------------
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then
in effect or a decrease in the number of Warrant Shares.
- 7 -
(iv) Calculation of Consideration Received. In case any
----------------------------------------
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed
to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "VALUATION
EVENT"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
------------
holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the
case may be.
(b) Adjustment upon Subdivision or Combination of shares of
---------------------------------------------------------
Common Stock. If the Company at any time on or after the Subscription Date
-------------
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect
- 8 -
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased. If the Company at
any time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment under
this Section 2(b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type
-------------
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of share
appreciation rights, phantom share rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holders; provided that no such
adjustment will increase the Exercise Price as otherwise determined pursuant to
this Section 2(c).
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
--------------------------------------
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of a share of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the trading day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) ("OTHER SHARES OF
COMMON STOCK") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
- 9 -
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
--------------------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
---------------
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the "PURCHASE RIGHTS"), then, upon exercise of this
Warrant, the Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the proportionate number of shares of Common
Stock acquirable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or
-------------------------
is party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity and Holder to
comply with the provisions of this Section 4(b). The provisions of this Section
------------
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the exercise of this
Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
----------------
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action that is required hereunder to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally have the Common
Stock fully paid and nonassessable shares of Common Stock transferred to the
Holder upon the exercise of this Warrant, and (iii) shall, so long as any of the
SPA Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of
- 10 -
Common Stock, solely for the purpose of effecting the exercise of the SPA
Warrants, 120% (or such lesser amount limited by the SEC) of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
-----------------------------------------
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices
and other information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to its shareholders.
7. REISSUANCE OF WARRANTS.
------------------------
(a) Transfer of Warrant. If this Warrant is to be
---------------------
transferred, the Holder shall surrender this Warrant to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
-----------------------------------
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
-------------------------------------
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
- 11 -
(d) Issuance of New Warrants. Whenever the Company is
---------------------------
required to issue a new Warrant pursuant to the terms of this Warrant, such new
Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as
indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this
-------
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly after
any adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the
------------
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of the terms of this Warrant
will continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and
--------------
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
- 12 -
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
-----------------------
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
-------------------
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause, at the
expense of the losing party, the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
-------------------------------------------------------------
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
15. TRANSFER. This Warrant may be offered for sale, sold,
--------
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the
--------------------
following terms shall have the following meanings:
(a) "BLACK SCHOLES VALUE" means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the "OV"
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request
- 13 -
and (ii) an expected volatility equal to the greater of 60% and the 100 day
volatility obtained from the HVT function on Bloomberg.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.10 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable at the option of the holder thereof for shares of Common Stock.
- 14 -
(h) "ELIGIBLE MARKET" means the Principal Market, the
American Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital
Market or the Nasdaq National Market.
(i) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(j) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by such number of holders of outstanding shares of Common
Stock resulting in such Person (together with any affiliates of such Person)
holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person resulting in such other Person (together with any affiliates of
such person) holding more than the 50% of the outstanding Common Stock of the
Company following such stock purchase agreement or other business combination,
or (v) reorganize, recapitalize or reclassify its Common Stock.
(k) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(l) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(m) "PRINCIPAL MARKET" means the NASD OTC Bulletin Board.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Preferred Stock issued
pursuant to the Securities Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
CHARYS HOLDING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CHARYS HOLDING COMPANY, INC.
The undersigned holder hereby exercises the right to purchase
of the shares of Common Stock ("WARRANT SHARES") of Charys
-----------------
Holding Company, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
a "Cash Exercise" with respect to
------------ --------------- -----------------
Warrant Shares; and/or
a "Cashless Exercise" with respect to
------------ ------------------- ---------------
Warrant Shares.
2. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the Holder of the Warrant
submitting this Exercise Notice that, after giving effect to the exercise
provided for in this Exercise Notice, such Holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such Person's affiliates) of a number of shares of Common Stock which exceeds
the maximum percentage of the total outstanding shares of Common Stock as
determined pursuant to the provisions of Section 1(f)(i) of the Warrant.
3. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be
transferred pursuant hereto, the holder shall pay the Aggregate Exercise Price
in the sum of $ to the Company in accordance with the terms
-------------------
of the Warrant.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
----------
Date: ,
--------------- -- ------
---------------------------------------
Name of Registered Holder
By:
----------------------------------
Name:
Title:
ACKNOWLEDGMENT
Gottbetter & Partners, LLP hereby acknowledges this Exercise Notice and
will transfer shares of Common Stock.
