EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT dated as of November 18, 2005 (this
"AGREEMENT"), by and among Summus, Inc., a Delaware corporation (the "COMPANY"),
and each of the purchasers set forth on the signature pages hereto (the
"BUYERS");
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized the issuance to the Buyers of (i) 6%
senior secured debentures of the Company in the form attached hereto as EXHIBIT
"A," in the aggregate principal amount of Eight Million Dollars ($8,000,000),
which debentures are convertible into shares of common stock, par value $.001
per share of the Company (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in such Debentures (collectively, together
with any debenture(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"DEBENTURES"), (ii) warrants, in the form attached hereto as EXHIBIT "B," to
purchase an aggregate of 2,000,000 units, each unit consisting of one share of
Common Stock and a warrant to purchase 4/10 of one share of Common Stock (the "A
WARRANTS"), (iii) warrants, in the form attached hereto as EXHIBIT "C," to
purchase an aggregate of 1,355,932 shares of Common Stock (the "B WARRANTS"),
and (iv) warrants, in the form attached hereto as EXHIBIT "D," to purchase an
aggregate of 1,355,932 shares of Common Stock (the "C-1 WARRANTS") (the A
Warrants, the B Warrants and the C-1 Warrants are referred to collectively
herein as the "WARRANTS");
C. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, the Debentures
and the Warrants for an aggregate purchase price of Eight Million Dollars
($8,000,000);
D. Each Buyer wishes to purchase upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of A Warrants
and B Warrants as is set forth immediately below its name on the signature pages
hereto; and
E. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as EXHIBIT "E" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES AND WARRANTS
SECTION 1.1 PURCHASE OF DEBENTURES AND WARRANTS. The Company shall issue
and sell to each Buyer and each Buyer severally agrees to purchase from the
Company such principal amount of Debentures and number of A Warrants, B Warrants
and C-1 Warrants for the aggregate purchase price (the "PURCHASE PRICE") as is
set forth immediately below such Buyer's name on the signature pages hereto. The
aggregate principal amount of Debentures to be issued at the Closing (as defined
below) is Eight Million Dollars ($8,000,000) and the aggregate number of shares
of Common Stock issuable pursuant to A Warrants, B Warrants and C-1 Warrants to
be issued at the Closing is 2,800,000, 1,355,932 and 1,355,932, respectively,
for an aggregate purchase price of Eight Million Dollars ($8,000,000).
SECTION 1.2 FORM OF PAYMENT. On the Closing Date (as defined below), (i)
each Buyer shall pay the Purchase Price for the Debentures and the Warrants to
be issued and sold to it at the Closing (as defined below) by wire transfer of
immediately available funds to the Company in accordance with the Company's
written wiring instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto, and (ii) the
Company shall deliver such Debentures and Warrants duly executed on behalf of
the Company, to the Buyer, against delivery of such Purchase Price.
SECTION 1.3 CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Article V below, the date and time of the
issuance and sale of the Debentures and the Warrants pursuant to this Agreement
(the "CLOSING DATE") shall be 12:00 noon, Eastern Standard Time on November 18,
2005, or such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the Closing Date
at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other location as may be agreed to be the
parties.
ARTICLE II
BUYER'S REPRESENTATIONS AND WARRANTIES
Each Buyer severally (and not jointly) represents and warrants to the
Company solely as to such Buyer that:
SECTION 2.1 INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable upon
conversion thereof (the "CONVERSION SHARES") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "WARRANT SHARES" and,
collectively with the Debentures, the Warrants and the Conversion Shares, the
"SECURITIES") for its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under
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the 1933 Act; provided, however, that by making the representations herein, the
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.
SECTION 2.2 ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor," as that term is defined in Rule 501(a) of Regulation D.
SECTION 2.3 RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer as set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
SECTION 2.4 INFORMATION. The 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 the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Article III below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
SECTION 2.5 GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
SECTION 2.6 TRANSFER OR RESALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any applicable state securities
laws and may not be transferred unless (a) subsequently included in an effective
registration statement thereunder, (b) the Buyer shall have delivered to the
Company an opinion of counsel (which opinion shall be reasonably acceptable to
the Company) to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration, (c) sold or
transferred to an "affiliate" (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) ("RULE 144")) or (d) sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person 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 such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else
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contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
SECTION 2.7 LEGENDS. The Buyer understands that the Debentures and the
Warrants, and until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the Conversion Shares and Warrant Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended. The securities have been acquired for investment and
may not be sold, transferred or assigned in the absence of an
effective registration statement for the securities under said
Act or an opinion of counsel in form, substance and scope
reasonably acceptable to the Company that registration is not
required under said Act or unless sold pursuant to Rule 144
under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act, or (b) such holder provides the Company with an
opinion of counsel in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act and such sale or transfer is
effected, or (c) such holder provides the Company with reasonable assurances
that such Security can be sold pursuant to Rule 144 under the 1933 Act (or a
successor rule thereto) without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
SECTION 2.8 AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms.
