EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
dated as of
January 3, 2001
by and between
INTERNATIONAL FUEL TECHNOLOGY, INC.
as the Issuer,
and
IIG EQUITY OPPORTUNITIES FUND LTD.
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................................ 1
Section 1.1. Definitions................................................................ 1
Section 1.2. Accounting Terms and Determinations........................................ 7
ARTICLE II PURCHASE AND SALE OF SECURITIES................................................... 7
Section 2.1. Purchase and Sale of Debentures............................................ 7
Section 2.2. Purchase Price............................................................. 7
Section 2.3. Closing and Mechanics of Payment........................................... 8
Section 2.4. Terms of Commitment and Subsequent Takedowns............................... 8
ARTICLE III CERTAIN OBLIGATIONS OF THE COMPANY............................................... 9
Section 3.1. Mandatory Payments......................................................... 9
Section 3.2. Payment of Certain Amounts................................................. 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................................... 10
Section 4.1. Organization and Qualification............................................. 10
Section 4.2. Authorization and Execution................................................ 10
Section 4.3. Capitalization............................................................. 11
Section 4.4. Governmental Authorization................................................. 11
Section 4.5. Issuance of Shares......................................................... 11
Section 4.6. No Conflicts............................................................... 12
Section 4.7. Financial Information...................................................... 12
Section 4.8. Litigation................................................................. 12
Section 4.9. Compliance with ERISA and other Benefit Plans.............................. 12
Section 4.10. Environmental Matters.................................................. 13
Section 4.11. Taxes.................................................................. 13
Section 4.12. Investments, Joint Ventures............................................ 13
Section 4.13. Not an Investment Company.............................................. 13
Section 4.14. Full Disclosure........................................................ 13
Section 4.15. No Solicitation; No Integration with Other Offerings................... 13
Section 4.16. Permits................................................................ 14
Section 4.17. Leases................................................................. 14
Section 4.18. Absence of Any Undisclosed Liabilities or Capital Calls................ 14
Section 4.19. Public Utility Holding Company......................................... 14
Section 4.20. Intellectual Property Rights........................................... 14
Section 4.21. Insurance.............................................................. 14
Section 4.22. Title to Properties.................................................... 15
Section 4.23. Internal Accounting Controls........................................... 15
Section 4.24. Foreign Practices...................................................... 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................ 15
Section 5.1. Purchaser.................................................................. 15
ARTICLE VI CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES.................................... 16
Section 6.1. Conditions Precedent to Purchaser's Obligations to Purchase................ 16
Section 6.2. Conditions to the Company's Obligations.................................... 18
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ARTICLE VII AFFIRMATIVE COVENANTS............................................................ 18
Section 7.1. Information................................................................ 18
Section 7.2. Payment of Obligations..................................................... 19
Section 7.3. Maintenance of Property; Insurance......................................... 19
Section 7.4. Maintenance of Existence................................................... 19
Section 7.5. Compliance with Laws....................................................... 19
Section 7.6. Inspection of Property, Books and Records.................................. 19
Section 7.7. Investment Company Act..................................................... 20
Section 7.8. Use of Proceeds............................................................ 20
Section 7.9. Compliance with Terms and Conditions of Material Contracts................. 20
Section 7.10. Reserved Shares and Listings........................................... 20
Section 7.11. Transfer Agent Instructions............................................ 20
Section 7.12. Maintenance of Reporting Status; Supplemental Information.............. 21
Section 7.13. Form D; Blue Sky Laws.................................................. 21
Section 7.14. Purchaser Acknowledgment............................................... 21
ARTICLE VIII NEGATIVE COVENANTS.............................................................. 22
Section 8.1. Reserved................................................................... 22
Section 8.2. Transactions with Affiliates............................................... 22
Section 8.3. Merger or Consolidation.................................................... 22
Section 8.4. Limitation on Asset Sales.................................................. 22
Section 8.5. Restrictions on Certain Amendments......................................... 22
Section 8.6. Prohibition on Discounted Equity Offerings; Registration Rights............ 22
Section 8.7. Limitation on Stock Repurchases............................................ 24
Section 8.8. Limitations on Financings Until Closing.................................... 24
Section 8.9. Short Sales................................................................ 24
ARTICLE IX RESTRICTIVE LEGENDS............................................................... 24
Section 9.1. Restrictions on Transfer................................................... 24
Section 9.2. Notice of Proposed Transfers............................................... 24
ARTICLE X ADDITIONAL AGREEMENTS AMONG THE PARTIES............................................ 24
Section 10.1. Reserved............................................................... 24
Section 10.2. Reserved............................................................... 24
Section 10.3. Reserved............................................................... 24
Section 10.4. Registration Rights.................................................... 24
Section 10.5. Restriction on Issuance of Securities.................................. 25
ARTICLE XI CONVERSION PRICE ADJUSTMENTS...................................................... 26
Section 11.1. Debentures............................................................. 26
Section 11.2. Warrants............................................................... 26
ARTICLE XII MISCELLANEOUS.................................................................... 26
Section 12.1. Notices................................................................ 26
Section 12.2. No Waivers; Amendments................................................. 26
Section 12.3. Indemnification........................................................ 27
Section 12.4. Expenses: Documentary Taxes............................................ 28
Section 12.5. Payment................................................................ 28
Section 12.6. Successors and Assigns................................................. 28
Section 12.7. Brokers................................................................ 29
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Section 12.8. Missouri Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent................................................... 29
Section 12.9. Entire Agreement........................................................ 29
Section 12.10. Survival; Severability.................................................. 29
Section 12.11. Title and Subtitles..................................................... 29
Section 12.12. Reporting Entity for the Common Stock................................... 30
Section 12.13. Publicity............................................................... 30
Section 12.14. Powers and Remedies Cumulative.......................................... 30
LIST OF SCHEDULES
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Form of Debenture
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Opinion
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of January 3, 2001, by and between INTERNATIONAL FUEL TECHNOLOGY, INC.
(the "Company") and IIG EQUITY OPPORTUNITIES FUND LTD. ("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser
desires to purchase from the Company, up to $3,000,000 principal amount (the
"Commitment Amount") of the Company's 6% Convertible Debentures due December 31,
2003 (the "Debentures"), with terms and conditions as set forth in the form of
Debenture attached hereto as Exhibit A;
WHEREAS, the Debentures will be convertible into shares of the Company's
common stock, $.01 par value per share (the "Common Stock");
WHEREAS, Purchaser will have certain registration rights with respect to
the shares of Common Stock issuable upon conversion of the Debentures issued
pursuant to this Agreement (the "Debenture Conversion Shares") as set forth in
the Registration Rights Agreement in the form attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I DEFINITIONS
Section 1.1. Definitions The following terms, as used herein, have the
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following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 33 1/3% or more of the outstanding shares of Common Stock of
the Company; (ii) any sale or other disposition (other than by reason of death
or disability) to any Person by any executive officers and/or employee directors
of the Company within ten Trading Days following the Closing or any Subsequent
Takedown Closing; (iii) individuals constituting the Board of Directors of the
Company on the date hereof (together with any new Directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of at least 50.1% of the Directors still in
office who are either Directors as of the date hereof or whose election or
nomination for election was previously so approved), cease for any reason to
constitute at least two-thirds of the Board of Directors of the Company then in
office.
"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth in
Section 6.1 and Section 6.2 shall have been satisfied and a Debenture in the
amount of Two Hundred Fifty Thousand Dollars ($250,000.00) and the Initial
Takedown Warrants are issued by the Company to IIG Capital, Inc.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $.01 par value per share, of the
Company.
"Company" means International Fuel Technology, Inc., a Nevada corporation,
and its successors.
"Company Corporate Documents" means the articles of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or
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indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of the Debentures by
the holder thereof to the Company.
"Conversion Price" has the meaning set forth in the terms of the
Debentures.
"Conversion Shares" means the Debenture Conversion Shares and the Warrant
Shares, collectively.
"Debentures" means the Company's 6% Debentures due December 31, 2003.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in Section 10.4.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at
any time thereafter, the holders of more than 50% of the Common Stock into which
the Debentures have been converted or are convertible at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Maximum Number of Shares" shall mean that percentage of the then issued
and outstanding shares of Common Stock of the Company as of the applicable date
of determination that the Company may issue without shareholder approval under
the applicable rules of the National Market or equivalent entity, or such
greater number of shares as the shareholders of the Company may have previously
approved.
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"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Stock Market" means the Nasdaq National Market System or the Nasdaq
Small Cap Market.
"National Market" means the Nasdaq Stock Market, the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. or the OTC Bulletin Board.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the notice to be delivered by a holder of
Debentures upon conversion of all or a portion thereof to the Company.
"Notice of Exercise" means the notice to be delivered by a holder of the
Takedown Warrants upon exercise of all or a portion thereof to the Company.
"Officer's Certificate" shall mean a certificate executed by the President,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock Company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
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"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Debentures.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(d).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Debentures, the Takedown Warrants, the Debenture
Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Solvency Certificate" shall mean a certificate executed by the treasurer
of the Company as to the solvency of the Company, the adequacy of its capital
and its ability to pay its debts, all after giving effect to the issuance and
sale of the Debentures and the completion of the offering (including without
limitation the payment of any fees or expenses in connection therewith), which
such Solvency Certificate shall be in the form of Exhibit C attached hereto.
"Subsequent Takedown Closing" has the meaning set forth in Section 3.1.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
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indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Takedown Warrants" shall have the meaning set forth in Section 3.1.
"Taxes" has the meaning set forth in Section 3.2.
"Trading Day" shall mean any Business Day in which the OTC Bulletin Board,
National Market or other automated quotation system or exchange on which the
Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Certificates of
Debenture, the Registration Rights Agreement, and the other agreements
contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
Section 1.2. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
ARTICLE II PURCHASE AND SALE OF SECURITIES
Section 2.1. Purchase and Sale of Debentures.
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(a) Subject to the terms and conditions set forth herein,
the Company agrees to issue and sell to Purchaser, and Purchaser agrees to
purchase from the Company, Debentures up to the aggregate Commitment Amount.
(b) Purchaser shall acquire Debentures on the Closing Date
equal in value to Two Hundred and Fifty Thousand Dollars ($250,000.00).
Section 2.2. Purchase Price The aggregate consideration payable by
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Purchaser to the Company for the Debentures on the Closing Date shall be Two
Hundred and Fifty Thousand Dollars ($250,000.00) (the "Purchase Price").
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Section 2.3. Closing and Mechanics of Payment.
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(a) The Purchase Price shall be paid on the Closing Date by
wire transfer of immediately available funds on or before 5:00 p.m. (EST).
(b) The Debentures and the Initial Takedown Warrant (as
defined in Section 3.1) issued on the Closing Date shall be dated the Closing
Date.
Section 2.4. Terms of Commitment and Subsequent Takedowns.
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(a) Commitment Term. Purchaser's commitment to purchase the
Commitment Amount of Debentures from the Company, subject to the terms and
conditions set forth herein, shall expire on the first anniversary of the
Closing Date (the "Commitment Term"); provided, however, the Company shall have
the option to extend the term of the commitment for an additional 12 months by
giving written notice to Purchaser of its intention to exercise such option not
less than 60 days prior to the expiration of the Commitment Term. Upon the
exercise of such option, the Commitment Amount for such additional twelve-month
period shall be increased by an additional Three Million Dollars ($3,000,000)
(the "Renewed Commitment Amount"). The Company may, at its option, terminate the
Commitment, including the Renewed Commitment Amount at any time; provided,
however, the Company shall pay a termination fee equal to (x) .10 multiplied by
(y) the Commitment Amount plus the Renewed Commitment Amount, if applicable,
less the sum of the Initial Takedown Amount plus all Subsequent Takedown Amounts
paid by Purchaser prior to the date of such termination, as applicable on the
date of termination.
(b) Subsequent Takedown Period. Until the Commitment Term
expires, following the earlier of (i) the 20th Trading Day after the effective
date of the Registration Statement (in the case of the first draw on the
Commitment Amount by the Company following the Closing Date (a "Takedown") and
the 20th Trading Day after the immediately preceding Takedown (in the case of
all Subsequent Takedowns, together known as "Subsequent Takedowns") or (ii)
conversion by Purchaser of the Debentures purchased in the immediately preceding
Takedown, the Company, at its sole option, may request Purchaser to purchase
additional amounts of the unused Commitment Amount.
(c) Subsequent Takedown Amounts. (i) The minimum amount the
Company may request in any Subsequent Takedown shall be a dollar amount equal to
the product of the formula of: Subsequent Takedown Amount = [(V multiplied by P)
multiplied by 2.5%]. Where V is equal to the weighted average trading volume of
the Common Stock for (A) the total of the 5 Trading Days following the Effective
Date or the closing of the previous Subsequent Takedown, as applicable, or (B)
the total number of Trading Days elapsed between Subsequent Takedowns, and P is
equal to the weighted average sale price of the Common Stock for (x) the 5
Trading Day period or (y) the number of Trading Days elapsed between Subsequent
Takedowns, as applicable (the "Minimum Subsequent Takedown Amount").
(ii) The maximum amount the Company may request in any
Subsequent Takedown is $250,000, unless the Company and Purchaser agree in
writing to increase such amount (the "Maximum Subsequent Takedown Amount").
(iii) The Company shall provide Purchaser a minimum of
20 business days prior written notice of its intention to effect a Takedown.
(d) Additional Takedown Limits.
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(i) In no event shall the Purchaser (or any "group"
as such term is defined in Rule 13d-3 of the Exchange Act of which Purchaser may
be deemed as a member) receive Conversion Shares, upon the issuance of any
Common Stock as a result of a Takedown, if, immediately after giving effect to
such issuance, the Purchaser (or group) would beneficially own in excess of
4.99% of the Common Stock then outstanding. This provision will not be effective
following an Event of Default which remains uncured for a period of 10 days.
(ii) In no event shall a Subsequent Takedown be
effected if the issuance of the Debentures pursuant to such Subsequent Takedown
will cause the number of shares of Common Stock issuable upon conversion of the
Debentures or issued pursuant to this Agreement in the aggregate, to exceed
19.9% of the number of outstanding shares of Common Stock on such date, unless
the issuances have been approved by the shareholders of the Company.
(iii) Upon the occurrence of any events limiting the
Company's ability to consummate a Subsequent Takedown as described in Section
2.4(d)(i), the Company shall not be subject to any Subsequent Takedown Fee (as
hereinafter defined) and the provisions of Sections 8.2, 8.3, 8.4, 8.5, 8.6 and
8.7 hereof shall be inapplicable.
(e) Subsequent Takedown Fees. In the event: a Subsequent
Takedown is not consummated within 33 calendar days following the immediately
preceding Subsequent Takedown, the Company shall pay a fee to the Purchaser
equal to three percent (3%) of the Maximum Subsequent Takedown Amount
("Subsequent Takedown Fee"). The Company shall pay additional Subsequent
Takedown Fees equal to the previous Subsequent Takedown Fee plus Fifteen
Thousand Dollars ($15,000.00)) ("Additional Takedown Fee") for each additional
33 calendar day period in which a Subsequent Takedown Closing does not occur.