--------------------
GOTTBETTER & PARTNERS. LLP
By:
-------------------------------------
Name:
Title:
INVESTOR REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 19,
---------
2006, by and among CHARYS HOLDING COMPANY, INC., a Delaware corporation (the
"Company"), and (the undersigned investors listed on Schedule I attached hereto
-------
(each, an "Investor" and collectively, the "Investors").
-------- ---------
WHEREAS:
A. Company and Investors have entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement"), pursuant to which the Company
-----------------------------
proposes to sell 1,300 shares of Series D Convertible Preferred Stock (the
"Convertible Preferred Stock") which shall be convertible into the Company's
-----------------------------
Common Stock, par value $0.001 per share (the "Common Stock") and in connection
------------
therewith the Company has agreed to issue certain warrants to purchase
additional shares of Common Stock (the "Warrants");
--------
B. To induce the Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws; and
---------------
C. Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Person" means a corporation, a limited liability company, an
------
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("Rule 415"), and the
--------
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
---
(c) "Registrable Securities" means shares of Common Stock in an
-----------------------
amount equal to (a) the shares of Common Stock issuable to the Investors upon
conversion of the Convertible Preferred Stock pursuant to the Securities
Purchase Agreement and the Certificate of Designations and (b) the shares of
Common Stock issuable to the Investors upon exercise of the
Warrant Shares, as these terms are defined in the Securities Purchase Agreement
dated the date hereof.
(d) "Registration Statement" means a registration statement under
-----------------------
the Securities Act which covers any of the Registrable Securities.
(e) "Scheduled Filing Deadline" means (a) ninety (90) days from
---------------------------
the date hereof as applies to the SB-2 Registration Statement (as defined
below), (b) sixty (60) days from the date the Company becomes eligible to file a
registration statement on Form S-3 under the Securities Act as applies to the
S-3 Registration Statement (as defined below) and (c) sixty (60) days from the
date there is an increase in the number of Registrable Shares under the
Securities Purchase Agreement or the Certificate of Designations (as defined in
the Securities Purchase Agreement) to the extent that there are Registrable
Securities not otherwise included on the SB-2 Registration Statement or the S-3
Registration Statement as applies to the Revised Registration Statement (as
defined herein).
2. REGISTRATION.
------------
(a) Subject to the terms and conditions of this Agreement, the
Company shall (a) prepare and file, no later than ninety (90) days from the date
hereof, with the SEC a registration statement on Form SB-2 (or similar form)
under the Securities Act (the "SB-2 Registration Statement") for the resale by
--------------------------
the Investors of all Registrable Securities, (b) if it becomes eligible to file
a registration statement on Form S-3 under the Securities Act, prepare and file,
no later than ninety (90) days from the date it becomes eligible to file a
registration statement on Form S-3, a registration statement on Form S-3 for the
resale by the Investors of all Registrable Securities (the "S-3 Registration
----------------
Statement") and (c) if due to an increase in the number of Registrable Shares
---------
under the Securities Purchase Agreement or the Certificate of Designations there
are Registrable Shares that are not registered under the SB-2 Registration
Statement or the S-3 Registration Statement, prepare and file, within sixty (60)
days of the date of such an increase a new SB-2 Registration Statement or S-3
Registration Statement, as applicable, so that all the Registrable Shares may be
resold by the Investors (the "Revised Registration Statement" and, together with
------------------------------
the SB-2 Registration Statement and the S-3 Registration Statement, the
"Registration Statements"). The Company shall keep the Registration Statement
------------------------
"Evergreen" for the life of the Convertible Preferred Stock or until Rule 144(k)
of the Securities Act is available to the Investors with respect to all of the
Conversion Shares and Warrant Shares whichever is later. The Company shall
retain, and pay at its sole expense, a law firm to file the Registration
Statement subject to the reasonable approval of a majority of the Required
Holders (as defined in the Certificate of Designations) of the Investors;
provided, however, that in no event shall the Company be required to retain any
law firm in addition to its current securities counsel for purposes of this
Agreement. Prior to the filing of the Registration Statement with the SEC, the
Company shall furnish a copy of the Initial Registration Statement to the
Investors for their review and comment. The Investors shall furnish comments on
the Registration Statement to the Company within twenty-four (24) hours of the
receipt thereof from the Company.