SECTION 2.9 RESIDENCY. The Buyer has provided to the Company the name of
the jurisdiction of its residence.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Buyer that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and
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authority (corporate and other) to own, lease, use and operate its properties
and to carry on its business as and where now owned, leased, used, operated and
conducted. SCHEDULE 3.1 sets forth a list of all of the Subsidiaries of the
Company and the jurisdiction in which each is incorporated. The Company and each
of its Subsidiaries is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such qualification
necessary except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" shall mean any
material adverse effect on (i) the Purchased Shares, (ii) the assets,
liabilities, business, properties, operations, financial condition or results of
operations of the Company and its Subsidiaries (as defined below), if any, taken
as a whole, (iii) the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith or (iv) the authority or
the ability of the Company to perform its obligations under this Agreement.
"SUBSIDIARIES" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest and which would be a "Significant Subsidiary" of the
Company as defined under Rule 1-02(w) of Regulation S-X promulgated under the
1933 Act.
SECTION 3.2 AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
and to consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance and reservation for issuance of the Conversion Shares and Warrant
Shares) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors or its
stockholders is required, (iii) this Agreement, the Registration Rights
Agreement, the Debentures and the Warrants have been duly executed and delivered
by the Company, and (iv) this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants constitute a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditor's rights and
remedies or by other equitable principles of general application from time to
time in effect.
SECTION 3.3 CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 185,000,000 shares of Common Stock,
of which 13,493,106 shares of Common Stock are issued and outstanding, 3,000,000
shares of Common Stock are reserved for issuance pursuant to the Company's stock
option plans, 3,390,103 shares of Common Stock are reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for,
shares of Common Stock, 18,368 shares of Common Stock are reserved for issuance
upon conversion of Series A Convertible Preferred Stock, and 19,023,728 shares
have been reserved for issuance pursuant to this Agreement (including the
Conversion Shares and the Warrant Shares issuable upon conversion or exercise of
or otherwise pursuant to the Debentures or the Warrants), subject to increase in
the event that additional Debentures and Warrants are sold pursuant to Section
4.15 hereof; (ii) 10,000 shares of preferred stock, par value $.001 per share,
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of which 2,407 shares of Series A Convertible Preferred Stock are issued and
outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as disclosed in SCHEDULE 3.3, as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Securities. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "CERTIFICATE OF INCORPORATION"), the Company's By-laws as in
effect on the date hereof (the "BYLAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive Officer or Chief Financial Officer on behalf of the Company on the
Closing Date.
SECTION 3.4 ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares
are duly authorized and, upon issuance in accordance with the terms of this
Agreement (including the issuance of the Conversion Shares upon conversion of
the Debentures and the Warrant Shares upon exercise of the Warrants in
accordance with their respective terms) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company. The term Conversion Shares and Warrant
Shares includes the shares of Common Stock issuable upon conversion of the
Debentures or exercise of the Warrants, including without limitation, such
additional shares, if any, as are issuable as a result of the events described
in Articles II.D.3 and II.E of the Debentures and Section 2(c) of the
Registration Rights Agreement.
SECTION 3.5 ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Securities. The Company's directors and executive officers have
studied and fully understand the nature of the securities being sold hereunder.
The Company further acknowledges that its obligation to issue the Securities in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Conversion Shares and the Warrant Shares hereunder and the
consummation of the transactions contemplated hereby and thereby are in the best
interest of the Company and its stockholders.
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SECTION 3.6 NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated hereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Debentures, the Conversion Shares, Warrants
and Warrant Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or Bylaws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) 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 for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would 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 or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity the violation of
which would reasonably be expected to have a Material Adverse Effect.
