EXCHANGE AGREEMENT dated as of October 14, 2005 by and between SPEEDEMISSIONS, INC. as the Issuer, and Global Capital Funding Group, L.P.
dated
as
of
October
14, 2005
by
and
between
SPEEDEMISSIONS,
INC.
as
the
Issuer,
and
Global
Capital Funding Group, L.P.
AGREEMENT,
dated as of October 14, 2005, among Speedemissions, Inc., a Florida corporation
(the “Company”),
and
Global Capital Funding Group, L.P. (the “Purchaser”).
R
E C I T A L S:
WHEREAS,
the Company desires and Purchaser has agreed to exchange the 12.5% Secured
Promissory Note in the Principal amount of $1,285,000 dated December 30,
2004
(the “Note”) held by Purchaser for 1,409 shares of the Company’s Series A
Convertible Preferred Stock (the “Preferred
Shares”
or
“Preferred
Stock”)
and
the Preferred Stock Warrants, on the terms and subject to the conditions
set
forth in this Agreement; and
WHEREAS,
in connection with the issuance of the Preferred Shares to the Purchaser,
the
Company, Purchaser and ▇▇▇▇▇▇ Partners, LP, a Delaware limited partnership
(“▇▇▇▇▇▇”) intend to enter into that certain Settlement Agreement and General
Release (the “Settlement Agreement”) dated effective as of the date hereof;
and
WHEREAS,
the Preferred Shares will be convertible upon terms and conditions as set
forth
in the Certificate of Designations as amended and of record with the Office
of
the Secretary of State for the State of Florida, into shares of the Company’s
common stock, no par value per share (the “Common
Stock”);
and
WHEREAS,
Purchaser will have certain registration rights with respect to such shares
of
Common Stock issuable hereunder upon conversion of the Preferred Shares (the
“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:
1. DEFINITIONS
1.1 Definitions.
The
following terms, as used herein, have the 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 Exchange 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.
“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.
“Certificate
of Designation”
means
the Certificate of Designation, Preference and Rights of Series A Convertible
Preferred Stock of Speedemissions, Inc., as amended and of record with the
Office of the Secretary of State for the State of Florida.
“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 without the prior
written consent of Purchaser; (ii) any sale or other disposition (other than
by
reason of death or disability) to any Person of more than 75,000 shares of
Common Stock of the Company by any executive officers and/or employee directors
of the Company without the prior written consent of Purchaser; (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 stockholders 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”
and
“Closing
Date”
means
the first Business Day upon which all the conditions set forth in Section
6 have
been are fulfilled or deemed to be fulfilled (or such other date unanimously
agreed by the parties), and upon which this Agreement becomes unconditional.
“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, $0.001 par value per share, of the Company.
2
“Company”
means
Speedemissions, Inc., a Florida corporation, and its successors.
“Company
Corporate Documents”
means
the articles of incorporation (as amended, supplemented or restated) and
bylaws
of the Company.
“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 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 shares of Preferred Stock by the holder
thereof to the Company.
“Conversion
Price”
has the
meaning set forth in the terms of the Certificate of Designation.
“Conversion
Shares”
means
the shares of common stock issuable upon conversion of the Preferred Shares
and
the exercise of the Warrants.
“Derivative
Securities”
has the
meaning set forth in Section
8.6.
“Directors”
means
the individuals then serving on the Board of Directors of the Company or
similar
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 Hazardous Materials
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
Hazardous Materials or the cleanup or other remediation thereof.
“Event
of Default”
has the
meaning set forth in Section
13.1.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“GAAP”
has the
meaning set forth in Section
1.2.
“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.
“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).
3
“Market
Price”
means
the volume weighted average sales price as reported by Bloomberg, L.P. for
the
three consecutive trading days immediately prior to the date of
determination.
“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.
“NASD”
has the
meaning set forth in Section
7.10.
“Nasdaq
Stock Market”
means
the Nasdaq Stock Market’s National Market System.
“National
Market”
means
the Nasdaq Stock Market, the Nasdaq Small Cap Market, the New York Stock
Exchange, Inc. or the American Stock Exchange, Inc.
“Notice
of Conversion”
means
the notice to be delivered to the Company by a holder of Preferred Shares
upon
conversion of all or a portion thereof.
“Notice
of Exercise”
means
the notice to be delivered by a holder of the Warrant upon exercise of all
or a
portion thereof to the Company.
“Officer’s
Certificate”
shall
mean a certificate executed by the President of the Company dated the date
hereof and substantially in the form set forth in Exhibit
C.
“OTC
Bulletin Board”
means
the over-the-counter bulletin board operated by the NASD.
“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.