(b) Effectiveness of the Registration Statement. The Company
-----------------------------------------------
shall use its commercially reasonable best efforts (i) to have the Registration
Statement declared effective
2
by the SEC no later than ninety (90) days after the date filed (the "Scheduled
---------
Effective Deadline") and (ii) to insure that the Registration Statement remains
-------------------
in effect until all of the Registrable Securities have been sold, subject to the
terms and conditions of this Agreement. It shall be an event of default
hereunder if the Registration Statement is not declared effective by the SEC
within ninety (90) days after filing thereof.
(c) Failure to File or Obtain and Maintain Effectiveness of the
--------------------------------------------------------------
Registration Statement. In the event the Registration Statement is not filed by
----------------------
the Scheduled Filing Deadline or is not declared effective by the SEC on or
before the Scheduled Effective Deadline, or if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, failure to disclose such information as is necessary for
sales to be made pursuant to the Registration Statement, failure to register
sufficient shares of Common Stock or otherwise), then as partial relief for the
damages to any holder of Registrable Securities by reason of any such delay in
or reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies at law or in equity), the
Company will pay as liquidated damages (the "Liquidated Damages") and not as a
------------------
penalty, to the Investors, a cash amount equal to two percent (2%) per month of
the outstanding stated value of the Convertible Preferred Stock outstanding and
held by such Investors. In the event that any Investor has opted to exercise
its "Redemption at Option of Holders" pursuant to the Certificate of
Designations, the Liquidated Damages shall not apply to such shares of
Convertible Preferred Stock that have been redeemed. The initial payment of
Liquidated Damages shall be made within three (3) business days from the end of
the month in which the Scheduled Filing Deadline or Scheduled Effective Deadline
occurred, as the case may be, and shall continue thereafter until the
Registration Statement is filed or declared effective, or the Convertible
Preferred Stock has been redeemed by the Company, as the case may be. In the
event that the Liquidated Damages are caused by a failure to maintain the
effectiveness of the Registration Statement for more than ten days in any 365
day period, the initial payment of Liquidated Damages shall be made within three
(3) business days from the end of the month in which the 11th day in such 365
day period that the Company failed to maintain the effectiveness of the
Registration Statement falls and shall continue thereafter until the
effectiveness of the Registration Statement has been restored.
(d) Liquidated Damages. The Company and the Investors hereto
-------------------
acknowledge and agree that the sums payable under subsection 2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the Investors, including the right to call a default. Any Liquidated
Damages (and any accrued but unpaid interest thereon) that remain unpaid after
the date set forth in Section 2(c) shall accrue interest at the rate of twelve
percent (12%) per annum. All Liquidated Damages paid pursuant to this
Agreement, but not including any interest accrued thereon, shall not exceed, in
the aggregate, 10% of the aggregate Purchase Price (as defined in the Securities
Purchase Agreement) paid to the Company pursuant to the Securities Purchase
Agreement (the "Liquidated Damages Maximum"), and, at such time as the
Liquidated Damages Maximum has been paid, the Company shall have no further
obligation to pay amounts under subsection 2(c) above other than interested
accrued on such Liquidated Damages not otherwise paid. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in
such subsection bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be
3
incurred in connection with any failure by the Company to file a Registration
Statement or to obtain or maintain the effectiveness of a Registration
Statement, (iii) one of the reasons for the Company and the Investors reaching
an agreement as to such amounts was the uncertainty and cost of litigation
regarding the question of actual damages, and (iv) the Company and the Investors
are sophisticated business parties and have been represented by sophisticated
and able legal counsel and negotiated this Agreement at arm's length.
3. RELATED OBLIGATIONS.
--------------------
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investors shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
--------------------
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company's filing a
report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
------------
shall incorporate such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement the Registration Statement.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i) at
least one (1) copy of such Registration Statement as declared effective by the
SEC and any amendment(s) thereto, including financial statements and schedules,
all documents incorporated therein by reference, all exhibits and each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.