SECTION 3.7 NO CONSENTS. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement in accordance with the terms hereof or thereof or to issue
and sell the Securities in accordance with the terms hereof. Except as disclosed
in SCHEDULE 3.7, 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 date hereof. The Company is not in
violation of the listing requirements of the Over-the-Counter Bulletin Board
Market (the "PRINCIPAL EXCHANGE") and the Company is not aware of any event or
condition that could reasonably be expected to cause the Common Stock to be
delisted by the Principal Exchange in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.
SECTION 3.8 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with
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the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")(all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such documents)
incorporated by reference therein, being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered or made available to the each of the
Buyers true and complete copies of the SEC Documents. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange 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 light of the
circumstances under which they were made, not misleading. None of the statements
made in any such SEC Documents is, or has been, required to be amended or
updated under applicable law (except for such statements as have been amended or
updated in subsequent filings prior to the date hereof). As of their respective
dates, 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. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles, consistently applied, during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the Debentures thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 2004 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
such financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Since December 31, 2004, there
has been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition or
results of operations of the Company or any of its Subsidiaries (other than
changes or developments which have been disclosed in the SEC Documents filed
since such date).
SECTION 3.10 ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3.10 contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries which could, either individually or in the aggregate, have a
Material Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
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SECTION 3.11 PATENTS, COPYRIGHTS, ETC. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct
its business as now operated (and, except as set forth in SCHEDULE 3.11 hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in SCHEDULE 3.11 hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
SECTION 3.12 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
SECTION 3.13 TAX STATUS. Except as set forth on SCHEDULE 3.13, the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and 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 has set aside on
its books provisions 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. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE 3.13, none
of the Company's tax returns is presently being audited by any taxing authority.
SECTION 3.14 CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3.14
and as otherwise disclosed in the SEC Documents and except for arm's length
transactions pursuant to which the Company or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the Company or any of its Subsidiaries could obtain from third parties and other
than the grant of stock options disclosed on SCHEDULE 3.3, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including
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any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
SECTION 3.15 DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers in connection with the transactions contemplated hereby, is true and
correct in all material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading (other
than any information the Buyer has refused to accept). No event or circumstance
has occurred or exists, nor is the Company in possession of any information,
with respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which has not been
publicly announced or disclosed but under applicable law, rule or regulation,
requires public disclosure or announcement by the Company (assuming for this
purpose that the Company's reports filed under the Exchange Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
SECTION 3.16 ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Buyers are not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by the Buyers or any of their
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers' purchase of the Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
the Buyers that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
SECTION 3.17 NO INTEGRATED OFFERING. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions (under the rules of the Principal Exchange or otherwise)
applicable to the Company or its securities.
SECTION 3.18 NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
SECTION 3.19 PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
10
PERMITS") except in such instances where the failure to possess such Company
Permits would not, either individually or in the aggregate, have a Material
Adverse Effect, and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits, the suspension or cancellation of which would not, either individually
or in the aggregate, have a Material Adverse Effect. Neither the Company nor any
of its Subsidiaries is in conflict with, or in default or violation of, any of
the Company Permits, except for any such conflicts, defaults or violations
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. Since December 31, 2004, neither the Company nor
any of its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
SECTION 3.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 3.20, there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. 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.
(b) Other than those that are or were stored, used or disposed of
in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any of
its Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(c) There are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that
are not in compliance with applicable law.
11
SECTION 3.21 TITLE TO PROPERTY. 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 are described in SCHEDULE 3.21 or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
SECTION 3.22 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 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.
SECTION 3.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
SECTION 3.24 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 Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
SECTION 3.25 SOLVENCY. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured).
SECTION 3.26 NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be, an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
12
SECTION 3.27 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ ACT. The Company is in compliance in all
material respects with all applicable effective provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act and is actively taking steps to ensure that it will be in compliance with
other applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act upon the effectiveness of
such provisions. There has been no failure on the part of the Company or any of
the Company's directors or officers, in their capacities as such, to comply with
any provision of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules and regulations
promulgated in connection therewith, including Section 402 related to loans.
SECTION 3.28 DISCLOSURE CONTROLS. The Company has established and
maintains disclosure controls and procedures (as such term is defined in Rule
13a-15 under the Exchange Act) which (i) are designed to ensure that material
information relating to the Company is made known to the Company's principal
executive officer and its principal financial officer by others within those
entities, particularly during the periods in which the periodic reports required
under the Exchange Act are being prepared, and (ii) are effective in all
material respects to perform the functions for which they were established.