“Person”
means
an individual, corporation, limited liability company, 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.
“Preferred
Shares”
or
“Preferred
Stock”
has the
meaning set forth in the recitals to this Agreement.
“Preferred
Stock Warrant”
or
“Preferred
Stock Warrants”
have
the meanings set forth in Section
2.3.
4
“Purchase
Price”
means
the purchase price for the Securities set forth in Section 2.1
hereof.
“Purchaser”
means
the entity listed on the signature page hereto and its successors and assigns,
including holders from time to time of the Preferred Shares and
Warrants.
“Registration
Rights Agreement”
means
the agreement between the Company and the Purchaser, to be executed and
delivered on or before the Closing Date, substantially in the form set forth
in
Exhibit
B attached
hereto.
“Securities”
means
the Preferred Shares, the Warrants, the Warrant Shares and the Conversion
Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Solvency
Certificate”
shall
mean a certificate executed by the Chief Financial Officer of the Company
dated
the date hereof and substantially in the form set forth in Exhibit
D.
“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 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.
“Taxes”
shall
mean all taxes, charges, fees, levies or other assessments, including income,
alternative
or add-on minimum, profits, gross income, gross
receipts, excise, property, ad
valorem, sales,
use,
value added, withholding,
occupation, use, service, license, payroll, employment,
severance, social
security, Medicare,
unemployment,
franchise, license,
stamp, environmental or windfall profit tax, premium, custom duty,
transfer
or recording taxes, fees and charges, imposed by the United States or any
state,
local or foreign government or subdivision or agency thereof, whether computed
on a separate, consolidated, unitary, combined or any other basis; and such
term
shall include any interest, fines, penalties, addition to tax or additional
amounts attributable to or imposed with respect to any such taxes, charges,
fees, levies or other assessments.
“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 hours.
“Transaction
Agreements”
means
this Agreement and any other agreement, instrument or document executed,
or
contemplated herein to be executed, in relation to the issuance of the
Securities described herein.
“Transfer”
means
any disposition of the Securities that would constitute a sale thereof under
the
Securities Act or otherwise result in a violation of the Securities
Act.
5
“Warrant
Shares”
means
shares of Common Stock of the Company issued upon exercise of the Preferred
Stock Warrant.
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.
2. PURCHASE
AND SALE OF SECURITIES
2.1 Purchase
and Sale of Preferred Shares.
Subject
to the terms and conditions set forth herein, Purchaser agrees to exchange
the
Note and all accrued and unpaid interest thereunder, and to cancel all
obligations of the Company arising thereunder or under any documents executed
in
connection therewith, and the Company agrees to issue to Purchaser, One Thousand
Four Hundred Nine (1,409) Preferred Shares, at an exchange price equal to
One
Thousand Dollars ($1,000.00) per share.
2.2 Intentionally
Omitted.
2.3 Preferred
Stock Warrant.
In
consideration for, and as an inducement to, Purchaser’s exchange for the
Preferred Shares hereunder, the Company will issue to Purchaser upon Closing,
in
connection with and in addition to the applicable number of Preferred Shares,
a
Warrant (in the form attached hereto as Exhibit
E,
(the
“Preferred
Stock Warrant”)
to
purchase 24,000,000 shares of the Company’s Common Stock.
2.4 Adoption
of Certificate of Designation. The
Company shall adopt and file the Amended Certificate of Designation, Preference
and Rights of Series A Convertible Preferred Stock of Speedemissions, Inc.
in
substantially the form attached hereto as Exhibit
A
(the
“Certificate of Designation”) with the Secretary of State of the State of
Florida on or promptly following the Closing Date.
3.
PAYMENT TERMS OF CUMULATIVE CONVERTIBLE PREFERRED
3.1 Payment
Mechanics.
The
Company will pay all amounts due on each Preferred Share by the method and
at
the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Preferred Share or the making of any notation
thereon. The Company will afford the benefits of this Section 3.1 to any
direct
or indirect transferee of the Preferred Share purchased under this Agreement
and
that has made the same agreement relating to the Preferred Shares as Purchaser
has in this Section 3.1; provided that such transferee is an “accredited
investor” under Rule 501 of the Securities Act.
3.2
Payment of Dividend.
Intentionally Omitted.
6
3.3
Redemption.
The
redemption provision of Section 6 of the Certificate of Designations shall
apply.
3.4 Payment
of Additional Amounts.