ARTICLE III CERTAIN OBLIGATIONS OF THE COMPANY
Section 3.1. Payments to IIG Capital, Inc. On the Closing Date and the
----------------------------
date of each Subsequent Takedown closing (a "Subsequent Takedown Closing"), the
Company shall pay to IIG Capital, Inc. a placement fee in an amount equal to
four percent (4%) of the Takedown Amount and shall deliver a warrant to IIG
Capital, Inc. to purchase 75,000 shares of the Company's Common Stock (the
"Takedown Warrants" and, in the case of the warrant issued on the Closing Date,
the "Initial Takedown Warrant). Each Takedown Warrant shall have a two year term
and an exercise price equal to 130% of the Closing Bid Price of the Common Stock
on the on the date of each Takedown.
Section 3.2. Payment of Certain Amounts.
--------------------------
(a) Any and all payments by the Company hereunder or under
the Debentures to Purchaser and each "qualified assignee" thereof shall be made
free and clear of and without deduction or withholding for any and all present
or future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto (all such taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to be
deducted or withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of any
sum payable under the Debentures (i) the holders of the Debentures subject to
such Taxes shall have the right, but not the obligation, for a period of thirty
(30) days commencing upon the day it shall have received written notice from the
Company that it is required to withhold Taxes to transfer all or any portion of
the Debentures to a qualified assignee to the extent such transfer can be
effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or withholdings;
(iii) the sum payable shall be increased as may be necessary so that after
making all required deductions or
9
withholdings (including deductions or withholdings applicable to additional
amounts paid under this Section 3.2) Purchaser receives an amount equal to the
sum it would have received if no such deduction or withholding had been made;
and (iv) the Company shall forthwith pay the full amount deducted or withheld to
the relevant taxation or other authority in accordance with applicable. A
"qualified assignee" of a Purchaser is a Person that is organized under the laws
of (i) the United States or (II) any jurisdiction other than the United States
or any political subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws in
existence on the date of this Agreement would not be subject to any Taxes and
(z) from time to time, as and when requested by the Company, executes and
delivers to the Company and the Internal Revenue Service forms, and provides the
Company with any information necessary to establish such assignee's continued
exemption from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter referred to as
"Other Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, his Agreement other than Taxes payable solely as a result of the
transfer from Purchaser to a Person of any Security.
(c) Purchaser shall provide to the Company a form W-8,
stating that it is a non- U.S. person, together with any additional tax forms
which may be required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing Date
and again at the closing of each Subsequent Takedown, the following:
Section 4.1. Organization and Qualification. The Company and each
------------------------------
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. The Company is qualified to conduct business as a
foreign corporation and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except where such failure would not have a Material Adverse Effect. A "Material
Adverse Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
Section 4.2. Authorization and Execution.
---------------------------
(a) The Company has all requisite corporate power and
authority to enter into and perform each Transaction Agreement and to consummate
the transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company
of each Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or authorization of
the Company, its Board of Directors or its shareholders is required, except
pursuant to the limitations set forth in Section 2.4(d)(ii).
(c) This Agreement has been duly executed and delivered by
the Company.
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(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the Transaction Agreements will constitute, a
valid and binding agreement of the Company, in each case enforceable against the
Company in accordance with its respective terms.
Section 4.3. Capitalization. As of the date hereof, the authorized, issued
--------------
and outstanding capital stock of the Company is as set forth on Schedule 4.3
------------
hereto and except as set forth on Schedule 4.3 no other shares of capital stock
of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
shareholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
--------
4.3 hereto, as of the date hereof, (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, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) 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 Debentures or Conversion Shares. The Company has furnished
to Purchaser true and correct copies of the Company's Corporate Documents, and
the terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
Section 4.4. Governmental Authorization. The execution and delivery by
--------------------------
the Company of the Transaction Agreements does not and will not, the issuance
and sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Conversion Shares of
Common Stock issuable upon conversion of the Debentures and upon exercise of the
Takedown Warrants, and (d) the filing of a "Form D" as described in Section 7.13
below.
Section 4.5. Issuance of Shares. Upon conversion in accordance with the
------------------
terms of the Debentures and exercise of the Takedown Warrants, the Conversion
Shares shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any Taxes, Liens and charges with respect to
issuance and shall not be subject to preemptive rights or similar rights of any
other shareholders of the Company. Assuming the representations and warranties
of Purchaser herein are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all applicable U.S.
federal and state securities laws. The Company understands and acknowledges
that, in certain circumstances, the issuance of Conversion Shares could dilute
the ownership interests of other shareholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Debentures and exercise of the Takedown Warrants is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of the Company, except pursuant
to the limitation in Section 2.4(e)(ii).
11
Section 4.6. No Conflicts. The execution and delivery by the Company of
------------
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
Section 4.7. Financial Information. Since September 30, 2000 (the
---------------------
"Balance Sheet Date"), there has been (x) no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company and its
Subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and (y) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Company and its subsidiaries except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the future. The
audited and unaudited consolidated balance sheets of the Company and its
Subsidiaries for the periods ending December 31, 1999, and September 30, 2000,
respectively, and the related consolidated statements of income, changes in
shareholders' equity and changes in cash flows for the periods then ended,
including the footnotes thereto, except as indicated therein, (i) complied in
all material respects with applicable accounting requirements and (ii) have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated, except that the unaudited financial statements do not contain notes
and may be subject to normal audit adjustments and normal annual adjustments.
Such financial statements fairly present the financial condition of the Company
and its Subsidiaries at the dates indicated and the consolidated results of
their operations and cash flows for the periods then ended and, except as
indicated therein, reflect all claims against and all Debts and liabilities of
the Company and its Subsidiaries, fixed or contingent.
Section 4.8. Litigation. Except as set forth in the SEC Reports, there is
----------
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
Section 4.9. Compliance with ERISA and other Benefit Plans.
---------------------------------------------
(a) Each member of the ERISA Group has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which as resulted or could result in the imposition of a Lien or the
12
posting of a bond or other security under ERISA or the Code or (iii) incurred
any liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a
"going concern" or "winding up" basis and determined in accordance with all
applicable laws and actuarial practices and using actuarial assumptions and
methods that are reasonable in the circumstances. No event has occurred and no
condition exists with respect to any Benefit Plans that has resulted or could
reasonably be expected to result in any pension plan having its registration
revoked or wound up (in whole or in part) or refused for the purposes of any
applicable laws or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or penalties
(in any material amounts) under any applicable laws.
Section 4.10. Environmental Matters. The costs and liabilities associated
---------------------
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
Section 4.11. Taxes. All United States federal, state, county,
-----
municipality, local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes and other governmental charges have been established in accordance with
GAAP.
Section 4.12. Investments, Joint Ventures. Other than as set forth in
---------------------------
Schedule 4.12, the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
Section 4.13. Not an Investment Company. Neither the Company nor any
-------------------------
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
Section 4.14. Full Disclosure. The information heretofore furnished by
---------------
the Company to Purchaser for purposes of or in connection with this Agreement or
any transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
Section 4.15. No Solicitation; No Integration with Other Offerings. No
----------------------------------------------------
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities.
13
Except as set forth on Schedule 4.15 hereof, neither the Company, nor, to its
-------------
knowledge, any Person acting on behalf of the Company, has, either directly or
indirectly, sold or offered for sale to any Person (other than Purchaser) any of
the Securities or, within the six months prior to the date hereof, any other
similar security of the Company except as contemplated by this Agreement, and
the Company represents that neither itself nor any Person authorized to act on
its behalf (except that the Company makes no representation as to Purchaser and
their Affiliates) will sell or offer for sale any such security to, or solicit
any offers to buy any such security from, or otherwise approach or negotiate in
respect thereof with, any Person or Persons so as thereby to cause the issuance
or sale of any of the Securities to be in violation of any of the provisions of
Section 5 of the Securities Act.
Section 4.16. Permits. (a) Each of the Company and its Subsidiaries has
-------
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; (c) no event has occurred
which allows, or after notice of lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
Section 4.17. Leases. Neither the Company nor any Subsidiary is a party
------
to any capital lease obligation with a value greater than $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 during the
life of such lease.
Section 4.18. Absence of Any Undisclosed Liabilities or Capital Calls.
-------------------------------------------------------
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which would reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
Section 4.19. Public Utility Holding Company. Neither the Company nor any
------------------------------
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
Section 4.20. Intellectual Property Rights. Each of the Company and its
----------------------------
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
Section 4.21. Insurance. The Company and its Subsidiaries maintain, with
---------
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
14
Section 4.22. Title to Properties. The Company and its Subsidiaries have
-------------------
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7, free and clear of all Liens.
Section 4.23. 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 GAAP 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 4.24. Foreign Practices. Neither the Company nor any of its
-----------------
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of any
law, rule or regulation.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1. Purchaser. Purchaser hereby represents and warrants to the
---------
Company that:
(a) Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and, as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and state
securities law; provided that the disposition of Purchaser's property shall at
all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant thereto are within Purchaser's corporate or
partnership powers, as applicable, and have been duly and validly authorized by
all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon Purchaser;
(e) Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold except as
specified in this Agreement or the remaining Transaction Agreements;
(f) this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
15
(g) Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and Purchaser is capable of bearing the economic
risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced in
business and matters; Purchaser has previously invested in securities similar to
the Securities and fully understands the limitations on transfer described
herein; Purchaser has been afforded access to information about the Company and
the financial condition, results of operations, property, management and
prospects of the Company sufficient to enable it to evaluate its investment in
the Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
Purchaser concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall not
limit Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
Purchaser in which any employee benefit plan (or its related trust) has any
interest; and
(j) Purchaser is a corporation organized and in good standing under
the laws of Bermuda.
ARTICLE VI CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 6.1. Conditions Precedent to Purchaser's Obligations to Purchase.
-----------------------------------------------------------
The obligation of Purchaser hereunder to purchase the Debentures at the Closing
and at each Subsequent Takedown Closing is subject to the satisfaction, on or
before the Closing Date and the date of each Subsequent Takedown Closing (each a
"Subsequent Takedown Closing Date"), of each of the following conditions,
provided that these conditions are for Purchaser's sole benefit and may be
waived by Purchaser at any time in its sole discretion:
(a) The Company shall have duly executed this Agreement, the Initial
Takedown Warrant (upon the Closing Date only) and the Registration Rights
Agreement, and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser duly executed
certificates representing the Debentures in accordance with Section 2.3 hereof
and the Initial Takedown Warrant to IIG Capital, Inc. (upon the Closing Date
only);
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained in
each Agreement shall be true and correct in all material respects as of the date
when made and as of the Closing Date and each Subsequent Takedown Closing Date
as though made at such time (except for representations and warranties that
speak as of a specified date) and the Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it at or
prior to the Closing Date and each Subsequent Takedown Closing Date. Purchaser
shall have received an Officer's Certificate executed by the President of the
Company, dated as of the Closing Date and each Subsequent Takedown
16
Closing Date, to the foregoing effect, including but not limited to certificates
with respect to the Company Corporate Documents, resolutions relating to the
transactions contemplated hereby and the incumbencies of certain officers and
Directors of the Company. The form of such certificate is attached hereto as
Exhibit D;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities and the
consummation of the transactions contemplated by the Transaction Agreements;
(f) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been taken
by any competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that
could adversely affect the transactions set forth herein or in the other
Transaction Agreements, and no law or regulation shall have been proposed could
reasonably have any such effect;
(h) Purchaser shall have received an opinion, dated the Closing Date
and each Subsequent Takedown Closing Date, of counsel to the Company, in
substantially the form of Exhibit E;
(i) All fees and expenses due and payable by the Company on or prior
to the Closing Date and each Subsequent Takedown Closing Date shall have been
paid;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or condition
thereof shall have been amended, waived or otherwise modified without the prior
written consent of Purchaser;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since September 30,
2000;
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of this Agreement or
any other Transaction Agreement, or other transaction contemplated hereby or
thereby or that could reasonably be expected to have a Material Adverse Effect,
or any material adverse effect on the enforceability of the Transaction
Agreements or the Securities or the rights of the holders of the Securities or
Purchaser hereunder;
(m) The Registration Statement relating to the Commitment Amount or
the Renewed Commitment Amount, as applicable, shall have been declared effective
by the Commission;
(n) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, which Purchaser reasonably deems
material in connection with the purchase of the Securities;
(o) Receipt of an accountant's "comfort letter" or "agreed upon
procedures letter" if applicable;
17
(p) Purchaser shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as required by the
Transaction Agreements;
(q) The Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8; and
------------
(r) The Company's Common Stock shall be listed and traded on a
National Market or the OTC Bulletin Board.
Section 6.2. Conditions to the Company's Obligations. The obligations of
---------------------------------------
the Company to issue and sell the Securities to Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date and
at each Subsequent Takedown Closing Date, of the following conditions:
(i) The representations and warranties of Purchaser contained
herein shall be true and correct in all material respects on the Closing Date
and Purchaser shall have performed and complied in all material respects with
all agreements required by this Agreement to be performed or complied with by
Purchaser at or prior to the Closing Date;
(ii) The issue and sale of the Securities by the Company shall
not be prohibited by any applicable law, court order or governmental regulation;
(iii) Upon the Closing Date only, receipt by the Company of duly
executed counterparts of this Agreement and the Registration Rights Agreement
signed by Purchaser;
(iv) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities and the
consummation of the transactions contemplated by the Transaction Agreements;
(v) The Company shall have received payment of Purchase Price,
less the Expense Reimbursement Fee.
ARTICLE VII AFFIRMATIVE COVENANTS
The Company and Purchaser, as applicable, hereby agree that, from and after
the date hereof for so long as any Debentures remain outstanding and for the
benefit of each other;
Section 7.1. Information. The Company will deliver to each holder of the
-----------
Debentures:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q and 8-K
(or other equivalents) which the Company or any Subsidiary has filed with the
Commission (collectively, "SEC Reports");
(b) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(c) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Debentures under Section
3.4, notice thereof
18
together with a summary of all material terms thereof and copies of all
documents and instruments associated therewith;
(d) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the number of Conversion Shares to be
registered pursuant to the Registration Statement relating to the Commitment
Amount or the Renewed Commitment Amount, as applicable;
(e) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which the
Company or any Subsidiary is a party in which the amount involved is $250,000 or
more and not covered by insurance or in which injunctive or similar relief is
sought.
Section 7.2. Payment of Obligations. The Company will, and will cause
----------------------
each Subsidiary to, pay and discharge, at or before maturity, all their
respective material obligations, including, without limitation, tax liabilities,
except where the same may be contested in good faith by appropriate proceedings
and will maintain, in accordance with GAAP, appropriate reserves for the accrual
of any of the same.
Section 7.3. Maintenance of Property; Insurance. The Company will, and
----------------------------------
will cause each Subsidiary to, keep all property useful and necessary in its
business in good working order and condition, ordinary wear and tear excepted.
In addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
Section 7.4. Maintenance of Existence. The Company will, and will cause
------------------------
each Subsidiary to, continue to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
Section 7.5. Compliance with Laws. The Company will, and will cause each
--------------------
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
Section 7.6. Inspection of Property, Books and Records. The Company
-----------------------------------------
will, and will cause each Subsidiary to, keep proper books of record and account
in which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser' Representative or an affiliate
thereof, as representatives of Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
in the presence of a representative of the Company; provided, however, that such
discussions will not result in any unreasonable expense to the Company, without
Company consent), all at such reasonable times.
19
Section 7.7. Investment Company Act. The Company will not be or become
----------------------
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
Section 7.8. Use of Proceeds. The proceeds from the issuance and sale of
---------------
the Debentures by the Company shall be used in accordance with Schedule 7.8
------------
attached hereto. None of the proceeds from the issuance and sale of the
Debentures by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
Section 7.9. Compliance with Terms and Conditions of Material Contracts.
----------------------------------------------------------
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject.
Section 7.10. Reserved Shares and Listings.
----------------------------
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Debentures and exercise of
the Takedown Warrants (based on the conversion price of the Debentures in effect
from time to time and the exercise price of the Takedown Warrants, respectively)
and the Company shall reserve for issuance the number of shares to be registered
on the Registration Statement relating to the Conversion Shares issuable upon
conversion of the Commitment Amount and the Renewed Commitment Amount (the
"Reserved Amount"). The Company shall not reduce the Reserved Amount without the
prior written consent of Purchaser. If at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number of
Conversion Shares issued or issuable upon conversion of the Debentures and
exercise of the Takedown Warrants, the Company will promptly take all corporate
action necessary to authorize and reserve a sufficient number of shares,
including, without limitation, either (x) calling a special meeting of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares or (y) in lieu thereof, consummating the immediate
redemption of the Debentures and the Takedown Warrants in accordance with each
such security's terms.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Conversion Shares upon each 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 shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
the Debentures and exercise of the Takedown Warrants (the "Warrant Shares"),
respectively. The Company will maintain the listing and trading of its Common
Stock on a National Market or the OTC Bulletin Board. The Company will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers, Inc. (the
"NASD") and such exchanges, as applicable. The Company shall promptly provide to
Purchaser copies of any notices it receives regarding the continued eligibility
of the Common Stock for listing on any National Market or the OTC Bulletin
Board.
Section 7.11. Transfer Agent Instructions. Upon receipt of a Notice of
---------------------------
Conversion or Notice of Exercise, as applicable, the Company shall immediately
direct the Company's transfer agent to issue certificates, registered in the
name of Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Debentures or exercise of the Takedown Warrants. Upon conversion of any
Debentures in accordance with their terms and/or exercise of any Takedown
Warrants in accordance with their terms, the Company
20
will, and will use its best lawful efforts to cause its transfer agent to, issue
one or more certificates representing shares of Common Stock in such name or
names and in such denominations specified by a Purchaser in a Notice of
Conversion or Notice of Exercise, as the case may be. As long as the
Registration Statement contemplated by the Registration Rights Agreement shall
remain effective, the shares of Common Stock issuable upon conversion of any
Debentures or exercise of the Takedown Warrants shall be issued to any
transferee of such shares from Purchaser without any restrictive legend upon
appropriate evidence of transfer in compliance with the Securities Act and the
rules and regulations of the Commission; provided that for so long as the
Registration Statement is effective, no opinion of counsel will be required to
effect any such transfer. The Company further warrants and agrees that no
instructions other than these instructions have been or will be given to its
transfer agent. Nothing in this Section 7.11 shall affect in any way a
Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
Section 7.12. Maintenance of Reporting Status; Supplemental Information.
---------------------------------------------------------
So long as any of the Securities are outstanding, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act. 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. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the benefit
of the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
Section 7.13. Form D; Blue Sky Laws. The Company agrees to file a "Form D"
---------------------
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to Purchaser 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 Securities for sale to
Purchaser 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 Purchaser on or prior to the Closing Date.
Section 7.14. Purchaser Acknowledgment. Purchaser hereby acknowledges
------------------------
that it will be named as a statutory underwriter in the Registration Statement
as required by the Commission.
21
ARTICLE VIII NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Debentures remain outstanding (or such shorter period time as set forth below)
and for the benefit of Purchaser:
Section 8.1. Reserved.
--------
Section 8.2. Transactions with Affiliates. The Company and each
----------------------------
Subsidiary will not, directly or indirectly, pay any funds to or for the account
of, make any investment (whether by acquisition or stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, and Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
------------
(with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms
------------
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
Section 8.3. Merger or Consolidation. The Company will not, in a single
-----------------------
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
Section 8.4. Limitation on Asset Sales. Neither the Company nor any
-------------------------
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
Section 8.5. Restrictions on Certain Amendments. Neither the Company nor
----------------------------------
any Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
Section 8.6. Prohibition on Discounted Equity Offerings; Registration
--------------------------------------------------------
Rights.
------
(a) Except with respect to equity securities that may be issuable
upon the exercise or conversion of Derivative Securities (as defined below)
outstanding as of the date hereof, until such time as all of the Debentures have
been either redeemed or converted into Conversion Shares in full,
22
the Company agrees that it will not issue any of its equity securities (or
securities convertible into or exchangeable or exercisable for equity securities
(the "Derivative Securities")) on terms that allow a holder thereof to acquire
such equity securities (or Derivative Securities) at a discount to the Market
Price of the Common Stock at the time of issuance or, in the case of Derivative
Securities at a conversion price based on any formula (other than standard anti-
dilution provisions) based on the Market Price on a date later than the date of
issuance which conversion price is not below the Market Price on the date of
issuance (each such event, a "Discounted Equity Offering"). As used herein,
"discount" shall include, but not be limited to, (i) any warrant, right or other
security granted or offered in connection with such issuance which, on the
applicable date of grant, is offered with an exercise or conversion price, as
the case may be, at less than the then current Market Price of the Common Stock
or, if such security has an exercise or conversion price based on any formula
(other than standard anti-dilution provisions) based on the Market Price on a
date later than the date of issuance, then at a price below the Market Price on
such date of exercise or conversion, as the case may be, or (ii) any
commissions, fees or other allowances paid in connection with such issuances
(other than customary underwriter or placement agent commissions, fees or
allowances). For the purposes of determining the Market Price at which Common
Stock is acquired under this Section, normal underwriting commissions and
placement fees (including underwriters' warrants) shall be excluded.
(b) Except with respect to equity securities that may be issuable
upon the exercise or conversion of Derivative Securities outstanding as of the
date hereof, until such time as all of the Debentures have been either redeemed
or converted into Conversion Shares in full, the Company agrees it will not
issue any of its equity securities (or Derivative Securities), unless such
securities are junior in ranking to the Debentures and any shares of Common
Stock issued or issuable in connection therewith are "restricted securities." As
used herein "restricted securities" shall mean securities which may not be sold
prior to twelve (12) months following the date of issuance of such securities.
(c) The restrictions contained in this Section 8.6 shall not apply to
the issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this Agreement, or
(ii) stock option or other compensatory plans.
(d) Notwithstanding the foregoing, the Company may enter into the
following types of transactions: (1) "permanent financing" transactions, which
would include any form of debt or equity financing (other than an underwritten
offering), which is followed by a reduction of the commitment to zero and
payment of all related fees and expenses; (2) "project financing" transactions
which provide for the issuance of non-convertible debt instruments in connection
with the operation of the Company's business as presently conducted or as
proposed to be conducted; and (3) an underwritten offering of the Company's
Common Stock, provided that all of the Conversion Shares issuable pursuant to
the terms described herein have been registered pursuant to the Registration
Statement.
(e) Notwithstanding anything contained herein to the contrary, the
Company shall be entitled to offer or sell Common Stock or Derivative Securities
for certain transactions including, but not limited to, mergers, acquisitions,
or other similar events, in which case the Company shall be entitled to offer
the greater of: (i) $1,000,000 in market value of Common Stock or Derivative
Securities at the date of closing such transaction, or (ii) twenty-five percent
(25%) of the aggregate transaction cost to the Company in the form of
registered, or to be registered, Common Stock or Derivative Securities as part
of the consideration for such transaction, with the remaining consideration to
include Common Stock or Derivative Securities having an appropriate contractual
holding period by the recipient of such Common Stock or Derivative Securities
prior to registration of same.
23
Section 8.7. Limitation on Stock Repurchases. Except as otherwise set
-------------------------------
forth in the Debentures and the Takedown Warrants, the Company shall not,
without the written consent of the Majority Holders, redeem, repurchase or
otherwise acquire (whether for cash or in exchange for property or other
securities or otherwise) any shares of capital stock of the Company or any
warrants, rights or options to purchase or acquire any such shares.
Section 8.8. Limitations on Financings Until Closing. Notwithstanding
---------------------------------------
any provision of this ARTICLE VIII to the contrary, the Company and each
Subsidiary shall not, until the Closing Date, consummate any equity or debt
financing except for financings pursuant to existing credit facilities or
conventional debt financings without the prior written approval of the
Purchaser.
Section 8.9. Short Sales. Purchaser shall not effect, and shall not
-----------
cause any affiliate of Purchaser to effect or request any third party to effect,
a short sale of Common Stock of the Company so long as Purchaser or any
affiliate of Purchaser owns any Debentures or any shares of Common Stock.
ARTICLE IX RESTRICTIVE LEGENDS
Section 9.1. Restrictions on Transfer. From and after their respective
------------------------
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this ARTICLE IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this ARTICLE IX and Section 8.9 of this Agreement.
Section 9.2. Notice of Proposed Transfers. Prior to any proposed
----------------------------
Transfer of the Securities (other than a Transfer (i) registered or exempt from
registration under the Securities Act, (ii) to an affiliate of a Purchaser which
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 10.1. Reserved.
--------
Section 10.2. Reserved.
--------
Section 10.3. Reserved.
--------
Section 10.4. Registration Rights.
-------------------
24
(a) The Company shall grant Purchaser registration rights covering
the Conversion Shares (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
(b) If the registration statement required to be filed in accordance
with the Registration Rights Agreement relating to the Conversion Shares
issuable upon conversion of the Commitment Amount or the Renewed Commitment
Amount, as applicable (each a "Registration Statement") is not filed by the 60th
day following the date hereof or the 60th day following the exercise of the
Company's option to renew the Commitment Amount, respectively, the Company will
pay to the Purchaser liquidated damages in the amount of one percent (1%) of the
Purchase Price of the Debentures to be purchased by Purchaser on the Initial
Takedown Closing Date. If the Registration Statement is not declared effective
by the Commission by the 120th day following the date of filing the applicable
Registration Statement with the Commission (each a "Filing Date") (the "Required
Effectiveness Date"), the Company shall pay to Purchaser, as liquidated damages
and not as a penalty, an amount equal to two percent (2%) of the aggregate
Purchase Price for the Debentures to be purchased by Purchaser on the Initial
Takedown Closing Date, prorated, for each 30 day period the Registration
Statement is not declared effective by the Commission, which percentage will be
increased to three percent (3%) in the event that the Registration Statement is
not declared effective by the Commission within 150 days of the applicable
Filing Date. In addition, commencing 150 days following the applicable Filing
Date, the Conversion Price of the Debentures will decrease by 1% for each 30-
day period in which the Registration Statement is not declared effective.
Additionally, the Company will grant to Purchaser first priority piggyback
registration rights in the event the Company proposes to effect a registered
offering of Common Stock or warrants or both prior to the filing of the
Registration Statement referenced above.
(c) Any such liquidated damages shall be paid in cash by the Company
to Purchaser by wire transfer in immediately available funds on the last day of
each calendar week following the event requiring its payment.
(d) If, following the declaration of effectiveness of a Registration
Statement, such registration statement (or any prospectus or supplemental
prospectus contained therein) shall cease to be effective for any reason
(including but not limited to the occurrence of any event that results in any
prospectus or supplemental prospectus containing an untrue statement of a
material fact or omitting a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading), the Company fails to file required
amendments to such registration statement in order to allow the Purchaser to
exercise its rights to receive unrestricted, unlegended, freely tradeable shares
of Common Stock, or if for any reason there are insufficient shares of such
shares of Common Stock registered under the then current registration statement
to effect full conversion of the Debentures (a "Registration Default"), the
Company shall immediately take all necessary steps to cause such registration
statement to be amended or supplemented so as to cure such Registration Default.
Failure to cure a Registration Default within five (5) business days shall
result in the Company paying to Purchaser liquidated damages at the rate of
$1,000 per day from the date of such Registration Default until the Registration
Default is cured.
Section 10.5. Restriction on Issuance of Securities. Except with respect
-------------------------------------
to equity securities issuable upon the exercise of or upon conversion of
Derivative Securities outstanding on the date hereof, for a period of 90 days
following the date the Commitment expires, is fully drawn upon or is terminated
in full, the Company will not sell, or offer to sell, any securities (including
credit facilities which are convertible into securities which may be issued at a
discount to the then current Market Price) other than borrowings under
conventional credit facilities existing as of the date hereof, stock issued or
credit facilities to be established in connection with acquisitions and other
types of business combinations, employee and director stock options of the
Company, existing rights and warrants of the Company and
25
securities issued under the Debentures. In addition, the Company shall not issue
any securities in connection with a strategic alliance entered into by the
Company unless such securities are the subject of a one year statutory or
contractual hold period or, if not subject to such a hold period, unless the
Purchaser has fully converted all outstanding Debentures. Notwithstanding the
foregoing, the Company may enter into the following types of transactions
(collectively referred to as "Permitted Financings"): (1) "permanent financing"
transactions, which would include any form of debt or equity financing (other
than an underwritten offering), which is followed by a reduction of the said
financing commitment to zero and payment of all related fees and expenses; (2)
"project financing" which provide for the issuance of recourse debt instruments
in connection with the operation of the Company's business as presently
conducted or as proposed to be conducted; (3) an underwritten offering of Common
Stock, provided that all Conversion Shares issuable pursuant to this Agreement
have been registered by the Company on the Registration Statement; and (4) other
financing transactions specifically consented to in writing by the Purchaser.
ARTICLE XI CONVERSION PRICE ADJUSTMENTS
Section 11.1. Debentures. Except as set forth in Section 10.4(b), the
----------
Conversion Price shall be adjusted as provided in the Certificate of Debenture
attached hereto as Exhibit A.
Section 11.2. Warrants. The exercise price of the Takedown Warrants shall
--------
be adjusted under the same circumstances and in the same manner as the
Debentures pursuant to the terms and conditions set forth in the Certificate of
Debenture attached as Exhibit A hereto.
ARTICLE XII MISCELLANEOUS
Section 12.1. Notices. All notices, demands and other communications to
-------
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
Section 12.2. No Waivers; Amendments.
----------------------
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing and
is signed by the Company and the Majority Holders. In determining whether the
holders of the requisite number of Debentures have concurred in any direction,
consent, or waiver as provided in any Transaction Agreement, Debentures which
are owned by the Company or, or by any Person Controlling, Controlled by, or
under common Control with the Company, shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; and provided further that
no such amendment, supplement or waiver which affects the rights of Purchaser
and their affiliates otherwise than solely in their capacities as holders of
Debentures shall be effective with respect to them without their prior written
consent.