(d) The Company shall use its commercially reasonable best efforts
to (i) register and qualify the Registrable Securities covered by a Registration
Statement under such
4
other securities or "blue sky" laws of such jurisdictions in the United States
as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such event
or development, the Company shall notify each Investor in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to each Investor. Notwithstanding any provision of this Agreement to
the contrary, if the Company makes such a notification, the Company may suspend
the use of any prospectus contained in any Registration Statement for periods
not to exceed forty five (45) business days in any three month period or two
periods not to exceed an aggregate of ninety (90) business days in any 12 month
period in the event that the Company determines, in the exercise of its
reasonable discretion, confirmed by a legal opinion from outside counsel, that
sales of Registrable Securities thereunder could constitute violations of the
Securities Act due to the Registration Statement containing an untrue statement
of a material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In each case the
Company shall use commercially reasonable best efforts to remedy the deficiency
in the Registration Statement within thirty (30) business days. The Company
shall also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.
(f) The Company shall use its commercially reasonable best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration
5
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction within the United States of America and,
if such an order or suspension is issued, to obtain the withdrawal of such order
or suspension at the earliest possible moment and to notify the Investors who
hold Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
(g) At the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investors.
(h) The Company shall make available for inspection by (i) any
Investor and (ii) one (1) firm of accountants or other agents retained by the
Investors (collectively, the "Inspectors") all pertinent financial and other
----------
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
-------
Inspector, and cause the Company's officers, directors and employees to supply
all information which the Inspector may reasonably request; provided, however,
that each Inspector shall agree, and any Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
(i) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such
6
Investor and allow the Investor, at such Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
(j) The Company shall use its commercially reasonable best efforts
either to cause all the Registrable Securities covered by a Registration
Statement (i) to be listed on each securities exchange on which securities of
the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (ii) the inclusion for quotation on the National Association of
Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(j).
(k) The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates to a transferee
of the Investor (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request.
(l) The Company shall use its commercially reasonable best efforts
to cause the Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.
(m) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve (12)
month period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement.
(n) The Company shall otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.
(o) Within two (2) business days after a Registration Statement
which covers Registrable Securities is declared effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
----------
(p) The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
-------------------------------
Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of Section 3(e), such
7
Investor will immediately discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities
until such event has been remedied. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended certificates
for shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale prior to the Investor's receipt of a notice from the Company
of the happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
--------------------------
All expenses incurred in connection with registrations, filings or
qualifications pursuant to the Agreement including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
---------------
With respect to Registrable Securities which are included in a Registration
Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
-------------------
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims") incurred in investigating, preparing or defending any
------
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
-------------------
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
---------------
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall
----------
8
reimburse the Investors and each such controlling Person promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9 hereof.
(b) In connection with a Registration Statement, each Investor
agrees to severally and not jointly indemnify, hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its directors, each of its officers, employees, representatives, or
agents and each Person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act (each an "Indemnified Party"), against
-----------------
any Claim or Indemnified Damages to which any of them may become subject, under
the Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected and such new prospectus was delivered to each Investor
prior to such Investor's use of the prospectus to which the Claim relates. The
indemnification provided for in this Section 6(b) shall not exceed for any
Investor, the positive difference between the Purchase Price paid for its
portion of the Registrable Shares and the closing bid price on the Principal
Market (as defined in the Securities Purchase Agreement) of the Company's Common
Stock on the day that such Investor sells or transfers such shares.
9
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
(e) The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
10
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXHANGE ACT.
---------------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144") the Company agrees to:
---------
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
-----------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and a majority
of the Required Holders. Any amendment or waiver effected in accordance with
this Section 9 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to fewer than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11
10. MISCELLANEOUS.
-------------
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) business day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company, to: Charys Holding Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the Schedule of Investors or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
12
(d) 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, all issues related to usury. Any action
to enforce the terms of this Agreement or any of its exhibits shall be brought
exclusively in the state and/or federal courts situated in the County and State
of New York. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such 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.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Securities Purchase Agreement and related
documents including the Certificate of Designations relating to the Convertible
Preferred Stock, the Warrants and the Escrow Shares Escrow Agreement, constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This Agreement, the Securities Purchase Agreement and related documents
including the Certificate of Designations relating to the Convertible Preferred
Stock, the Warrants, and the Escrow Shares Escrow Agreement, supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
13
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
(j) 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
CHARYS HOLDING COMPANY INC.
By:
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇, ▇▇.
Title: Chief Executive Officer
INVESTORS:
GOTTBETTER CAPITAL MASTER, LTD.
By:
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Director
CASTLERIGG MASTER INVESTMENTS LTD.