(a) Any
and
all payments by the Company hereunder or under the Preferred Shares 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
Preferred Shares (i) the holders of the Preferred Shares 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
Preferred Shares 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 withholdings (including deductions or
withholdings applicable to additional amounts paid under this Section 3.6)
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 law; provided, however, the Company shall not
be
required to pay any taxes owed by Purchaser or any qualified assignee resulting
from (x) the payment of dividends on the Preferred Shares by the Company
or (y)
any gain recognized from the transfer of the Preferred Shares by the Purchaser
to a qualified assignee. 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, this Agreement
other
than Taxes payable solely as a result of the transfer from Purchaser to a
Person
of any Security.
(c) The
Company shall indemnify Purchaser, or qualified assignee, for the full amount
of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 3.6) paid
by
Purchaser, or qualified assignee, and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether
or not
such Taxes or Other Taxes were correctly or legally asserted. Payment under
this
indemnification shall be made within 30 days from the date Purchaser or assignee
makes written demand therefor. A certificate as to the amount of such Taxes
or
Other Taxes submitted to the Company by Purchaser or assignee shall be
conclusive evidence of the amount due from the Company to such
party.
7
(d) Within
30
days after the date of any payment of Taxes, the Company will furnish to
Purchaser the original or a certified copy of a receipt evidencing payment
thereof.
(e) 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.
4.
REPRESENTATIONS AND WARRANTIES
The
Company represents and warrants to Purchaser, as of the Closing Date, the
following:
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.
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.
(c) This
Agreement has been duly executed and delivered by the Company.
(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.
8
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 stockholders of the Company (other than those rights in favor of holders
of the Preferred Stock) 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 Securities. 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.
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
and (c) the filing of a “Form D” as described in Section 7.13.
4.5
Issuance of Shares.
Upon
conversion in accordance with the terms of the Preferred Shares, 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 stockholders 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 stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares is absolute and unconditional regardless
of
the dilutive effect that such issuance may have on the ownership interests
of
other stockholders of the Company.
9
The
Company shall have a sufficient number of shares of Common Stock authorized
and
reserved to provide for the conversion of the Preferred Shares into the
Company’s Common Stock and for the exercise of the Warrants.
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.
4.7
Financial Information.
Since
December 31, 2004 (the “Balance Sheet Date”), except as disclosed in
Schedule
4.7,
or as
disclosed in the Company’s filings with the Commission, 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 consolidated balance sheets of the Company and
its
Subsidiaries for the period ending June 30, 2005, and the related consolidated
statements of income, changes in stockholders’ 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.
4.8
Litigation.
Except
as set forth on Schedule
4.8,
or as
disclosed in the Company’s filings with the Commission, 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.
10
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 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.
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.
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.
4.12
Investments, Joint Ventures.
Other
than as set forth in Schedule
4.12,
or as
disclosed in the Company’s filings with the Commission, 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.
11
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.
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.
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. 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.
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.
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.
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.
12
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.
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.
4.21 Proprietary
Information of Third Parties. To
the
best of the Company’s knowledge, no Person has claimed or has reason to claim
that any employee of the Company or any Subsidiary has (a) violated or may
be
violating any of the terms or conditions of his employment, non-competition
or
non-disclosure agreement with such Person, (b) disclosed or may be disclosing
or
utilized or may be utilizing any trade secret or proprietary information
or
documentation of such Person or (c) interfered or may be interfering in the
employment relationship between such Person and any of its present or former
employees. No Person has requested information from the Company which suggests
that such a claim might be contemplated. To the best of the Company’s knowledge,
no employee of the Company or any Subsidiary has employed or proposes to
employ
any trade secret or any information of documentation proprietary to any former
employer, and to the best of the Company’s knowledge, no employee of the Company
or any Subsidiary, has violated any confidential relationship which such
Person
may have had with any Person, in connection with the development or sale
of any
service or proposed service of the Company or any Subsidiary, and the Company
or
any Subsidiary has no reason to believe there will be any such employment
or
violation. To the best of the Company’s knowledge, none of the execution or
delivery of this Agreement, or the carrying on of the business of the Company
or
any Subsidiary as officer, employee or agent by any officer, director or
key
employee of the Company or any Subsidiary, or the conduct or proposed conduct
of
the business of the Company or any Subsidiary, will conflict with or result
in a
breach of the terms, conditions or provisions of or constitute a default
under
any contract, covenant or instrument under which such Person is
obligated.
4.22 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.
4.23
Title to Properties.
The
Company and its Subsidiaries have good and marketable title to all their
respective properties free and clear of all Liens.
4.24
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 managements’ 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.
13
4.25
Brokers.
The
Company has no contract, arrangement or understanding with any broker, finder
or
similar agent with respect to the transactions contemplated by this
Agreement.
4.26
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.
5. REPRESENTATIONS
AND WARRANTIES OF PURCHASER
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;
14
(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 financial
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 limited partnership organized under the laws of Delaware.