SECTION 3.29 OFF-BALANCE SHEET TRANSACTIONS. Except as described in the
Prospectus, there are no material off-balance sheet transactions (as defined in
Regulation S-K Item 303(a)(4)(ii)), arrangements, obligations (including
contingent obligations), or any other relationships with unconsolidated entities
or other persons, that may have a material current or future effect on the
Company's financial condition, changes in financial condition, results of
operations, liquidity, capital expenditures, capital resources, or significant
components of revenues or expenses.
SECTION 3.30 AUDIT COMMITTEE. Except as set forth on SCHEDULE 3.30, the
Company's board of directors has validly appointed an audit committee whose
composition satisfies the requirements of Rule 4350(d)(2) of the Rules of the
National Association of Securities Dealers, Inc. (the "NASD RULES") and the
board of directors or the audit committee has adopted a charter that satisfies
the requirements of Rule 4350(d)(1) of the NASD Rules.
SECTION 3.31 MONEY LAUNDERING AND RELATED LAWS.
(a) The operations of the Company and its subsidiaries are and
have been conducted at all times in compliance with applicable financial record
keeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the money laundering statutes of all
jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
governmental agency (collectively, the "MONEY LAUNDERING LAWS") and no action,
suit or proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or any of it subsidiaries with
respect to the Money Laundering Laws is pending, or to the best knowledge of the
Company, threatened.
(b) Neither the Company nor any of its subsidiaries nor, to the
knowledge of the Company, any director, officer, agent, employee or affiliate of
the Company or any of its subsidiaries is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department ("OFAC"); and the Company will not directly or indirectly
use the proceeds of the offering, or lend, contribute or otherwise make
available
13
such proceeds to any subsidiary, joint venture partner or other person or
entity, for the purpose of financing the activities of any person currently
subject to any U.S. sanctions administered by OFAC.
ARTICLE IV
COVENANTS
SECTION 4.1 BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
SECTION 4.2 FORM D; BLUE SKY LAWS. 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 to qualify the Purchased Shares for sale to the Buyer
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 Buyer on or prior
to the Closing Date.
SECTION 4.3 REPORTING STATUS; FORM S-3 ELIGIBILITY. The Company's Common
Stock is registered under Section 12(g) of the Exchange Act. So long as the
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. Upon obtaining listing or quotation of
the Common Stock on a national securities exchange or automated quotation
system, the Company will take all necessary action to meet the "registrant
eligibility" requirements set forth in the general instructions to Form S-3
applicable to both "primary" and "resale" registrations on Form S-3.
SECTION 4.4 DISCLOSURE OF TRANSACTION. As soon as practicable after the
Closing under this Agreement, but in no event later than 9:30 a.m. on the
Trading Day following the Closing under this Agreement, the Company shall file
with the SEC a Current Report on Form 8-K describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement), which press release and Form 8-K shall be subject to prior review
and reasonable comment by the Buyers.
SECTION 4.5 EXPENSES. The Company shall reimburse Rock Hill Investment
Management, L.P. ("ROCK HILL") for all expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including the Registration Rights Agreement, including, without limitation,
attorneys' and consultants' fees and expenses and travel expenses. The Company's
obligation to reimburse Rock Hill's expenses under this Section 4.5 shall be
limited to Fifty Thousand Dollars ($50,000).
SECTION 4.6 FINANCIAL INFORMATION. The Company agrees to send the
following reports to the Buyer until the Buyer transfers, assigns, or sells all
of the Securities: (i) within one
14
(1) day after release, copies of all press releases issued by the Company or any
of its Subsidiaries; and (ii) contemporaneously with the making available or
giving to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
SECTION 4.7 RESERVATION OF SHARES. On and after the Closing Date, the
Company shall at all times have authorized, and reserved for the purpose of
issuance (including being free of any preemptive rights), a sufficient number of
shares of Common Stock to provide for the full conversion of the Debentures
(based on the lesser of the Market Price in effect from time to time and the
Fixed Price in effect from time to time (each as defined in the Debenture)) and
issuance of the Conversion Shares in connection therewith and the full exercise
of the Warrants (based on the Exercise Price (as defined in the Warrants) of the
Warrants in effect from time to time) and the issuance of the Warrant Shares in
connection therewith. The Company shall not reduce the number of shares reserved
for issuance upon conversion or exercise of or otherwise pursuant to the
Debentures and the Warrants without the consent of the Buyer. The Company shall
use its best efforts at all times to maintain the number of shares of Common
Stock so reserved for issuance at no less than two (2) times the number that is
then actually issuable upon conversion of the Debentures and exercise of the
Warrants. If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares and Warrant
Shares to be issued upon conversion of or otherwise pursuant to the Debentures
and exercise of or otherwise pursuant to Debentures and Warrants, the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4.7, in the case of an insufficient number of
authorized shares, and using its best efforts to obtain stockholder approval of
an increase in such authorized number of shares.