26
Section 12.3. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act (each,
a "Controlling Person"), and the respective partners, agents, employees,
officers and Directors of Purchaser, their Affiliates and any such Controlling
Person (each an "Indemnified Party") and collectively, the "Indemnified
Parties"), from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether or not
such Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than Purchaser
unless it has received from such Indemnified Party an undertaking to repay to
the Company the costs so advanced if it should be determined by final judgment
of a court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which may be
incurred by such Indemnified Party in connection with any investigative,
administrative or judicial proceeding brought or threatened that relates to or
arises out of, or is in connection with any activities contemplated by any
Transaction Agreement; provided that the Company will not be responsible for any
claims, liabilities, losses, damages or expenses that result from such
Indemnified Party's negligence, willful misconduct or bad faith or that arise in
connection information provided to the Company by such Indemnified Party for
inclusion in the registration statement prepared for the Registrable Securities.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company, at its option, may, assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so notify the
Company shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless (i) the Company has failed to assume
the defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by Purchaser.
The Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which shall not be unreasonably
withheld) and the Company agrees to indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of settlement of any
action effected without the consent of such Indemnified Party. In addition, the
Company will not, without the prior written consent of Purchaser, settle or
compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or proceeding in respect
to which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of Purchaser
and the other Indemnified Parties, satisfactory in form and substance to
Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
27
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying such Indemnified Party, the Company shall contribute to the
amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by Purchaser on the other from the transactions contemplated by this
Agreement or (ii) if the allocation provided by clause (i) is not permitted
under applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the Company on the one hand and Purchaser on
the other, but also the relative fault of the Company and Purchaser as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 12.3, the aggregate contribution of all Indemnified Parties shall
not exceed the Commitment Amount and the aggregate contribution of the Company
shall not exceed the Commitment Amount. It is hereby further agreed that the
relative benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 12.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the other
Transaction Agreements and the payment in full of the Debentures and (iii) shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Purchaser or any other Indemnified Party.
Section 12.4. Expenses: Documentary Taxes. The Company agrees to pay to
---------------------------
Purchaser a fee of $7,500.00 (the "Expense Reimbursement Fee") in full
satisfaction of all obligations of the Company to Purchaser and its agents in
connection with the negotiation and preparation of the Transaction Agreements,
relevant due diligence, and fees and disbursements of legal counsel. The Company
further agrees to pay to Purchaser all reasonable and actual out of pocket
expenses for legal fees and due diligence investigations incurred by the
Purchaser in the event the Company terminates this Agreement prior to the
Initial Takedown Closing Date.
Section 12.5. Payment. The Company agrees that, so long as Purchaser shall
-------
own any Debentures purchased by it from the Company hereunder, the Company will
make payments to Purchaser of all amounts due hereunder by wire transfer by 4:00
P.M. (E.S.T.).
Section 12.6. Successors and Assigns. This Agreement shall be binding
----------------------
upon the Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
28
Section 12.7. Brokers. Other than the placement fee payable to IIG
-------
Capital, Inc. pursuant to Section 3.1 hereof, the Company represents and
warrants that it has not employed any broker, finder, financial advisor or
investment banker who would be entitled to any brokerage, finder's or other fee
or commission payable by the Company or Purchaser in connection with the sale of
the Securities.
Section 12.8. Missouri Law; Submission to Jurisdiction; Waiver of Jury
--------------------------------------------------------
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
---------------------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF MISSOURI. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF MISSOURI SITTING IN ST. LOUIS, MISSOURI FOR PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF
BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS
SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A
TRIAL BY JURY.
Section 12.9. Entire Agreement. This Agreement, the Exhibits or Schedules
----------------
hereto, which include, but are not limited to the Certificates of Debenture and
the Registration Rights Agreement, set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supercedes 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 and Schedules to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
Section 12.10. Survival; Severability. The representations, warranties,
----------------------
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.11. Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
29
Section 12.12. Reporting Entity for the Common Stock. The reporting entity
-------------------------------------
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
Section 12.13. Publicity. The Company and the Purchaser shall consult with
---------
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law or upon the advice of Counsel in compliance with the
rules and regulations of the Commission, in which case the Company shall provide
Purchaser with prior written notice of such public disclosure.
Section 12.14. Powers and Remedies Cumulative. No right or remedy herein
------------------------------
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Debentures or by law may be
exercised from time to time, and as often as shall be deemed expedient, by
Purchaser.
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇
IIG EQUITY OPPORTUNITIES FUND LTD.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Portfolio Manager
Address: c/o The International Investment Group
▇▇/▇▇/ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT A
---------
6% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
No. 1
$_____________ Principal Amount
International Fuel Technology, Inc.
6% CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2003
THIS DEBENTURE is issued by INTERNATIONAL FUEL TECHNOLOGY, INC., a Nevada
corporation (the "Company"), and is part of an issue of an aggregate of up to
$3,000,000 principal amount of 6% Convertible Debentures due December 31, 2003
(the "Convertible Debentures").
FOR VALUE RECEIVED, the Company promises to pay to IIG EQUITY OPPORTUNITIES
FUND LTD., or permitted assigns (the "Holder"), the principal sum of
____________________ and 00/100 (US $_______________) Dollars on December 31,
2003 (the "Maturity Date") and to pay interest on the principal sum outstanding
from time to time at the rate of 6% per annum accruing from the date of initial
issuance. Accrual of interest shall commence on the first business day to occur
after the date of initial issuance and continue daily on the basis of a 360 day
year until payment in full of the principal sum has been made or duly provided
for. If the Maturity Date is not a business day in the State of Missouri, then
such payment shall be made on the next succeeding business day. Subject to the
provisions of Section 4 below, principal and accrued interest on this Debenture
are payable in cash on the Maturity Date, at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder from
time to time. The Company will pay the principal of and any accrued but unpaid
interest due upon this Debenture on the Maturity Date, less any amounts required
by law to be deducted, to the registered holder of this Debenture as of the
tenth day prior to the Maturity Date and addressed to such holder at the last
address appearing on the Debenture register maintained by the Company (the
"Debenture Register"). The forwarding of such check shall constitute a payment
of principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Debenture to the extent of the sum
represented by such check, plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. Withholding and Issuance Taxes. The Company shall be entitled to
withhold from all payments of principal of, and interest on, this Debenture any
amounts required to be withheld under the applicable provisions of the United
States income tax laws or other applicable laws at the time of such payments,
and Holder shall execute and deliver all required documentation in connection
therewith. The issuance of
32
certificates for shares of common stock, no par value (the "Common Stock"), of
the Company upon conversion of this Debenture shall be made without charge to
the Holder for any United States issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the Holder of this Debenture.
2. Transfer of Debenture. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and other applicable state and foreign
securities laws. The Holder shall deliver written notice to the Company of any
proposed transfer of this Debenture. In the event of any proposed transfer of
this Debenture, the Company may require, prior to issuance of a new Debenture in
the name of such other person, that it receive reasonable transfer documentation
including legal opinions that the issuance of the Debenture in such other name
does not and will not cause a violation of the Securities Act or any applicable
state or foreign securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary. This
Debenture has been executed and delivered pursuant to the Securities Purchase
Agreement dated as of January __, 2001 between the Company and the original
Holder (the "Purchase Agreement"), and is subject to the terms and conditions of
the Purchase Agreement, which are, by this reference, incorporated herein and
made a part hereof. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase Agreement.
3. Conversion. The Holder of this Debenture is entitled, at its option,
to convert, at any time after the initial issuance of the Convertible
Debentures, the Principal Amount of this Debenture or any portion thereof,
together with accrued and unpaid interest on such Principal Amount, into shares
of Common Stock as follows:
(a) Right to Convert.
(i) Subject to the terms, conditions, and restrictions of this
Section 3, at any time after the initial issuance of the Convertible Debentures,
the Holder of this Debenture shall have the right to convert all or any portion
of the Principal Amount of this Debenture, together with the accrued and unpaid
interest on such Principal Amount so converted, into that number of fully-paid
and nonassessable shares of Common Stock (rounded to the nearest whole share in
accordance with Subsection 3(e)), at the Conversion Rate (as defined below).
(ii) Anything in Subsection 3(a)(i) to the contrary notwithstanding,
in no event shall any Holder be entitled to convert all or any portion of the
Principal Amount of this Debenture in excess of that amount of the Principal
Amount of this Debenture that, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially owned by the
Holder and its "affiliates" (as defined in Rule 405 under the Securities Act) to
exceed 4.99% of the outstanding shares of the Common Stock following such
conversion. For purposes of this Subsection, the aggregate number of shares of
Common Stock beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Debenture
with respect to which the determination is being made, but shall exclude the
number of shares of Common Stock that would be issuable upon (i) conversion of
the remaining, nonconverted portion of the Principal Amount of this Debenture
beneficially owned by the Holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants or convertible
preferred stock) subject to a limitation on conversion or exercise analogous to
33
the limitation contained herein beneficially owned by the Holder and its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Subsection 3(a)(ii), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). For purposes of this Subsection, in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-
K, 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 shares of Common Stock outstanding. For any reason at any time, upon
the written or oral request of a Holder, the Company shall promptly confirm
orally and in writing to any such Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares Common Stock
shall be determined after giving effect to conversions of this Debenture by such
Holder since the date as of which such number of outstanding shares of Common
Stock was reported. To the extent that the limitation contained in this
Subsection 3(a)(ii) applies, the determination of whether such portion of this
Debenture is convertible (in relation to other securities owned by a Holder) and
of what portion of this Debenture is convertible shall be in the sole discretion
of such Holder, and (subject to the restriction set forth below) the submission
of this Debenture for conversion shall be deemed to be such Holder's
determination of whether such portion of this Debenture is convertible (in
relation to other securities owned by such Holder) and of what portion of this
Debenture is convertible, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation or right to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a Holder to convert such portion of this
Debenture at such time as such conversion will not violate the provisions of
this Subsection. A Holder of this Debenture may waive the provisions of this
Subsection 3(a)(ii) as to itself (and solely as to itself) upon not less than 75
days' prior notice to the Company, and the provisions of this Subsection
3(a)(ii) shall continue to apply until such 75/th/ day (or such later date as
may be specified in such notice of waiver). No conversion in violation of this
Subsection 3(a)(ii), but otherwise in accordance with this Debenture, shall
affect the status of the Common Stock issued upon such conversion as validly
issued, fully-paid and nonassessable. Subsection 3(g) below sets forth
additional limitations on the Company's obligation to issue shares of Common
Stock upon conversion of this Debenture.
(b) Conversion Rate and Other Definitions. The number of shares of Common
Stock issuable upon conversion of all or any portion of the Principal Amount of
this Debenture pursuant to Subsection (3)(a) shall be determined according to
the following formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
For purposes of this Debenture, the following terms shall have the
following meanings:
"Change of Control" means:
(i) The acquisition by any Person (as defined below) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 40% or more of either (x) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or (y) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions of stock shall not result in a Change of Control: (A)
any acquisition directly from the Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or
34
any corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction that complies with clauses (A), (B), and
(C) of subsection (iii) of this definition; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Incumbent Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election, by the
Company's shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Incumbent Board; or
(iii) Consummation of a reorganization, merger, or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Business Combination, including, without limitation, a corporation that as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries (any such
corporation being referred to herein as a "Resulting Company"), in substantially
the same proportions as their ownership of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be, immediately prior
to such Business Combination, (B) no Person (excluding any employee benefit plan
(or related trust) of the Company or a Resulting Company) beneficially owns,
directly or indirectly, 40% or more of, respectively, the outstanding shares of
common stock of the Resulting Company or the combined voting power of the then
outstanding voting securities of such Resulting Company except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the Resulting Company
were members of the Incumbent Board (or were approved by at least a majority of
the Incumbent Board) at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Corporation.
"Closing Bid Price" or "Closing Ask Price" means, for any security as of
any date, the last closing bid or ask price, as the case may be, for such
security on the Principal Market (as defined below) as reported by Bloomberg
L.P. ("Bloomberg"), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid or ask price
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 or ask price 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 or ask price is reported for such
security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade price is reported for such security
by Bloomberg, the last bid or ask price of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price or Closing Ask Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price or Closing Ask
Price of such security on such date shall be the fair market value as mutually
determined by the
35
Company and the holders of a majority of the currently outstanding Principal
Amount of all Convertible Debentures. If the Company and the Holders of the
Convertible Debentures are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved pursuant to Subsection 3 (h).
(All such determinations are to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period).
"Conversion Amount" means the principal amount of this Debenture being
converted by such Holder, together with accrued but unpaid interest on such
principal amount.
"Conversion Price" means, as of any Conversion Date or other date of
determination, 80% of the Market Price, but in no event more than 110% of the
average of the three lowest Closing Bid Prices of the Common Stock on the
Principal Market as reported by Bloomberg for the ten Trading Days immediately
preceding the Closing Date (the "Maximum Conversion Price").
"Market Price" means the average of the three lowest Closing Bid Prices of
the Common Stock on the Principal Market as reported by Bloomberg for the twenty
Trading Days immediately preceding the date of determination.
"Principal Market" means the American Stock Exchange, the New York Stock
Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market, or the NASD
Over-The-Counter Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock, based upon share volume.
"Registration Rights Agreement" means that certain Registration Rights
Agreement among the Company and the initial holders of the Convertible
Debentures concerning the registration of the resale of the shares of Common
Stock issuable upon conversion of the Convertible Debentures.
"Trading Day" means any day during which the Principal Market shall be open
for business.
(c) Conversion Notice. The Holder of this Debenture may exercise its
conversion right by giving a written conversion notice in the form of Exhibit A
hereto (the "Conversion Notice") to the Company's transfer agent for its Common
Stock, as designated by the Company from time to time (the "Transfer Agent"),
(x) by facsimile or (y) by registered mail or overnight delivery service, with a
copy by facsimile to the Company and the Company's outside counsel as specified
from time to time by written notice to the holders of the Convertible
Debentures. Upon receipt of a conversion notice from the Holder, the Company
shall make a notation on the Debenture Register as to the remaining outstanding
principal amount of the Debentures registered in the name of the Holder which
shall be conclusive and binding upon the Holder. Promptly, but in no event more
than five (5) Trading Days after the receipt of a Conversion Notice converting
the entire unpaid Principal Amount of this Debenture, the Holder of this
Debenture shall surrender this Debenture to the Company (or such other office or
agency of the Company as the Company may designate by notice in writing to the
holders of the Convertible Debentures).
(d) Issuance of Certificates; Time Conversion Effected.