6. CONDITIONS
PRECEDENT TO EXCHANGE OF SECURITIES
6.1 Conditions
Precedent to Purchaser’s Obligations to Exchange.
The
obligation of Purchaser hereunder to exchange the Obligations for the Preferred
Shares at the Closing is subject to the satisfaction, on or before the 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 Registration Rights
Agreement and delivered the same to Purchaser;
(b) The
Company and ▇▇▇▇▇▇ shall have duly executed the Settlement
Agreement;
(c) The
Company shall have delivered to Purchaser (i) a duly executed certificate
representing the Preferred Shares and (ii) a duly executed Warrant exercisable
for the applicable number of shares to which Purchaser is entitled pursuant
to
this Agreement;
(d) The
representations and warranties of the Company contained in each Transaction
Agreement shall be true and correct in all material respects as of the date
when
made and as of the Closing 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. Purchaser shall have received an Officer’s
Certificate executed by the chief executive officer of the Company, dated
as of
the Closing Date, to the foregoing effect and as to such other matters as
may be
reasonably requested by Purchaser, 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
C;
15
(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, in the judgment of
Purchaser, could adversely affect the transactions set forth herein or in
the
other Transaction Agreements, and no law or regulation shall have been proposed
that in the reasonable judgment of Purchaser could reasonably have any such
effect;
(h) 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;
(i) 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 January 1, 2005;
(j) 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 or purports to affect 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;
(k) Purchaser
shall have confirmed the receipt of the Preferred Shares to be issued, duly
executed by the Company in the denominations and registered in the name of
Purchaser;
(l) Immediately
before and after the Closing Date, no Default or Event of Default shall have
occurred and be continuing; and
16
(m) Purchaser
shall have received all other opinions, resolutions, certificates, instruments,
agreements or other documents as they shall reasonably request.
6.2 Conditions
to the Company’s Obligations.
The
obligations of the Company to issue the Securities to Purchaser pursuant
to this
Agreement are subject to the satisfaction, at or prior to the Closing Date,
of
the following conditions:
(a) 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;
(b) The
issue
of the Securities by the Company shall not be prohibited by any applicable
law,
court order or governmental regulation;
(c) Receipt
by the Company of duly executed counterparts of this Agreement and the
Registration Rights Agreement signed by Purchaser;
(d) The
Company shall have received the cancelled Note.
7. AFFIRMATIVE
COVENANTS
The
Company hereby agrees that, from and after the date hereof for so long as
any
Preferred Stock remain outstanding and for the benefit of
Purchaser:
7.1
Information.
The
Company will deliver to each holder of the Preferred
Shares:
(a) within
two (2) days after any officer of the Company obtains knowledge of a Default
or
Event of Default, or that any Person has given any notice or taken any action
with respect to a claimed Default hereunder, a certificate of the chief
financial officer of the Company setting forth the details thereof and the
action which the Company is taking or proposed to take with respect
thereto;
(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 Preferred Shares under Section 3.4, notice thereof
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 sum of (i) 1.5 times the maximum number of Conversion Shares
issuable pursuant to the Transaction Agreements; and
17
(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.
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.
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.
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.
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.
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.
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.
18
7.8 Reserved.
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.
7.10
Reserved Shares.
(a) The
Company shall as of January 31, 2006 and thereafter 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
Preferred Shares and issuance of the Conversion Shares (based on the conversion
price of the Preferred Shares in effect from time to time) (the “Reserved
Amount”). The Company shall not reduce the Reserved Amount without the prior
written consent of Purchaser. With respect to all Securities which contain
an
indeterminate number of shares of Common Stock issuable in connection therewith
(such as the Preferred Shares), the Company shall include in the Reserve
Amount,
the number of shares that is then actually issuable upon conversion or exercise
of such Securities. 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 Preferred Shares, 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 repurchase of the Preferred Shares contemplated in Sections
3.4(c)
hereof.
(b) The
Company will comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Nasdaq Small Cap Market,
or
the National Association of Securities Dealers, Inc. (the “NASD”), 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 the Nasdaq Small Cap Market.
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 Preferred Shares. Upon conversion
of any Preferred Shares in accordance with their terms, the Company 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.
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 Preferred Shares 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.
19
7.12 Maintenance
of Reporting Status; Supplemental Information.
So long
as any of the Securities are outstanding, the Company shall use its best
lawful
efforts to 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 rules and regulations thereunder would permit such termination. If at
any
time 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 the Securities,
and
prospective purchasers of Securities, information satisfying the information
requirements of Rule 144 under the Securities Act.