SECTION 4.8 LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon the Principal Exchange and each
other national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and, so long as any of the Buyers owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares issuable pursuant to this
Agreement and the Warrants. The Company will obtain and, so long as the Buyer
owns any of the Securities, maintain the listing and trading of its Common Stock
on a Principal Exchange, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of such
Principal Exchange and any other exchanges or automated quotation systems on
which the Common Stock is then listed. The Company shall promptly provide to the
Buyer copies of any notices it receives from the Principal Exchange and any
other exchanges or automated quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for listing on
such exchanges and quotation systems.
SECTION 4.9 NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
15
SECTION 4.10 USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Debentures and the Warrants in the manner set forth in SCHEDULE
4.10 attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries).
SECTION 4.11 DISCLOSURE OF MATERIAL INFORMATION. In the event that the
Company comes into possession of any material non-public information, the
Company shall make full and complete public disclosure in accordance with all
applicable securities laws (including all common law formulations thereof).
SECTION 4.12 ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject
to the exceptions described below, the Company will not conduct any equity or
equity-linked financing (including debt financing with an equity component)
("FUTURE OFFERINGS") until no Debentures remain outstanding, unless it shall
have first delivered to the Buyers, at least fifteen (15) business days prior to
the closing of such Future Offering, written notice describing the proposed
Future Offering, including the terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith, and
providing the Buyers an option during the seven (7) trading day period following
delivery of such notice to purchase up to twenty-five percent (25%) for each
Buyer in the percentage obtained by dividing the principal amount of Debentures
held by such Buyer by the total principal amount of all Debentures held by each
Buyer exercising this option, of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence are collectively referred to as the
"CAPITAL RAISING LIMITATIONS"); provided that any Buyer may exchange all or any
portion of the Debentures held by such Buyer as consideration for its
participation in such Future Offering. In the event the terms and conditions of
a proposed Future Offering are amended in any respect after delivery of the
notice to the Buyers concerning the proposed Future Offering, the Company shall
deliver a new notice to the Buyers describing the amended terms and conditions
of the proposed Future Offering and the Buyers thereafter shall have an option
during the seven (7) trading day period following delivery of such new notice to
purchase its pro rata share of the twenty-five percent (25%) of the securities
being offered in the Future Offering on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering and to multiple Future Offerings. The Capital Raising Limitations shall
not apply to (i) any transaction involving issuances of securities in a firm
commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the ▇▇▇▇ ▇▇▇) or (ii) issuances of securities as
consideration for a merger, consolidation or sale of assets, or in connection
with any strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or in connection with the disposition or
acquisition of a business, product or license by the Company. The Capital
Raising Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under any
existing Company stock option or restricted stock plan approved by a majority of
the Company's disinterested directors.
SECTION 4.13 CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Debentures or Warrants, the Company shall maintain its corporate existence
and shall not sell all
16
or substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
SECTION 4.14 NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
SECTION 4.15 RELATED PARTY TRANSACTIONS. Except for arm's length
transactions pursuant to which the Company or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the Company or any of its Subsidiaries could obtain from third parties, none of
the officers, directors, or employees of the Company will become a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
SECTION 4.16 EQUAL TREATMENT OF BUYERS. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of this Agreement, the Debentures, the Registration Rights
Agreement or the Warrants unless the same consideration also is offered to all
the parties to this Agreement or the Registration Rights Agreement or the
holders of the Debentures or the Warrants, as the case may be. The Company shall
not purchase or redeem, or offer to purchase or redeem, from any Buyer any
Debentures, Warrants or shares of Common Stock issuable upon conversion of the
Debentures or exercise of the Warrants, without offering to purchase or redeem
Debentures, Warrants or Common Stock from all Buyers on the same terms and
conditions.
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL DEBENTURES AND THE WARRANTS. The obligation hereunder of the
Company to issue and sell Debentures and Warrants to a Buyer is subject to the
satisfaction, at or prior to the Closing Date, of each of the conditions set
forth below provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(a) Agreements. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(b) Purchase Price. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
(c) Accuracy of the Buyer's Representation and Warranties. The
representations and warranties of the applicable 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 each such time (except for representations and warranties
specifically made as of a particular date which shall be true and correct in all
material respects as of the date when made).