(i) Promptly, but in no event more than three (3) Trading Days after
the receipt of the Conversion Notice referred to in Subsection 3(c), the
Transfer Agent shall issue and deliver, or the Company shall cause to be issued
and delivered, to the Holder, registered in such name or names as the Holder may
direct, a certificate or certificates for the number of whole shares of Common
Stock into which this Debenture has been converted. In the alternative, if the
Transfer Agent is a participant in the electronic book transfer program, the
Transfer Agent shall credit such aggregate number of shares of Common Stock to
which the Holder shall be entitled to the Holder's or its designee's balance
account with
36
The Depository Trust Company. Such conversion shall be deemed to have been
effected, and the Conversion Date shall be deemed to have occurred, on the date
on which such Conversion Notice shall have been received by the Transfer Agent.
The rights of the Holder of this Debenture shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the Holder or Holders of record of the shares represented thereby, on the
Conversion Date. Issuance of shares of Common Stock issuable upon conversion
that are requested to be registered in a name other than that of the registered
Holder shall be subject to compliance with all applicable federal and state
securities laws.
(ii) The Company understands that a delay in the issuance of the shares of
Common Stock beyond three (3) Trading Days after the Conversion Date could
result in economic loss to the Holder of this Debenture. As compensation to the
Holder for such loss, the Company agrees to pay late payments to the Holder for
late issuance of shares of Common Stock upon conversion in accordance with the
following schedule (where "No. Trading Days Late" means the number of Trading
Days after three (3) Trading Days from the date of receipt by the Transfer Agent
of the Conversion Notice to and including the date of the Holder's or its
designees' receipt of such shares):
No. Trading Days ▇▇▇▇ ▇▇▇▇ Payment For Each
$5,000 of Conversion Amount of
Principal Amount Being Converted
----------------------------------------- -----------------------------------
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
*10 $1,000 + $200 for each Trading Day
late after 10 Trading Days
* more than
The Company shall make all payments due under this Subsection 3(d)(ii) in
immediately available funds upon demand. Nothing herein shall limit the
Holder's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver (or to cause its Transfer Agent to issue
and deliver) Common Stock to the Holder as required by Subsection 3(d)(i),
including, without limitation, the Holder's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery. Furthermore, in
addition to any other remedies that may be available to the Holder, if the
Company fails for any reason to effect delivery of such shares of Common Stock
within five (5) Trading Days after the Conversion Date, the Holder will be
entitled to revoke the relevant Conversion Notice by delivering a notice to such
effect to the Transfer Agent, with a copy by facsimile to the Company and the
Company's outside counsel. Upon delivery of such notice of revocation, the
Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Conversion Notice, except that the Holder
shall retain the right to receive both the late payment amounts set forth above
plus the actual cost of any "buy-in."
37
(iii) If, at any time, (a) the Company challenges, disputes or denies
the right of the Holder to effect the conversion of this Debenture into Common
Stock or otherwise dishonors or rejects, or causes the Transfer Agent to
dishonor or reject, any Conversion Notice properly delivered in accordance with
this Section 3 or (b) any third party who is not and has never been an affiliate
of the Holder obtains a judgment or order from any court or public or
governmental authority that denies, enjoins, limits, modifies, or delays the
right of the Holder to effect the conversion of this Debenture into Common
Stock, then the Holder shall have the right, by written notice to the Company,
to require the Company to promptly redeem this Debenture in accordance with
Section 4. Under any of the circumstances set forth above, the Company shall
indemnify the Holder against and hold it harmless from, and be responsible for
the payment of, all costs and expenses of the Holder, including its reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the Holder),
unless the Company or third party prevails. The Company shall not refuse to
honor, or cause the Transfer Agent to refuse to honor, any Conversion Notice
unless the Company or the Transfer Agent, as the case may be, has actually been
enjoined by a court of competent jurisdiction from doing so and, if so enjoined,
the Company shall post with such court a performance bond equal to 135% of the
Conversion Amount of this Debenture sought to be converted by the Holder that is
the subject of such injunction.
(iv) The Holder of this Debenture shall be entitled to exercise its
conversion privilege notwithstanding the commencement of any case under 11
U.S.C. (S) 101 et seq. (the "Bankruptcy Code"). The Company hereby waives to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
(S) 362 in respect of the Holder's conversion privilege, if the Company becomes
a debtor under the Bankruptcy Code. The Company agrees to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. (S) 362 without
cost or expense to the Holder.
(e) Fractional Shares. The Company shall not, nor shall it cause the
Transfer Agent to, issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions thereof) issuable
upon conversion of this Debenture by the Holder shall be aggregated for purposes
of determining whether the conversion would result in the issuance of a fraction
of a share of Common Stock. If, after such aggregation, the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall cause the Transfer Agent to issue one whole share of Common Stock in
respect of such fraction of a share of Common Stock.
(f) Adjustment to Conversion Price; Dilution and Other Events. In order to
prevent dilution of the rights granted under this Debenture, the Conversion
Price will be subject to adjustment from time to time as provided in this
Subsection 3(f).
(i) Adjustment of Conversion Price upon Issuance of Common Stock. If
the Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than Conversion Shares (as defined in the Purchase
Agreement) and shares of Common Stock deemed to have been issued by the Company
in connection with Approved Issuances (as defined below)) for a consideration
per share (the "Applicable Price") less than the Conversion Price as in effect
immediately prior to such time (an "Offering"), then immediately after such
issue or sale, the Conversion Price shall be reduced to an amount equal to (X)
the sum of (A) the product of the Conversion Price in effect immediately prior
to such issue or sale and the number of shares of Common Stock Deemed
Outstanding (as defined below) immediately prior to such issue or sale, and (B)
the consideration, if any, received by the Company upon such issue or sale
divided by (Y) the number of shares of Common Stock Deemed Outstanding
immediately after such issuance or sale. For purposes of determining the
adjusted Maximum Conversion Price under this Subsection 3(f)(i), the following
shall be applicable:
38
(A) Issuance of Options. If the Company in any manner grants any rights
or options to subscribe for or to purchase Common Stock (other than in
connection with an Approved Issuance or upon conversion of this Debenture) or
any stock or other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities is
less than the Applicable Price, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. Notwithstanding
anything to the contrary in the foregoing, upon the expiration or other
termination of such Options if any thereof shall not have been exercised or upon
the expiration or termination of the right to convert or exchange such
Convertible Securities, the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this Subsection 3(f)(i)A) shall be reduced by
such number of shares of Common Stock as to which Options shall have expired or
terminated unexercised or as to which the conversion or exchange rights of
Convertible Securities shall have expired or terminated unexercised, and such
number of share of Common Stock shall no longer be deemed to be issued and
outstanding, and the Maximum Conversion Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had adjustment
been made on the basis of the issuance only of shares of Common Stock actually
issued or issuable upon the exercise of those Options as to which the exercise
rights shall not have expired or terminated unexercised or upon conversion or
exercise of those Convertible Securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised. For purposes of this
Subsection 3(f)(i)(A), the "price per share for which Common Stock is issuable
upon exercise of such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange thereof, by
(II) the total maximum number of shares of Common Stock issuable upon exercise
of such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of the
Maximum Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Subsection 3(f)(i)(A) to the extent that such
adjustment is based solely on the fact that the Convertible Securities issuable
upon exercise of such Option are convertible into or exchangeable for Common
Stock at a price that varies with the market price of the Common Stock.
(B) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the
Applicable Price, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. Notwithstanding anything to the contrary in the foregoing, upon the
expiration or other termination of the right to convert or exchange such
Convertible Securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this Subsection 3(f)(i)(B) shall be reduced by such number of shares of Common
Stock as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares of Common Stock shall no
longer be deemed to be issued and outstanding, and the Maximum Conversion Price
then in effect shall forthwith be readjusted and thereafter be the price which
it would have been had adjustment been made on the basis of
39
the issuance only of the shares of Common Stock actually issued or issuable upon
the conversion or exchange of those Convertible Securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
No adjustment will be made pursuant to this Subsection 3(f)(i)(B) upon the
issuance by the Company of any Convertible Securities pursuant to the exercise
of any Option therefor, to the extent that adjustments in respect of such
Options were previously made pursuant to the provisions of Subsection
3(f)(i)(A). For the purposes of this Subsection 3(f)(i)(B), the "price per share
for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (II) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the Maximum
Conversion Price shall be made upon the actual issue of such Common Stock upon
conversion 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 the Maximum Conversion Price had been or are to be made
pursuant to other provisions of this Subsection 3(f)(i), no further adjustment
of the Maximum Conversion Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Subsection 3(f)(i)(B) to the extent that such adjustment is based solely on the
fact that such Convertible Securities are convertible into or exchangeable for
Common Stock at a price that varies with the market price of the Common Stock.
(C) 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 or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, the Maximum Conversion Price in effect at the time of
such change shall be readjusted to the Maximum Conversion Price that would have
been in effect at such time had such Options or Convertible Securities still
outstanding 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; provided that no adjustment shall be made if such adjustment
would result in an increase of the Maximum Conversion Price then in effect.
(D) Certain Definitions. For purposes of determining the adjusted Maximum
Conversion Price under this Subsection 3(f)(i), the following terms have
meanings set forth below:
(I) "Approved Issuances" shall mean (i) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (ii) the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock option plan, restricted stock plan, stock purchase plan
or other plan or written compensation contract for the benefit of the Company's
employees, directors or consultants in effect on the date hereof or any similar
compensatory plans adopted after the date hereof approved by stockholders of the
Company which provide for stock awards or stock options at not less than fair
market value on the date of award or grant in respect of not more than an
aggregate of 500,000 shares of Common Stock, or (iii) the issuance of securities
to a bona fide strategic investor of the Company who is engaged in a business
related or complementary to that of the Company and which is not a public or
private investment company or other financial institution or an investment
advisor or manager.
(II) "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
3(f)(i)(A) and 3(f)(i)(B) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon conversion of the Convertible Debentures.
40
(E) Effect of Certain Events on Maximum Conversion Price. For purposes of
determining the adjusted Maximum Conversion Price under this Section 3(f), the
following shall be applicable:
(I) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefore will be
deemed to be the amount received by the Company therefore, before deduction of
reasonable commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with such issuance or
sale. In case any Common Stock, 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 securities, in which case the amount
of consideration received by the Company will be the arithmetic average of the
Closing Bid Prices of such security for the five consecutive Trading Days
immediately preceding the date of the agreement. In case any 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 the assets and business of the non-surviving entity as is attributable to
such 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
by the Company's board of directors in good faith. If the holders constituting
more than 50% of the principal amount of the Convertible Debentures then
outstanding disagree with such determination they may, within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation Event"),
have the fair value of such consideration determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company. The determination of such appraiser
shall be deemed binding upon all parties absent manifest error. In the event
that such appraisal does not result in a value that is at least 5% greater than
that assigned by the Board, the holders requesting such appraisal shall pay the
costs thereof.
(II) Integrated Transactions. 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 the consideration allocated by the parties for purposes of
determining tax basis.
(III) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(2) to subscribe for or purchase 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.
(ii) Adjustment of Maximum Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time 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 Maximum
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of
41
shares, the Maximum Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(iii) Adjustment of Conversion Price upon Issuance of Convertible
Securities. If the Company in any manner issues or sells Convertible Securities
that are convertible into Common Stock at a price that varies with the market
price of the Common Stock (the formulation for such variable price being herein
referred to as, the "Variable Price") and such Variable Price is not calculated
using the same formula used to calculate the Variable Conversion Price in effect
immediately prior to the time of such issue or sale, the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of
this Debenture ("Variable Notice") on the date of issuance of such Convertible
Securities. If the Holder of this Debenture provides written notice via
facsimile and overnight courier (the "Variable Price Election Notice") to the
Company within five (5) business days of receiving a Variable Notice that the
Holder desires to replace the Conversion Price then in effect with the Variable
Price described in such Variable Notice, then from and after the date of the
Company's receipt of the Variable Price Election Notice, the Conversion Price
will automatically be replaced with the Variable Price (together with such
modifications to this Debenture as may be required to give full effect to the
substitution of the Variable Price for the Conversion Price). The Holder's
delivery of a Variable Price Election Notice shall serve as the consent required
to amend this Debenture. In the event that the Holder delivers a Conversion
Notice at any time after the Company's issuance of Convertible Securities with a
Variable Price but before the Holder's receipt of the Company's Variable Notice,
then such holder shall have the option by written notice to the Company to
rescind such Conversion Notice or to have the Conversion Price be equal to such
Variable Price for the conversion effected by such Conversion Notice.
(iv) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another Person (as
defined below) or other transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Company will make appropriate provision
(in form and substance reasonably satisfactory to the Holder) to insure that the
Holder will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock otherwise acquirable
and receivable upon the conversion of this Debenture, such shares of stock,
securities or assets as would have been issued or payable in such Organic Change
with respect to or in exchange for the number of shares of Common Stock that
would have been acquirable and receivable had this Debenture been converted into
shares of Common Stock immediately prior to such Organic Change (without taking
into account any limitations or restrictions on the timing or amount of
conversions). In any such case, the Company will make appropriate provision (in
form and substance reasonably satisfactory to the Holder) with respect to the
Holder's rights and interests to insure that the provisions of this Section 3(f)
will thereafter be applicable to this Debenture (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of the Maximum
Conversion Price in accordance with Subsection 3(f)(i) using the value for the
Common Stock reflected by the terms of such consolidation, merger or sale, if
the value so reflected is less than the Maximum Conversion Price in effect
immediately prior to such consolidation, merger or sale). The Company will not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes, by written
instrument (in form and substance reasonably satisfactory to the holders of a
more than fifty percent (50%) of Principal Amount of the Convertible Debentures
then outstanding), the obligation to deliver to each holder of Convertible
Debentures such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. "Person" shall
mean an individual, a limited liability company, a
42
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(v) Certain Events. If any event occurs of the type contemplated by
the provisions of this Subsection 3(f) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock 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 this Debenture and
the other holders of Convertible Debentures; provided, however, that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 3(f).
(g) Limitation on Number of Conversion Shares. Notwithstanding any
other provision herein, the Company shall not be obligated to issue any shares
of Common Stock upon conversion of the Convertible Debentures if the issuance of
such shares of Common Stock plus shares of Common Stock issued upon the exercise
of the Warrants issued under the Securities Purchase Agreement would exceed
19.9% of the shares of Common Stock issued and outstanding on the date of the
Purchase Agreement (the "Exchange Cap") without the Company's violating the
corporate governance rules of the Principal Market, except that such limitation
shall not apply in the event that the Company (i) obtains the approval of its
stockholders as required by the corporate governance rules of the Principal
Market for issuances of Common Stock, or (ii) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of more than fifty percent (50%)
of the Principal Amount of the Convertible Debentures then outstanding. Until
such approval or written opinion is obtained or such action has been taken by
the required number of holders, no purchaser of Convertible Debentures pursuant
to the Purchase Agreement, collectively, (the "Investors" and, individually, an
"Investor") shall be issued, upon conversion of Convertible Debentures, shares
of Common Stock in an amount greater than the product of (x) the Exchange Cap
amount multiplied by (y) a fraction, the numerator of which is the Principal
Amount of Convertible Debentures purchased by such Investor pursuant to the
Purchase Agreement and the denominator of which is the aggregate Principal
Amount of all the Convertible Debentures purchased by the Investors pursuant to
the Purchase Agreement (the "Cap Allocation Amount"). In the event that any
Investor shall sell or otherwise transfer any of such Investor's Convertible
Debentures, the transferee shall be allocated a pro rata portion of such
Investor's Cap Allocation Amount. In the event that any holder of a Convertible
Debenture shall convert all of such holder's Convertible Debenture into a number
of shares of Common Stock that, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
holders of Convertible Debentures on a pro rata basis in proportion to the
Principal Amount of Convertible Debentures then held by each such Holder.