By:
------------------------------------
Name:
Title:
ENABLE GROWTH PARTNERS LP
By:
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇
Title: Principal and Portfolio Manager
ENABLE OPPORTUNITY PARTNERS LP
By:
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇
Title: Principal and Portfolio Manager
▇▇▇▇▇▇ DIVERSIFIED STRATEGY MASTER FUND
LLC
By:
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇
Title: Principal and Portfolio Manager
15
UBS ▇'▇▇▇▇▇▇ LLC F/B/O ▇'▇▇▇▇▇▇ PIPES
CORPORATE STRATEGIES MASTER LTD.
By:
------------------------------------
Name:
Title:
16
SCHEDULE I
----------
SCHEDULE OF INVESTORS
---------------------
ADDRESS/FACSIMILE
NAME NUMBER OF INVESTOR
------------------------------------------- ----------------------------------
Gottbetter Capital Master, Ltd. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Gottbetter & Partners, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-------------------------------------------------------------------------------
Castlerigg Master Investments ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
-------------------------------------------------------------------------------
Enable Growth Partners LP ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
-------------------------------------------------------------------------------
Enable Opportunity Partners LP ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
-------------------------------------------------------------------------------
▇▇▇▇▇▇ Diversified Strategy Master Fund LLC ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
-------------------------------------------------------------------------------
UBS ▇'▇▇▇▇▇▇ LLC F/B/O ▇'▇▇▇▇▇▇ Pipes 1 North ▇▇▇▇▇▇
Corporate Strategies Master Ltd. ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
-------------------------
Attention:
Re: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We are counsel to Charys Holding Company Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
-------
Securities Purchase Agreement (the "Securities Purchase Agreement") entered into
-----------------------------
by and among the Company and the investors named therein (collectively, the
"Investors") pursuant to which the Company issued to the Investors shares of its
---------
Series D Convertible Preferred Stock (the "Preferred Stock") which shares of
Preferred Stock are convertible into shares of Common Stock, par value $0.001
per share (the "Common Stock"). Pursuant to the Securities Purchase Agreement,
------------
the Company also has entered into a Registration Rights Agreement with the
Investors (the "Registration Rights Agreement") pursuant to which the Company
------------------------------
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement) under the Securities Act of 1933, as
amended (the "Securities Act"). In connection with the Company's obligations
---------------
under the Registration Rights Agreement, on , the Company filed
------------ ----
a Registration Statement on Form (File No. 333- ) (the
-------- -------------
"Registration Statement") with the Securities and Exchange Commission (the
-----------------------
"SEC") relating to the Registrable Securities which names each of the Investors
---
as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act pursuant to the
Registration Statement.
Very truly yours,
[LAW FIRM]
By:
--------------------------------
cc: [LIST NAMES OF INVESTOR]
ESCROW SHARES ESCROW AGREEMENT
------------------------------
THIS ESCROW SHARES ESCROW AGREEMENT (the "Agreement") is made and entered
---------
into as of May 19, 2006 (the "Effective Date") by and among CHARYS HOLDING
--------------
COMPANY, INC., a corporation organized and existing under the laws of the State
of Delaware (the "Company"), the Buyers set forth on Schedule I attached hereto
-------
(individually, a "Buyer" or collectively "Buyers"), and GOTTBETTER & PARTNERS,
----- ------
LLP, as escrow agent ("Escrow Agent").
-------------
RECITALS:
--------
WHEREAS, the Company and the Buyers have entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement"), dated as of the date hereof,
------------------------------
pursuant to which the Company proposes to sell shares of its Series D
Convertible Preferred Stock (the "Preferred Stock") which shall be convertible
---------------
into the Company's Common Stock, par value $0.001 per share (the "Common Stock")
------------
and in connection therewith the Company has agreed to issue certain warrants to
purchase additional shares of Common Stock (the "Warrants"; and, together with
--------
the Preferred Stock, the "Securities");
----------
WHEREAS, the Securities Purchase Agreement provides that the Company shall
deposit the Escrow Shares (as defined in the Securities Purchase Agreement) in a
segregated escrow account to be held by Escrow Agent in order to effectuate the
conversions of the Preferred Stock and the exercise of the Warrants;
WHEREAS, The Escrow Agent is willing to act as escrow agent pursuant to the
terms of this Agreement with respect to the Escrow Shares; and
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
warranties, and representations herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
TERMS AND CONDITIONS
--------------------
1. PROCEDURE FOR ESCROW. The procedures to be followed in order for
----------------------
the Buyers to convert shares of the Preferred Stock and to exercise the
Warrants, are governed by the provisions of the Securities Purchase Agreement,
the Certificate of Designation for the Preferred Stock and the agreements
establishing the Warrants, all of which are incorporated herein by reference as
if set forth fully herein.