(d) Performance by the Buyer. The applicable Buyer shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by applicable the Buyer at or prior to the Closing Date.
SECTION 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO
PURCHASE DEBENTURES AND WARRANTS. The obligation of a Buyer to purchase the
Debentures and Warrants hereunder is subject to the satisfaction, from the date
of the execution of this Agreement to the Closing Date, of each of the following
conditions provided that these conditions are for such Buyer's sole benefit and
may be waived (in whole or in part as to any portion of its obligation to
purchase the Securities hereunder) by such Buyer at any time in its sole
discretion:
(a) Agreements. The Company shall have executed this Agreement
and the Registration Rights Agreement, and delivered the same to the Buyer.
(b) Securities. The Company shall have delivered to such Buyer
duly executed certificates (in such denominations as the Buyer shall request)
representing the Debentures and Warrants in accordance with Section 1(b) above.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties specifically made
as of a particular date which shall be true and correct in all material respects
as of the date when made). The Buyer shall have received a certificate or
certificates, 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, including, but not limited to,
certificates with respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions contemplated
hereby.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to such date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits or directly and adversely affects
17
any of the transactions contemplated by this Agreement, and no proceeding shall
have been commenced that may have the effect of prohibiting or adversely
affecting any of the transactions contemplated by this Agreement.
(f) Material Adverse Changes. Since the date hereof, no event
that had or is reasonably likely to have a Material Adverse Effect shall have
occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Exchange or the National Association of Securities Dealers, Inc. and
the Common Stock shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Exchange.
(h) Market Downturn. None of the principal market indexes (such
as the Dow ▇▇▇▇▇ Industrial Average and the Nasdaq Composite Index) shall be
down more that 3% from their close on the date of execution of this Agreement.
(i) No Force Majeure. No event that occurs by causes beyond the
reasonable control of any of the parties, including an act of God, acts of
public enemies, revolts, acts of any civil or military authority (for national
emergency or acts of a third party), disorderly conduct, rebellions,
revolutions, civil insurrections, acts of terrorism, strikes or other
disruptions of industry, shortage of labor or of materials, fires, floods or
other natural phenomena, explosions, structural flaws, break of cables,
vandalism, and other events of force majeure recognized by applicable law
(collectively, "FORCE MAJEURE") shall occur.
(j) Default. No Event of Default (as defined in the Debentures)
shall have occurred under the Debentures.
(k) Irrevocable Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions (as defined in Article VI) in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
(l) OTCBB Listing. The Conversion Shares and Warrant Shares shall
have been authorized for quotation on the OTCBB and trading in the Common Stock
on the OTCBB shall not have been suspended by the SEC or the OTCBB.
(m) Legal Opinion. The Buyer shall have received an opinion or
opinions of the Company's counsel, dated as of the Closing Date, in form, scope
and substance reasonably satisfactory to the Buyer and in substantially the same
form as EXHIBIT "F" attached hereto.
ARTICLE VI
TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates registered in the name of each Buyer or its nominee, for
the Conversion Shares and Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of
18
the Debentures or exercise of the Warrants in accordance with the terms thereof
(the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 2.7 of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Article VI and stop transfer instructions
to give effect to Section 2.6 hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act), will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2.7 hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope, that
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Article VI will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
exclusive jurisdiction of the United States federal courts and the state courts
located in Delaware with respect to any suit or proceeding based on or arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner. THE PARTIES HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
WITH RESPECT TO THIS AGREEMENT, OR THE
19
TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND THE PARTIES
HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE OTHER PARTY HERETO TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.
SECTION 7.2 NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Summus, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Ban, Chief Executive Officer
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With copy to:
Summus, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, CFO and General Counsel
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to any of the Buyers:
At the name and address set forth on
Schedule A hereto, with a copy to counsel to
such Buyer as set forth on Schedule A
hereto.
Each party shall provide notice to the other party of any change in
address.
SECTION 7.3 COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in one or more 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. 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.
20
SECTION 7.4 HEADINGS. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
SECTION 7.5 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 or the validity or enforceability of this Agreement
in any other jurisdiction.
SECTION 7.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Exhibits hereto contain the entire agreement and understanding of the parties
with respect to the matters covered herein and therein and supersede all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein. No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the holders of a majority of the outstanding
principal amount of the Debentures (or if such Debentures are no longer
outstanding, the holder of a majority of the then outstanding Warrants).