(h) Dispute Resolution. In the case of a dispute as to the
determination of the Closing Ask Price or Closing Bid Price of any security or
the arithmetic calculation of the Conversion Rate, the Company shall, or shall
cause the Transfer Agent to, promptly issue to the Holder the number of shares
of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the Holder via facsimile within one
(1) business day of receipt of the Holder's Conversion Notice. If the Holder and
the Company are unable to agree upon the determination of such Closing Ask Price
or Closing Bid Price, as the case may be, or the arithmetic calculation of the
Conversion Rate within one (1) business day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall
within one (1) business day following such date of delivery submit via facsimile
(A) the disputed determination of the Closing Ask Price or Closing Bid Price, as
the case may be, to an independent, reputable investment bank or (B) the
disputed arithmetic calculation of the Conversion Rate to its independent
certified public accounting firm. The Company shall cause the investment bank or
the accounting firm, as the case may be, to perform the determinations or
calculations and notify the
43
Company and the Holder of the results no later than forty-eight (48) hours from
the time it receives the disputed determinations or calculations. Such
investment bank's or accounting firm's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
4. Redemption.
(a) Redemption at the Option of the Holder if Company Cannot Fully
Convert or Holder Cannot Sell Without Restriction. If, (i) upon the Transfer
Agent's receipt of a Conversion Notice, the Transfer Agent fails to issue shares
of Common Stock as contemplated by Subsection 3(d)(i) or cannot issue shares of
Common Stock registered for resale under the registration statement required to
be filed under the Registration Rights Agreement with respect to the shares of
Common Stock issuable upon conversion of this Debenture (the "Registration
Statement") (or which are exempt from the registration requirements under the
Securities Act pursuant to Rule 144(k) under the Securities Act) for any reason,
including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities, including
without limitation the Exchange Cap, from issuing all of the Common Stock that
is to be issued to the Holder of this Debenture pursuant to a Conversion Notice
or (z) fails to have a sufficient number of shares of Common Stock registered
for resale under the Registration Statement, or (ii) a Registration Default (as
defined in the Registration Rights Agreement) shall have occurred and be
continuing, the Company shall have defaulted in the payment of any Funded Debt
(as hereinafter defined) for a period in excess of any cure period thereunder
(regardless of whether the creditor of such Funded Debt shall have declared a
default), or (iii) the Common Stock is delisted from the NASD Over-The-Counter
Bulletin Board and not immediately listed on a Principal Market or other
national securities exchange, then in the case of clause (i), the Company shall,
or shall cause the Transfer Agent to, issue as many shares of Common Stock as it
is able to issue in accordance with such holder's Conversion Notice (if the
holder shall have given such a Conversion Notice) and pursuant to the provisions
of Section 3(d), and with respect to all or any part of the unconverted
Principal Amount of this Debenture held by such Holder, the Holder, solely at
such Holder's option, can elect to:
(A) require the Company to redeem from such Holder all or any part of
its remaining Principal Amount of this Debenture ("Holder Requested Redemption")
at a premium equal to the greater of (I) the sum of: (a) 135% of such Principal
Amount and (b) the accrued interest thereon or (II) the product of (a) the
Conversion Rate on the date of such Holder's delivery of an Election Response
Notice (as defined below) and (b) the greater of (i) the Closing Ask Price of
the Common Stock on the Trading Day immediately preceding the event giving rise
to such redemption or (ii) the Closing Ask Price of the Common Stock on the date
of the Holder's delivery to the Company of a notice of redemption or, if such
date of delivery is not a Trading Day, the next date on which the exchange or
market on which the Common Stock is traded is open (the "Holder Requested
Redemption Price");
(B) if the Company's inability to fully convert this Debenture is
pursuant to clause (a)(i)(z) of this Subsection 4(a) above, require the Company
to, or cause the Transfer Agent to, issue restricted shares of Common Stock in
accordance with such Holder's Conversion Notice;
(C) void its Conversion Notice and retain the Principal Amount of
this Debenture that was to be converted pursuant to such Holder's Conversion
Notice (provided that the Holder's voiding its Conversion Notice shall not
affect the Company's obligations to make any payments that have accrued prior to
the date of such notice); or
(D) if the Company's inability to fully convert this Debenture is
pursuant to clause (a)(i)(y) of this Subsection 4(a) above, require the Company
to, or cause the Transfer Agent to, issue shares of
44
Common Stock in accordance with such Holder's Conversion Notice and pursuant to
Section 4(d) at a Conversion Price equal to the average of the Closing Bid
Prices of the Common Stock for the five consecutive Trading Days preceding such
Holder's Election Response Notice or such other market price that satisfies the
applicable exchange or trading market.
For purposes hereof, "Funded Debt" means all (a) indebtedness for borrowed money
or for the deferred purchase price of property or services (other than trade
liabilities and accrued expenses incurred in the ordinary course of business and
payable in accordance with customary practices), whether on open account or
evidenced by a note, bond, debenture or similar instrument or otherwise, (b)
obligations under capital leases, (c) reimbursement obligations for letters of
credit, banker's acceptances or other credit accommodations, (d) contingent
obligations and (e) obligations secured by any lien on the Company's property,
even if the Company has not assumed such obligations.
(b) Mechanics of Fulfilling Holder's Election. The Company shall
within one (1) business day send via facsimile to the Holder of this Debenture,
upon receipt of a facsimile copy of a Conversion Notice from such Holder that
cannot be fully satisfied as described in Subsection 4(a), a notice of the
Company's inability to fully satisfy such Holder's Conversion Notice (the
"Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice
shall indicate (i) the reason why the Company is unable to fully satisfy such
Holder's Conversion Notice, (ii) the Principal Amount of this Debenture that
cannot be converted and (iii) the applicable Redemption Price. The Holder shall
notify the Company of its election pursuant to Subsection 4(a) above by
delivering written notice via facsimile to the Company (the "Election Response
Notice").
(c) Payment of Holder Requested Redemption Price. If the Holder shall
elect to have this Debenture redeemed pursuant to Subsection 4(a)(i), the
Company shall pay the Holder Requested Redemption Price to such Holder in cash
by wire transfer of immediately available funds in accordance with such Holder's
written wire transfer instructions within five (5) days after the Company's
receipt of the Holder's Election Response Notice. If the Company shall fail to
pay the applicable Holder Requested Redemption Price to such holder within such
five (5) day period (other than pursuant to a dispute as to the determination of
the arithmetic calculation of the Holder Requested Redemption Price), in
addition to any remedy the Holder of this Debenture may have hereunder, or under
the Securities Purchase Agreement and the Registration Rights Agreement, such
unpaid amount shall bear interest at the rate of 3.0% per month (prorated for
partial months) until paid in full. Until the Holder Requested Redemption Price
is paid in full to such Holder, such Holder may void the Holder Requested
Redemption with respect to Principal Amount of this Debenture for which the full
Holder Requested Redemption Price has not been paid and receive back a
Convertible Debenture representing such Principal Amount. Notwithstanding the
foregoing, if the Company fails to pay the applicable Holder Requested
Redemption Price within such period of five (5) days due to a dispute as to the
determination of the Holder Requested Redemption Price, such dispute shall be
resolved pursuant to Section 3(h) with the term "Holder Requested Redemption
Price" being substituted for the term "Conversion Rate."
(d) Pro-rata Conversion and Redemption. If the Company or the
Transfer Agent receives a Conversion Notice or Election Response Notice electing
a Holder Requested Redemption from more than one holder of Convertible
Debentures on the same day, and the Company can convert and/or redeem some, but
not all, of such Convertible Debentures pursuant to this Section 4, the Company
shall convert and/or redeem from each holder of Convertible Debentures electing
to have its Convertible Debenture converted and/or redeemed at such time an
amount equal to such holder's pro-rata amount (based on the Principal Amount of
Convertible Debentures held by such holder relative to the Principal Amount of
Convertible Debentures sought to be converted) of all Convertible Debentures
being converted and/or redeemed at such time.
45
(e) Redemption at the Option of the Company. At any time after the
initial issuance of the Convertible Debentures, the Company, upon notice
delivered to the holders of the then outstanding Convertible Debentures in the
manner provided in Subsection 4(f), may redeem all (but not less then all) the
Convertible Debentures (but only with respect to the Principal Amount as to
which such holders have not theretofore furnished a Conversion Notice in
compliance with Subsection 3(c), at a price (the "Optional Redemption Price")
equal to the greater of (i) the sum of (a) 135% of the Principal Amount and (b)
the accrued interest thereon, or (ii) the product of (a) the Conversion Rate, as
determined as of the date of the notice of redemption and (b) the Closing Ask
Price of the Common Stock on the Trading Day immediately preceding the date of
the notice of redemption.
(f) Notice of Redemption. (i) Notice of redemption pursuant to
Subsection 4(e) (the "Optional Redemption Notice") shall be provided by the
Company to the Holder in writing (by registered mail or overnight courier at the
Holder's last address appearing in the Debenture Register not less than ten (10)
nor more than thirty (30) days prior to the date stipulated by the Company for
the redemption of the Convertible Debentures (the "Optional Redemption Date"),
which notice shall specify the Optional Redemption Date and refer to Subsection
4(e) and this Subsection 4(f) .
(ii) Upon receipt of the Optional Redemption Notice, the Holder shall
have the option, at its sole election, to specify what portion of the
Convertible Debentures called for redemption in the Optional Redemption Notice
shall be redeemed as provided in Subsection 4(e) or converted into Common Stock
in the manner provided in Subsection 3(a). If the Holder elects to convert any
portion of the Convertible Debentures, then such conversion shall take place on
the Conversion Date specified by the Holder, but in no event after the Optional
Redemption Date, in accordance with the terms of Subsection 3(a).
(g) Surrender of Convertible Debentures. Upon any redemption of this
Convertible Debenture pursuant to Subsection 4(e), the Holder shall either
deliver the Convertible Debenture by hand to the Company at its principal
executive offices or surrender the same to the Company at such address by
express courier. Payment of the Optional Redemption Price specified in
Subsection 4(e) shall be made by the Company to the Holder against receipt of
the Convertible Debentures by wire transfer of immediately available funds to
such account(s) as the Holder shall specify in writing to the Company. If
payment of such Optional Redemption Price is not made in full by the Optional
Redemption Date, the Holder shall again have the right to convert the
Convertible Debentures as provided in Section 3(a) hereof.
5. Notices. In case at any time:
(a) the Company shall declare any dividend upon its Common Stock
payable in cash or stock or make any other pro rata distribution to the holders
of its Common Stock; or
(b) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
or
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a consolidation or merger of the Company
with or into, or a sale of all or substantially all its assets to, another
entity or entities; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, or by telex or facsimile or by recognized overnight
delivery service, addressed to the Holder at the address of the Holder as shown
on the books of the Company, (i) at least 10 days' prior written notice of the
date on
46
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 10 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and (ii) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be.
6. Stock to be Reserved. The Company has a sufficient number of shares of
Common Stock available to reserve for issuance upon the conversion of all
outstanding Convertible Debentures, assuming immediate conversion. The Company
will at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issuance upon the conversion of all of its Convertible
Debentures as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of all Convertible Debentures. The Company
covenants that all shares of Common Stock that shall be so issued shall be duly
and validly issued, fully-paid and non assessable. The Company will take all
such action as may be so taken without violation of any applicable law or
regulation to have a sufficient number of authorized but unissued shares of
Common Stock to issue upon conversion of all Convertible Debentures. The Company
will not take any action that results in any adjustment of the conversion rights
if the total number of shares of Common Stock issued and issuable after such
action upon conversion of this Debenture would exceed the total number of shares
of Common Stock then authorized by the Company's Articles of Incorporation.
7. Default and Remedies.
(a) Event of Default. Each of the following shall constitute an
"Event of Default":
(i) the Company shall default in the payment of principal or
interest on this Debenture and same shall continue for a period of three (3)
days; or
(ii) any of the representations or warranties made by the
Company herein, in the Purchase Agreement, in the Registration Rights Agreement,
or in any agreement, certificate or financial or other written statements
heretofore or hereafter furnished by the Company in connection with the
execution and delivery of this Debenture or the Purchase Agreement, shall be
false or misleading in any material respect at the time made; or
(iii) a default or an event of default shall have occurred and
be continuing with respect to any Funded Debt; or
(iv) the Company shall (A) admit in writing its inability to
pay its debts generally as they mature; (B) make an assignment for the benefit
of creditors or commence proceedings for its dissolution; or (C) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(v) a trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
47
(vi) any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60) days thereafter; or
(vii) any money judgment, writ or warrant of attachment, or
similar process in excess of One Hundred Thousand ($100,000) Dollars in the
aggregate shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a
period of sixty (60) days or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
(viii) bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering, a petition filed in any such
proceeding.
(b) Remedies. Upon the occurrence and during the continuance of any Event
of Default, the Holder may declare this Debenture immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law; provided, that any payment of this
Debenture in connection with an Event of Default shall be made at the fair
market value of the shares of Common Stock that would be issued at the
Conversion Price on the date the Debenture becomes due and payable pursuant to
this provision. Such payment shall be made within three (3) Trading Days of such
demand, and if not paid within such period, the Company shall pay the holder
liquidated damages of three percent (3%) per month of such amount until paid,
pro-rated for any partial months.
8. Payment Obligation Unconditional. No provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the coin or currency or shares of Common Stock,
herein prescribed. This Debenture is a direct obligation of the Company.
9. No Recourse to Stockholders, etc. No recourse shall be had for the
payment of the principal of, or the interest on, this Debenture, or for any
claim based hereon, or otherwise in respect hereof, against any incorporator,
shareholder, employee, officer or director, as such, past, present or future, of
the Company or any successor corporation, whether by virtue of any statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. No Rights as Stockholder. No provision of this Debenture shall be
construed as conferring upon the Holder the right to vote or to receive
dividends or to consent or receive notice as a stockholder in respect of any
meeting of stockholders or any rights whatsoever as a stockholder of the
Company, unless and to the extent converted in accordance with the terms hereof.
11. Definitions. As used in this Debenture, the term "Common Stock" shall
mean and include the Company's authorized common stock, $.01 par value, as
constituted on the issuance date of this Debenture, and shall also include any
capital stock of any class of the Company thereafter authorized that shall
neither be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends nor entitled to a
preference in the distribution of assets upon the
48
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares of Common Stock receivable upon conversion of this
Debenture shall include only shares designated as Common Stock of the Company on
the issuance date of this Debenture, or in case of any reorganization,
reclassification, or stock split of the outstanding shares thereof, the stock,
securities or assets provided for in Sections 3(f) and (g). Any capitalized
terms used in this Debenture but not defined herein shall have the meanings set
forth in the Purchase Agreement.