2. TERMS OF ESCROW. (a) Except as otherwise provided for in this
-----------------
Agreement, the terms of the escrow shall be governed by the Securities Purchase
Agreement, the Certificate of Designation for the Preferred Stock and the
agreements establishing the Warrants, all of which are incorporated herein by
reference as if set forth fully herein. This Agreement shall terminate at such
time as all of the Escrow Shares have been released from the escrow.
(b) The Escrow Agent shall send the Escrow Shares to the Company's
transfer agent as soon as practicable upon the effectiveness of the Registration
Statement to have the legend removed.
(c) Upon each conversion, the Company shall pay the Escrow Agent a fee
of One Hundred Fifty Dollars ($150).
3. CONCERNING THE ESCROW AGENT.
------------------------------
3.1. The Escrow Agent undertakes to perform only such duties as
are expressly set forth herein and no implied duties or obligations shall be
read into this Agreement against the Escrow Agent.
3.2. The Escrow Agent may act in reliance upon any writing or
instrument or signature which it, in good faith, believes to be genuine, may
assume the validity and accuracy of any statement or assertion contained in such
a writing or instrument, and may assume that any person purporting to give any
writing, notice, advice or instructions in connection with the provisions hereof
has been duly authorized to do so. The Escrow Agent shall not be liable in any
manner for the sufficiency or correctness as to form, manner, and execution, or
validity of any instrument deposited in this escrow, nor as to the identity,
authority, or right of any person executing the same; and its duties hereunder
shall be limited to the safekeeping of such certificates, monies, instruments,
or other document received by it as such escrow holder, and for the disposition
of the same in accordance with the written instruments accepted by it in the
escrow.
3.3. The Buyers and the Company hereby agree, to defend and
indemnify the Escrow Agent and hold it harmless from any and all claims,
liabilities, losses, actions, suits, or proceedings at law or in equity, or any
other expenses, fees, or charges of any character or nature which it may incur
or with which it may be threatened by reason of its acting as Escrow Agent under
this Agreement; and in connection therewith, to indemnify the Escrow Agent
against any and all expenses, including attorneys' fees and costs of defending
any action, suit, or proceeding or resisting any claim (and any costs incurred
by the Escrow Agent pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent
shall be vested with a lien on all property deposited hereunder, for
indemnification of attorneys' fees and court costs regarding any suit,
proceeding or otherwise, or any other expenses, fees, or charges of any
character or nature, which may be incurred by the Escrow Agent by reason of
disputes arising between the makers of this escrow as to the correct
interpretation of this Agreement and instructions given to the Escrow Agent
hereunder, or otherwise, with the right of the Escrow Agent, regardless of the
instructions aforesaid, to hold said property until and unless said additional
expenses, fees, and charges shall be fully paid; provided, however, that the
Escrow Agent shall not have a lien on any property deposited hereunder that
would otherwise be required to be distributed or returned to the Company except
to the extent such fees and expenses incurred by the Escrow Agent arise from an
obligation owed to the Escrow Agent by the Company. Any fees and costs charged
by the Escrow Agent for serving hereunder shall be paid by the Buyers.
3.4. If any of the parties shall be in disagreement about the
interpretation of this Agreement, or about the rights and obligations, or the
propriety of any action contemplated by the Escrow Agent hereunder, the Escrow
Agent may, at its sole discretion deposit the Escrow Shares with the Clerk of
the United States District Court of New York, sitting in Manhattan, New York,
and, upon notifying all parties concerned of such action, all liability on the
part of the Escrow Agent shall fully cease and terminate. The Escrow Agent
shall be indemnified by the Company and the Buyers for all costs, including
reasonable attorneys' fees in connection with the aforesaid proceeding, and
shall be fully protected in suspending all or a part of its activities under
this Agreement until a final decision or other settlement in the proceeding is
received.