SECTION 7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 3, the Buyer may assign its
rights hereunder to any of its "affiliates," as that term is defined under the
Exchange Act, without the consent of the Company.
SECTION 7.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
SECTION 7.9 SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth herein shall survive the Closing and
the Closing Date hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyer.
SECTION 7.10 PUBLICITY. The Company and the Buyers shall have the right
to review a reasonable period of time before issuance of any press releases,
filings with the SEC, NASD or any stock exchange or interdealer quotation
system, 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 the Buyers, to make any press release or public
filings with respect to such transactions as is required by applicable law and
regulations (although the Buyers shall be consulted by the Company in connection
with any such press release or public filing prior to its release or public
filing and shall be provided with a copy thereof and be given an opportunity to
comment thereon). In addition, each party hereto agrees that it will not
disclose, and will not include in any public filing or other announcement, the
name of any Buyer, unless expressly agreed to in writing by such Buyer or unless
and until such disclosure is, in the reasonable
21
opinion of counsel to the Company, required by law or applicable regulation, and
then only to the extent of such requirement.
SECTION 7.11 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 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.
SECTION 7.12 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.
SECTION 7.13 REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyer by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including
the failure to deliver unlegended, freely tradable Purchased Shares on the
Closing Date), that the Buyer shall be entitled, in addition to all other
available remedies in law or in equity, to an injunction or injunctions to
prevent or cure any breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions of this Agreement, without the necessity
of showing economic loss and without any bond or other security being required.
SECTION 7.14 INDEPENDENT NATURE OF BUYERS.
(a) The Company acknowledges that the obligations of the Buyers
under this Agreement, the Registration Rights Agreement, the Warrants and any
other document entered into in connection with this Agreement, the Warrants and
the transactions contemplated hereby and thereby (the "TRANSACTION DOCUMENTS")
are several and not joint, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under the Transaction
Documents. The decision of each of the Buyers to purchase Securities pursuant to
this Agreement has been made by each Buyer independently of any other Buyer and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
the Subsidiaries which may have made or given by any other Buyer or by any agent
or employee of any other Buyer and, as between the Buyers, no Buyer or any of
its agents or employees shall have any liability to any other Buyer relating to
or arising from any such information, materials, statements or opinions. The
Company further acknowledges that nothing contained in the Transaction
Documents, and no action taken by the Buyers 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 hereby. Each of the Buyers shall be entitled to
independently protect and enforce its rights, including without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any Buyer to be joined as an additional party
in any proceeding for such purpose.
22
(b) The Buyers have been represented by their own respective
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, at the request of the
Company, the Buyers and their respective counsel have chosen to communicate with
the Company through ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & Ingersoll, LLP, counsel to one of
the Buyers. Such counsel does not represent any of the other Buyers and each
other Buyer has retained its own legal counsel in connection with the
negotiation and review of the Transaction Documents. Also for reasons of
administrative convenience only, the Company has elected to provide the Buyers
with the Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Buyers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Buyers are in any way acting in concert or as
a group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
SUMMUS, INC.
By: /s/ ▇▇▇▇ ▇. Ban
-----------------------------
▇▇▇▇ ▇. Ban
Chief Executive Officer
RHP MASTER FUND, LTD.
By: Rock Hill Investment Management, L.P.
By: RHP General Partner, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Director
LAP SUMMUS HOLDINGS, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Partner
SCHEDULE A
PRINCIPAL
BUYER'S NAME COUNSEL AMOUNT NUMBER OF NUMBER OF NUMBER OF PURCHASE
AND ADDRESS TO BUYER OF DEBENTURES A WARRANTS B WARRANTS C-1 WARRANTS PRICE
----------- -------- ------------- ---------- ---------- ------------ -----
RHP Master Fund, Ltd. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP $4,000,000 1,000,000 677,966 677,966 $4,000,000
▇/▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Management, L.P. ▇▇▇▇ ▇▇▇▇▇
▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Suite 585 Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Phone: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
Phone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
LAP Summus Holdings, LLC Dechert LLP $4,000,000 1,000,000 677,966 677,966 $4,000,000
c/o Liberty Associated ▇▇▇▇ Centre
Partners, L.P. ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Suite 502 Attention: ▇▇▇▇▇ ▇. Nassau, Esq.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Phone: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
Phone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
A-1