12. Loss, Theft, Destruction of Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Company (which shall not
include the posting of any bond), or, in the case of any such mutilation, upon
surrender and cancellation of this Debenture, the Company shall make, issue and
deliver, in lieu of such lost, stolen, destroyed or mutilated Debenture, one or
more new Debentures of like tenor. This Debenture shall be held and owned upon
the express condition that the provisions of this Section 12 are exclusive with
respect to the replacement of mutilated, destroyed, lost or stolen Debentures
and shall preclude any and all other rights and remedies notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
13. Record Owner. The Company may deem the person in whose name this
Debenture shall be registered upon the registry books of the Company to be, and
may treat such person as, the absolute owner of this Debenture for the purpose
of conversion of this Debenture and for all other purposes, and the Company
shall not be affected by any notice to the contrary. All such payments and such
conversion shall be valid and effective to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid or the conversion
so made.
14. Register. The Company shall maintain a transfer agent, which may be
the transfer agent for the Common Stock or the Company itself, for the
registration of Convertible Debentures. Upon any transfer of this Debenture in
accordance with the provisions hereof, the Company shall register or cause the
transfer agent to register such transfer on the Convertible Debenture register.
15. Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Debenture shall be cumulative
and in addition to all other remedies available under this Debenture, 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 and 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 Debenture. 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 hereof and shall not, except as
expressly provided herein, be subject to any other 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 of this
Debenture 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 of this Debenture 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.
16. Construction. This Debenture shall be deemed to be jointly drafted by
the Company and the initial Holders of the Convertible Debentures and shall not
be construed against any person as the drafter hereof.
17. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder of this Debenture in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof (except to the
49
extent that such power, right or privilege must, in accordance with the terms of
this Debenture, be exercised within a specified period of time and such period
of time has lapsed without such power, right or privilege being exercised), 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.
18. Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of Missouri. Each of the parties consents
to the jurisdiction of the Federal courts whose districts encompass any part of
the City of St. Louis, Missouri or the state courts of the State of Missouri
sitting in the City of St. Louis, Missouri in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: January 3, 2001 INTERNATIONAL FUEL TECHNOLOGY, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: President
50
SCHEDULE 4.3
------------
Common Stock Authorized, Issued and Outstanding
-----------------------------------------------
Common Stock Authorized - 150,000,000
Common Stock Issued and Outstanding - 24,560,451
Other Common Stock Commitments
(1) Letter of Understanding with Interfacial Technologies Ltd. to issue
International Fuel Technology, Inc. common stock so that shareholders of
Interfacial Technologies Ltd. own 50% of the post-transaction common shares
of International Fuel Technology, Inc. (Letter of Understanding expires
December 31, 2000)
(2) Letter of Intent with Diesel Products, Inc. to issue 15,000,000 shares of
International Fuel Technology, Inc. common stock. (Letter of Intent
expires December 31, 2000)
(3) Letter of Intent for Purchase of Certain Assets with Mr. ▇▇▇ ▇▇▇▇▇▇▇▇ to
issue 1,000,000 shares of International Fuel Technology, Inc. common stock.
The Letter of Intent also provides for compensation of $6,000 per month to
be paid in common stock. (Letter of Intent for Purchase of Certain Assets
expires December 31, 2000)
(4) Consultant Agreement dated December 5, 2000 that provides for the grant of
options to acquire an aggregate of 240,000 shares of International Fuel
Technology, Inc. Consultant Agreement also provides for bonus of up to
60,000 shares at the discretion of International Fuel Technology, Inc.
(5) Agreements with Convertible Promissory Note Holders who have exercised
conversion of notes to common stock to effect a registration of the total
conversion shares of 1,626,084 by March 31, 2001. If the registration is
not effective by March 31, 2000, International Fuel Technology, Inc. will
be required to issue 406,523 additional shares of common stock.
(6) International Fuel Technology, Inc. has indicated it will use its best
efforts to effect a registration of the 1,186,669 restricted common shares
previously received by the Interim Financing Note Holders as payment on the
Notes.
(7) Employment Agreements will require the issuance 99,000 shares of
International Fuel Technology, Inc. by December 31, 2000.
(8) A Board Resolution has been prepared authorizing the issuance of a total of
50,000 common shares of International Fuel Technology, Inc. for
appointments to the Board of Directors and Management.
SCHEDULE 4.15
-------------
(1) In June 2000, IFT issued 250,000 shares of common stock to Observor
Acceptances, Ltd. pursuant to a consulting agreement with ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, sole
owner of Observor Acceptances, Ltd. The value of these shares, $218,750, was
based on the trading price of IFT's stock on June 19, 2000. The issuance was
made in reliance on Section 4(2) of the Securities Act of 1933 and/or Regulation
D promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate these investments, and
who represented to IFT that the shares were being acquired for investment.
(2) In July 2000, IFT issued 100,000 shares of common stock to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
("Holder") at $.01 per share as extra consideration for the funds he advanced to
IFT pursuant to the terms of the Letter Agreement between IFT and Holder. The
issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and were made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate these
investments, and who represented to IFT that the shares being acquired for
investment.
(3) In August 2000, IFT issued 725,000 shares of common stock to fourteen
shareholders ("Holders") at $.01 per share as extra consideration for the funds
they advanced to IFT pursuant to the terms of the Letter Agreement between IFT
and Holders. The issuance was made in reliance on Section 4(2) of the
Securities Act of 1933 and/or Regulation D promulgated under the Securities Act
of 1933 and were made without general solicitation or advertising. The
purchaser was a sophisticated investor with access to all relevant information
necessary to evaluate these investments, and who represented to IFT that the
shares being acquired for investment.
(4) In September 2000, IFT issued 555,000 shares of common stock to 17
shareholders ("Holders") at $.01 per share as extra consideration for the funds
they advanced to IFT pursuant to the terms of the Letter Agreement between IFT
and Holders. The issuance was made in reliance on Section 4(2) of the Securities
Act of 1933 and/or Regulation D promulgated under the Securities Act of 1933 and
were made without general solicitation or advertising. The purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate these investments, and who represented to IFT that the shares being
acquired for investment.
(5) In October 2000, IFT issued 650,000 shares of common stock to 6
shareholders ("Holders") at $.01 per share as extra consideration for the funds
they advanced to IFT pursuant to the terms of the Letter Agreement between IFT
and Holders. The issuance was made in reliance on Section 4(2) of the Securities
Act of 1933 and/or Regulation D promulgated under the Securities Act of 1933 and
were made without general solicitation or advertising. The purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate these investments, and who represented to IFT that the shares being
acquired for investment.
(6) In October 2000, IFT issued 1,235,000 shares of common stock, pursuant to
an award by the Board of Directors, to its Chief Executive Officer,
President/Chief Operating Officer and its Board of Directors. The value of
these shares was calculated based on the trading price of IFT's stock at October
13, 2000 totaling $771,875. The issuance was made in reliance on Section 4(2) of
the Securities Act of 1933 and/or Regulation D promulgated under the Securities
Act of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to IFT that the
shares were being acquired for investment.
(7) In December 2000, IFT issued 20,000 shares of common stock, pursuant to an
award by the Board of Directors, to its Corporate Secretary. The value of these
shares was calculated based on the trading price of IFT's stock at December 15,
2000 totaling $8,400. The issuance was made in reliance on Section 4(2) of the
Securities Act of 1933 and/or Regulation D promulgated under the Securities Act
of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to IFT that the
shares were being acquired for investment.
(8) In December 2000, IFT issued 10,000 shares of common stock to ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ and 15,000 shares of common stock to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ pursuant to
consulting agreements. The value of these shares, $10,500, was based on the
trading price of IFT's stock on December 18, 2000. The issuance was made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate these investments, and
who represented to IFT that the shares were being acquired for investment.
(9) In December 2000, IFT issued 1,186,669 shares of common stock to note
holders as conversion of their promissory notes and interest due through
December 18, 2000 in the amount of $356,000 at a conversion price of $.30 per
share. The issuance was made in reliance on Section 4(2) of the Securities Act
of 1933 and/or Regulation D promulgated under the Securities Act of 1933 and
were made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate these investments, and who represented to IFT that the shares were
being acquired for investment.
(10) In December 2000, IFT issued 1,626,084 shares of common stock to
convertible note holders as conversion of their promissory notes through
November 27, 2000 in the amount of $374,000 at a conversion price of $.23 per
share. The issuance was made in reliance on Section 4(2) of the Securities Act
of 1933 and/or Regulation D promulgated under the Securities Act of 1933 and
were made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate these investments, and who represented to IFT that the shares were
being acquired for investment.
53
SCHEDULE 7.8
------------
54
SCHEDULE 8.2
------------
EXHIBIT B
---------
Registration Rights Agreement
dated as of
January 3, 2001
by and among
INTERNATIONAL FUEL TECHNOLOGY, INC.,
IIG EQUITY OPPORTUNITIES FUND LTD.
and
IIG CAPITAL, INC.
56
TABLE OF CONTENTS
Registration Rights Agreement..................................................................... 56
1. Introduction................................................................................. 1
1.1 Securities Purchase Agreement............................................................ 1
1.2 Definition of Securities................................................................. 1
2. Registration under Securities Act, etc....................................................... 1
2.1 Mandatory Registration................................................................... 1
(a) Registration of Registrable Securities.............................................. 1
(b) Registration Statement Form......................................................... 2
(c) Expenses............................................................................ 2
(d) Effective Registration Statement.................................................... 2
2.2 Incidental Registration.................................................................. 2
(a) Right to Include Registrable Securities............................................. 2
(b) Priority in Incidental Registrations................................................ 3
2.3 Registration Procedures.................................................................. 3
2.4 Underwritten Offerings................................................................... 6
(a) Incidental Underwritten Offerings................................................... 6
(b) Holdback Agreements................................................................. 6
(c) Participation in Underwritten Offerings............................................. 6
2.5 Preparation; Reasonable Investigation.................................................... 7
2.6 Registration Default Fee................................................................. 7
2.7 Indemnification.......................................................................... 7
(a) Indemnification by the Company...................................................... 7
(b) Indemnification by the Holders...................................................... 8
(c) Notices of Claims, etc.............................................................. 8
(d) Other Indemnification............................................................... 9
(e) Indemnification Payments............................................................ 9
(f) Contribution........................................................................ 9
3. Definitions.................................................................................. 10
4. Rule 144..................................................................................... 11
5. Amendments and Waivers....................................................................... 11
6. Nominees for Beneficial Owners............................................................... 12
7. Notices...................................................................................... 12
8. Assignment................................................................................... 12
9. Descriptive Headings......................................................................... 12
10. Governing Law................................................................................ 12
i
11. Counterparts................................................................................. 13
12. Entire Agreement............................................................................. 13
13. Severability................................................................................. 13
ii
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made and entered
into as of January 3, 2001, by and among INTERNATIONAL FUEL TECHNOLOGY, INC., a
Nevada corporation (the "Company"), IIG EQUITY OPPORTUNITIES FUND LTD. (the
"Fund") and IIG CAPITAL, INC. (the "Placement Agent").
ARTICLE I Introduction.
Section 1.1. Securities Purchase Agreement. The Company and the Fund have
-----------------------------
today executed that certain Securities Purchase Agreement (the "Securities
Purchase Agreement"), pursuant to which the Company has agreed, among other
things, to issue an aggregate number of the Company's 6% Convertible Debentures
due December 31, 2003 (the "Debentures") equal to the Commitment Amount to the
Fund or its successors, assigns or transferees (collectively, the "Holders") and
has the option to sell to the Fund the Renewed Commitment Amount of Debentures
as set forth in the Securities Purchase Agreement. The Debentures issuable
pursuant to the Securities Purchase Agreement are convertible into an
indeterminable number of shares (the "Conversion Shares") of the Company's
common stock, $.01 per share (the "Common Stock") pursuant to the terms of the
Debentures. In addition, pursuant to the terms of the Securities Purchase
Agreement and the transactions contemplated thereby, the Company has agreed to
issue to the Placement Agent as a placement fee Common Stock Purchase Warrants
exercisable for 75,000 shares of the Company's Common Stock at the closing of
the Initial Takedown and each Subsequent Takedown (as such terms are defined in
the Securities Purchase Agreement) (collectively, the "Warrant Shares"). The
number of Conversion Shares and Warrant Shares is subject to adjustment upon the
occurrence of stock splits, recapitalizations and similar events occurring after
the date hereof.
Section 1.2. Definition of Securities. The Conversion Shares and the
------------------------
Warrant Shares are herein referred to as the "Securities."
ARTICLE II Registration under Securities Act, etc.
Section 2.1. Mandatory Registration.
-------------------------
(a) Registration of Registrable Securities. The Company
shall prepare and file (i) within sixty (60) days following the date hereof a
registration statement covering the resale of the Registrable Securities in an
amount equal to 21,600,000 shares of Common Stock and (ii) within sixty (60)
days following the exercise of its option to sell the Renewed Commitment Amount
of Debentures covering the resale of the Registrable Securities in an amount
equal to 21,600,000 shares of Common Stock (each a "Registration Statement").
The Company shall use its best efforts to cause each Registration Statement to
be declared effective by the Commission on the earlier of (i) 120 days following
the date the Registration Statement is filed, (ii) five (5) business days
following the receipt of a "No Review" or similar letter from the Commission or
(iii) the fifth business day following the day the Commission notifies the
Company that it has completed its review of the Registration Statement and that
such Registration Statement is eligible to be declared effective (the "Required
Effectiveness Date"). Nothing contained herein shall be deemed to limit the
number of Registrable Securities to be registered by the Company hereunder. As a
result, should the Registration Statement not relate to the maximum number of
Registrable Securities acquired by (or potentially acquirable by) the holders
thereof upon conversion of the Debentures, or exercise of the Common Stock
Purchase Warrants described in Section 1 above, the Company shall be required to
promptly file a separate registration statement (utilizing Rule 462 promulgated
under the Exchange Act, where applicable) relating to such Registrable
Securities which
1
then remain unregistered. The provisions of this Agreement shall relate to any
such separate registration statement as if it were an amendment to the
Registration Statement.
(b) Registration Statement Form. Registrations under this
Section 2.1 shall be on Form S-1 or such other appropriate registration form of
the Commission as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified by the
Fund; provided, however, such intended method of disposition shall not include
an underwritten offering of the Registrable Securities.
(c) Expenses. The Company will pay all Registration Expenses
in connection with any registration required by this Section 2.1.
(d) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective
within the time period specified herein, provided that a registration which does
not become effective after the Company filed a registration statement with
respect thereto solely by reason of the refusal to proceed of any holder of
Registrable Securities (other than a refusal to proceed based upon the advice of
counsel in the form of a letter signed by such counsel and provided to the
Company relating to a disclosure matter unrelated to such holder) shall be
deemed to have been effected by the Company unless the holders of the
Registrable Securities shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other order or
extraordinary requirement of the Commission or other governmental agency or
court for any reason or (iii) if, after it has become effective, such
registration ceases to be effective for more than an aggregate of twenty (20)
days.