3.5. The Escrow Agent may consult with counsel of its own choice
(and the costs of such counsel shall be paid by the Company and the Buyers) and
shall have full and complete authorization and protection for any action taken
or suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. The Escrow Agent shall not be liable for any mistakes of
2
fact or error of judgment, or for any actions or omissions of any kind, unless
caused by its willful misconduct or gross negligence.
3.6. The Escrow Agent may resign upon ten (10) days' written
notice to the parties in this Agreement. If a successor Escrow Agent is not
appointed within this ten (10) day period, the Escrow Agent may petition a court
of competent jurisdiction to name a successor.
3.7. Conflict Waiver. The Company hereby acknowledges that the
----------------
Escrow Agent is counsel to Gottbetter Capital Master, Ltd. ("GCM"), in
connection with the transactions contemplated and referred herein. The Company
agrees that in the event of any dispute arising in connection with this
Agreement or otherwise in connection with any transaction or agreement
contemplated and referred herein, the Escrow Agent shall be permitted to
continue to represent GCM and the Company will not seek to disqualify such
counsel and waives any objection Company might have with respect to the Escrow
Agent acting as the Escrow Agent pursuant to this Agreement.
3.8. Notices. Unless otherwise provided herein, all demands,
--------
notices, consents, service of process, requests and other communications
hereunder shall be in writing and shall be delivered in person or by overnight
courier service, or mailed by certified mail, return receipt requested,
addressed:
If to the Company, to: Charys Holding Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Buyers, to the address opposite each Buyer's name on Schedule I
hereto, with a copy to
With copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Gottbetter & Partners, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Escrow Agent: Gottbetter & Partners, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
3
Any such notice shall be effective (a) when delivered, if delivered by hand
delivery or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
4. BINDING EFFECT. All of the covenants and obligations contained
---------------
herein shall be binding upon and shall inure to the benefit of the respective
parties, their successors and assigns.
5. 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,
all issues related to usury. Any action to enforce the terms of this Agreement
or any of its exhibits shall be brought exclusively in the state and/or federal
courts situated in the County and State of New York. Service of process in any
action by the Buyers 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.
6. ENFORCEMENT COSTS. If any legal action or other proceeding is
------------------
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees, court costs and all expenses even if not
taxable as court costs (including, without limitation, all such fees, costs and
expenses incident to appeals), incurred in that action or proceeding, in
addition to any other relief to which such party or parties may be entitled.
7. REMEDIES CUMULATIVE. No remedy herein conferred upon any party is
--------------------
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in equity, by statute, or
otherwise. No single or partial exercise by any party of any right, power or
remedy hereunder shall preclude any other or further exercise thereof.
8. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.
9. NO PENALTIES. No provision of this Agreement is to be interpreted
-------------
as a penalty upon any party to this Agreement.
10. JURY TRIAL. EACH OF THE BUYERS AND THE COMPANY HEREBY KNOWINGLY,
-----------
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING
OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN THE BUYERS AND
COMPANY, THIS ESCROW SHARES ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY
OR OTHERWISE.
REMAINDER OF PAGE LEFT BLANK
4
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Shares Escrow Agreement as of the date first above written.
CHARYS HOLDING COMPANY, INC.
By:
-------------------------
Name:
Title:
GOTTBETTER & PARTNERS, LLP
By:
-------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Managing Partner
5
SCHEDULE I
----------
SCHEDULE OF BUYERS
------------------
ADDRESS/FACSIMILE
NAME SIGNATURE NUMBER OF INVESTORS
---------------------------------- ------------------------------------- ------------------------------
Gottbetter Capital Master, Ltd. By: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Floor
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Its: Director Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 212.400.6999
Castlerigg Master Investments Ltd. By: ▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
---------------------------------
Name: ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Its: Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 212.603.5710
Enable Growth Partners LP By: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Its: Principal and Portfolio Manager Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 415.677.1580
Enable Opportunity Partners LP By: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Its: Principal and Portfolio Manager Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 415.677.1580
▇▇▇▇▇▇ Diversified Strategy Master By: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
---------------------------------
Fund LLC Name: ▇▇▇▇▇▇▇ ▇'▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Its: Principal and Portfolio Manager Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 415.677.1580
UBS ▇'▇▇▇▇▇▇ LLC F/B/O By: 1 North ▇▇▇▇▇▇
---------------------------------
▇'▇▇▇▇▇▇ Pipes Corporate Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Strategies Master Ltd. Its: Telephone:
Facsimile:
6