(e) Plan of Distribution. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section reasonably
acceptable to the Fund.
Section 2.2. Incidental Registration.
--------------------------
(a) Right to Include Registrable Securities. If at any time
after the date hereof but before the second anniversary of the date hereof, the
Company proposes to register any of its securities under the Securities Act
(other than by a registration in connection with an acquisition in a manner
which would not preclude registration of Registrable Securities for sale to the
public, on Form S-8, or any successor form thereto, on Form S-4, or any
successor form thereto and other than pursuant to Section 2.1), on an
underwritten basis (either best-efforts or firm-commitment), then, the Company
will each such time give prompt written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 2.2. Upon the written
request of any such Holder made within twenty (20) days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such Holder an and the intended method of disposition
thereof), the Company will, subject to the terms of this Agreement, use its
commercially reasonable best efforts to effect the registration under the
Securities Act of the Registrable Securities, to the extent requisite to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of such Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the securities
which the Company proposes to register, provided that if, at any time after
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to each Holder and, thereupon, (i) in
the case of a determination not to register, shall be relieved of this
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice,
2
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.1, nor shall
any such registration hereunder be deemed to have been effected pursuant to
Section 2.1. The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
2.2. The right provided the Holders of the Registrable Securities pursuant to
this Section shall be exercisable at their sole discretion and will in no way
limit any of the Company's obligations to pay the Securities according to their
terms.
(b) Priority in Incidental Registrations. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2 shall
inform the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering, then the Company will include in such registration, to the extent of
the number which the Company is so advised can be sold in such offering, (i)
first securities proposed by the Company to be sold for its own account, and
(ii) second Registrable Securities and securities of other selling security
holders requested to be included in such registration pro rata on the basis of
the number of shares of such securities so proposed to be sold and so requested
to be included; provided, however, the holders of Registrable Securities shall
have priority to all shares sought to be included by officers and directors of
the Company as well as holders of ten percent (10%) or more of the Company's
Common Stock.
Section 2.3. Registration Procedures. If and whenever the Company is
-----------------------
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2.1 and, as applicable, Section 2.2, the
Company shall, as expeditiously as
possible:
(i) prepare and file with the Commission the
Registration Statement, or amendments thereto, to effect such registration
(including such audited financial statements as may be required by the
Securities Act or the rules and regulations promulgated thereunder) and
thereafter use its commercially reasonable best efforts to cause such
registration statement to be declared effective by the Commission, as soon as
practicable, but in any event no later than the Required Effectiveness Date
(with respect to a registration pursuant to Section 2.1); provided, however,
that before filing such registration statement or any amendments thereto, the
Company will furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration, copies of all such
documents proposed to be filed;
(ii) with respect to any registration statement
pursuant to Section 2.1, prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement until the earlier to occur of six (6) years after the date of this
Agreement(subject to the right of the Company to suspend the effectiveness
thereof for not more than 10 consecutive days or an aggregate of 30 days in such
six (6) years period) or such time as all of the securities which are the
subject of such registration statement cease to be Registrable Securities (such
period, in each case, the "Registration Maintenance Period");
(iii) furnish to each Holder of Registrable Securities
covered by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any
3
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents, as such Holder and underwriter, if any, may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities owned by such Holder;
(iv) use its commercially reasonable best efforts to
register or qualify all Registrable Securities and other securities covered by
such registration statement under such other securities laws or blue sky laws as
any Holder thereof shall reasonably request, to keep such registrations or
qualifications in effect for so long as such registration statement remains in
effect, and take any other action which may be reasonably necessary to enable
such Holder to consummate the disposition in such jurisdictions of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its commercially reasonable best efforts to cause
all Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the Holder or Holders thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each Holder of Registrable Securities a
signed counterpart, addressed to such Holder, and the underwriters, if any, of:
(A) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such
registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement),reasonably satisfactory in form and substance to
such Holder) including that the prospectus and any
prospectus supplement forming a part of the Registration
Statement does not contain an untrue statement of a material
fact or omits 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, and
(B) a "comfort" letter (or, in the case of any Person which does
not satisfy the conditions for receipt of a "comfort" letter
specified in Statement on Auditing Standards No. 72, an
"agreed upon procedures" letter), dated the effective date
of such registration statement (and, if such registration
includes an underwritten public offering, a letter of like
kind dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who
have certified the Company's financial statement included in
such registration statement, covering substantially the same
matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to
the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants'
letters delivered to the underwriters in underwritten public
offerings of securities (with, in the case of an "agreed
upon procedures" letter, such modifications or deletions as
may be required under Statement on Auditing Standards No.
35) and, in the case of the accountants' letter, such other
financial matters, and, in the case of the
4
legal opinion, such other legal matters, as such Holder
(or the underwriters, if any) may reasonably request;
(vii) notify the Holders' Representative and its
counsel promptly and confirm such advice in writing promptly after the Company
has knowledge thereof:
(A) when the Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective
amendment to the Registration Statement has been filed,
and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has
become effective;
(B) of any request by the Commission for amendments or
supplements to the Registration Statement or the
prospectus or for additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration
Statement or the initiation of any proceedings by any
Person for that purpose; and
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or
blue sky laws of any jurisdiction or the initiation or
threat of any proceeding for such purpose;
(viii) notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material facts required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such Holder
promptly prepare and furnish to such Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an 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
not misleading in the light of the circumstances then existing;
(ix) use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(x) otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(xi) enter into such agreements and take such
other actions as the Holders' Representative shall reasonably request in writing
(at the expense of the requesting or benefiting Holders) in order to expedite or
facilitate the disposition of such Registrable Securities; and
5
(xii) use its commercially reasonable best efforts to
list all Registrable Securities covered by such registration statement on any
securities exchange on which any of the Registrable Securities are then listed.
The Company may require each Holder of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such Holder and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to Section
2.1, or amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference and proposed to be filed after the
initial filing of the Registration Statement) to which the Holders'
Representative shall reasonably object, provided that the Company may file such
documents in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Securities Purchase Agreement.
Each Holder agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, such Holder will forthwith discontinue such Holder's disposition of
Registrable Securities pursuant to the Registration Statement relating to such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
Section 2.4. Underwritten Offerings.
-----------------------
(a) Incidental Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any Holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(a), use its commercially reasonable best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such Holder among the securities to be distributed by such
underwriters.
(b) Holdback Agreements. Subject to such other reasonable
requirements as may be imposed by the underwriter as a condition of inclusion of
a Holder's Registrable Securities in the registration statement, each Holder
agrees by acquisition of Registrable Securities, if so required by the managing
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any public sale or distribution of or otherwise dispose of,
except as part of such underwritten registration, any equity securities of the
Company, during such reasonable period of time requested by the underwriter;
provided however, such period shall not exceed the 120 day period commencing 30
days prior to the commencement of such underwritten offering and ending 90 days
following the completion of such underwritten offering.
(c) Participation in Underwritten Offerings. No Holder of
Registrable Securities may participate in any underwritten offering under
Section 2.2 unless such Holder of Registrable Securities (i) agrees to sell such
Person's securities on the basis provided in any underwriting
6
arrangements approved, subject to the terms and conditions hereof, by the
Holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other agreement in
connection with such offering) shall require any Holder of Registrable
Securities to make an representations or warranties to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such Holder expressly for use in the related
registration statement or representations, warranties or agreements regarding
such Holder, such Holder's Registrable Securities and such Holder's intended
method of distribution and any other representation required by law.
Section 2.5. Preparation; Reasonable Investigation. In connection
-------------------------------------
with the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the Holders of
Registrable Securities registered under such registration statement, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the reasonable opinion of such Holders' and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
Section 2.6. Registration Default Fee. If the Registration Statement
------------------------
contemplated in Section 2.1 is (x) not filed by the Filing Date or declared
effective by the Required Effectiveness Date or (y) such effectiveness is not
maintained for the Registration Maintenance Period, then the Company shall pay
to the Fund the Default Fee specified in Section 10.4 of the Securities Purchase
Agreement.
Section 2.7. Indemnification.
---------------
(a) Indemnification by the Company . In the event of
any registration of any securities of the Company under the Securities Act, the
Company will, and hereby does agree to indemnify and hold harmless the Holder of
any Registrable Securities covered by such registration statement, its directors
and officers, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such Holder or any such underwriter within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or several, to which
such Holder or any such director or officer or underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such Holder and each such director, officer,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability, (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Holder or underwriter stating that it is for use in the
preparation thereof and, provided
7
further that the Company shall not be liable to any Person who participates as
an underwriter in the offering or sale of Registrable Securities or to any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Holder or
any such director, officer, underwriter or controlling person and shall survive
the transfer of such securities by such Holder.
(b) Indemnification by the Holders. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to this Agreement, that the Company shall
have received an undertaking satisfactory to it from the prospective Holder of
such Registrable Securities, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subdivision (a) of this Section 2.7) the
Company, each director of the Company, each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such Holder specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such Holder.
(c) Notices of Claims, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not to ▇▇▇, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
8
(d) Other Indemnification. Indemnification similar to
that specified in the preceding subdivisions of this Section 2.7 (with
appropriate modifications) shall be given by the Company and each Holder of
Registrable Securities (but only if and to the extent required pursuant to the
terms of Section 2.7(b)) with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority, other than the Securities Act.
(e) Indemnification Payments. The indemnification
required by this Section 2.7 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 expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for
in the preceding subdivision of this Section 2.7 is unavailable to an
indemnified party in respect of any expense, loss, claim, damage or liability
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such expense, loss, claim, damage or liability
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Holder or underwriter, as the
case may be, on the other from the distribution of the Registrable Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Holder or underwriter, as the case may
be, on the other in connection with the statements or omissions which resulted
in such expense, loss, damage or liability, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Holder or underwriter, as the case may be, on the other in
connection with the distribution of the Registrable Securities shall be deemed
to be in the same proportion as the total net proceeds received by the Company
from the initial sale of the Registrable Securities by the Company to the
purchasers bear to the gain, if any, realized by all selling Holders
participating in such offering or the underwriting discounts and commissions
received by the underwriter, as the case may be. The relative fault of the
Company on the one hand and of the Holder or underwriter, as the case may be, on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company, by the Holder or
by the underwriter and the parties' relative intent, knowledge, access to
information supplied by the Company, by the Holder or by the underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, provided that the foregoing
contribution agreement shall not inure to the benefit of any indemnified party
if indemnification would be unavailable to such indemnified party by reason of
the provisions contained in the first sentence of subdivision (a) of this
Section 2.7, and in no event shall the obligation of any indemnifying party to
contribute under this subdivision (f) exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (b) of this Section 2.7 had been
available under the circumstances.
The Company and the Holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (f) were
determined by pro rata allocation (even if the Holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
Section 2.7, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
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Notwithstanding the provisions of this subdivision (f), no Holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such Holder, the net
proceeds received by such Holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such Holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
ARTICLE III Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Agreement": As defined in ARTICLE I.
"Commission": The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
"Common Stock": As defined in ARTICLE I.
"Company": As defined in the introductory paragraph of this Agreement.
"Conversion Shares": As defined in ARTICLE I.
"Debentures": As defined in ARTICLE I, such term to include any securities
issued in substitution of or in addition to such Debentures.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"Holders' Representative": The International Investment Group or such
Person designated by The International Investment Group as of the time of
disposition of the last of the Debentures held by the Fund (or subsequent
Holders' Representative).
"OTC Bulletin Board": As defined in ARTICLE I.
"Person": A corporation, association, partnership, organization, business,
individual, governmental or political subdivision thereof or a governmental
agency.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, (d) they shall have ceased to be outstanding, (e) on the expiration of
the applicable Registration Maintenance Period or (f)
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any and all legends restricting transfer thereof have been removed in accordance
with the provisions of Rule 144(k) (or any successor provision) under the
Securities Act.
"Registration Expenses": All expenses incident to the Company's performance
of or compliance with this Agreement, including, without limitation, all
registration, filing and NASD fees, all stock exchange or other NASD or stock
exchange listing fees, all fees and expenses of complying with securities or
blue sky laws, all word processing, duplicating and printing expenses, messenger
and delivery expenses, the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of not more than one law firm
(not to exceed $20,000) retained by the Holder or Holders of more than 50% of
the Registrable Securities, premiums and other costs of policies of insurance of
the Company against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or Holders of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the Company
or other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business or which
the Company would have incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Required Effectiveness Date": As defined in Section 2.1.
"Securities Act": The Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder.
"Securities Purchase Agreement": As defined in ARTICLE I.
"Warrant Shares": As defined in ARTICLE I.
ARTICLE IV Rule 144. The Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any Holder of Registrable Securities, make publicly available
other information) and will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with the requirements of this ARTICLE IV.
ARTICLE V Amendments and Waivers. This Agreement 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 shall have obtained the
written consent to such amendment, action or omission to act, of the Holder or
Holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the
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date such consent if sought). Each Holder of any Registrable Securities at the
time or thereafter outstanding shall be bound by any consent authorized by this
ARTICLE V, whether or not such Registrable Securities shall have been marked to
indicate such consent.
ARTICLE VI Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the Holder of such
Registrable Securities for purposes of any request or other action by any Holder
or Holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by an Holder or Holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership or such Registrable Securities.
ARTICLE VII Notices. Except as otherwise provided in this Agreement, all
notices, requests and other communications to any Person provided for hereunder
shall be in writing and shall be given to such Person (a) in the case of a party
hereto other than the Company, addressed to such party in the manner set forth
in the Securities Purchase Agreement or at such other address as such party
shall have furnished to the Company in writing, or (b) in the case of any other
Holder of Registrable Securities, at the address that such Holder shall have
furnished to the Company in writing, or, until any such other Holder so
furnishes to the Company an address, then to and at the address of the last
Holder of such Registrable Securities who has furnished an address to the
Company, or (c) in the case of the Company, at the address set forth on the
signature page hereto, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each Holder of Registrable Securities at the time outstanding. Each
such notice, request or other communication shall be effective (i) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (ii) if given by any other
means (including, without limitation, by fax or air courier), when delivered at
the address specified above, provided that any such notice, request or
communication shall not be effective until received.
ARTICLE VIII Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent Holder of any
Registrable Securities. Each of the Holders of the Registrable Securities
agrees, by accepting any portion of the Registrable Securities after the date
hereof, to the provisions of this Agreement including, without limitation,
appointment of the Holders' Representative to act on behalf of such Holder
pursuant to the terms hereof which such actions shall be made in the good faith
discretion of the Holders' Representative and be binding on all persons for all
purposes.
ARTICLE IX Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
ARTICLE X Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF MISSOURI WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
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ARTICLE XI Counterparts. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
ARTICLE XII Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
ARTICLE XIII Severability. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
IIG EQUITY OPPORTUNITIES FUND LTD.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Portfolio Manager
Address: c/o The International
Investment Group
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇
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IIG CAPITAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Executive Director
Address: c/o The International
Investment Group
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇
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