7.13 Form
D; Blue Sky Laws.
The
Company agrees, if required, 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.
8. NEGATIVE
COVENANTS
The
Company hereby agrees that after the date hereof for so long as any Preferred
Shares remain outstanding and for the benefit of Purchaser:
8.1 Limitations
on Debt or Other Liabilities.
Neither
the Company nor any Subsidiary will create, incur, assume or suffer to exist
(at
any time after the Closing Date, after giving effect to the application of
the
proceeds of the issuance of the Securities) (i) any Debt except (x) Debt
incurred in a Permitted Financing, (y) Debt incurred in connection with
equipment leases to which the Company or its Subsidiaries are a party incurred
in the ordinary course of business; and (z) Debt incurred in connection with
trade accounts payable, imbalances and refunds arising in the ordinary course
of
business and (ii) any equity securities (including Derivative Securities)
(other
than those securities that are issuable (x) under or pursuant to stock option
plans, warrants or other rights programs that exist as of the date hereof,
(z)
in connection with the acquisition (including by merger) of a business or
of
assets otherwise permitted under this Agreement), unless the Company complies
with the mandatory prepayment terms of Section 3.4(b) hereof.
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.
20
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.
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.
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, 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.
8.6 Prohibition
on Discounted Equity Offerings; Registration Rights.
(a) In
addition to and not in lieu of the covenant specified in Section 8.1 above,
beginning on the Closing Date and continuing until such time as all of the
Preferred Shares have been either redeemed or converted into Conversion Shares
in full, the Company agrees that it will not, without the written consent
of the
majority holders, 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
so long as such conversion 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 (except warrants held
by
any party to the to the Settlement Agreement), 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.
21
(b) Until
such time as all of the Preferred Shares 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 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 by
virtue of contractual restrictions imposed by the Company either pursuant
to an
exemption from registration under the Securities Act or pursuant to a
registration statement filed by the Company with the Commission, in each
case
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.
8.7 Limitation
on Stock Repurchases.
Except
as otherwise set forth in the Certificate of Designation and the 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.
9. RESTRICTIVE LEGENDS
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 Section 9, 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
Section 9.
9.2
Legends.
The
Conversion Shares, upon resale by the Purchaser pursuant to the Registration
Statement, shall be freely tradeable and unrestricted.
9.3 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.
22
10.
ADDITIONAL AGREEMENTS AMONG THE PARTIES
10.1 Liquidated
Damages.
(a) The
Company shall cause its transfer agent to, issue and deliver shares of Common
Stock consistent with Section 7.11 hereof within three (3) Trading Days of
delivery of a Notice of Conversion, as applicable (the “Deadline”) to Purchaser
(or any party receiving Securities by transfer from Purchaser) at the address
of
Purchaser set forth in the Notice of Conversion. The Company understands
that a
delay in the issuance of such certificates after the Deadline could result
in
economic loss to Purchaser.
(b) Without
in any way limiting Purchaser’s right to pursue other remedies, including actual
damages and/or equitable relief, the Company agrees that if delivery of the
Conversion Shares is more than one (1) Business Day after the Deadline (other
than a failure due to the circumstances described in Section 4.3 of the
Preferred Shares, which failure shall be governed by such Section) the Company
shall pay to Purchaser, as liquidated damages and not as a penalty, $500
for
each $100,000 of Preferred Shares then outstanding per day in cash, for each
of
the first ten (10) days beyond the Deadline, and $1,000 for each $100,000
of
Preferred Shares then outstanding per day in cash for each day thereafter
that
the Company fails to deliver such Common Stock. Such cash amount shall be
paid
to Purchaser by the last day of the calendar week following the week in which
it
has accrued or, at the option of Purchaser (by written notice to the Company
by
the first day of the week following the week in which it has accrued), shall
be
added to the principal amount of the Preferred Share (if then outstanding)
payable to Purchaser, in which event interest shall accrue thereon in accordance
with the terms of the Preferred Shares and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of the
Preferred Shares.
10.2 Conversion
Notice.
The
Company agrees that, in addition to any other remedies which may be available
to
Purchaser, including, but not limited to, the remedies available under Section
10.1, in the event the Company fails for any reason (other than as a result
of
actions taken by a Purchaser in breach of this Agreement) to effect delivery
to
a Purchaser of certificates with or without restrictive legends as contemplated
by Section 9 representing the shares of Common Stock on or prior to the Deadline
after conversion of any Preferred Shares, Purchaser will be entitled, if
prior
to the delivery of such certificates, to revoke the Notice of Conversion
by
delivering a notice to such effect to the Company whereupon the Company and
Purchaser shall each be restored to their respective positions immediately
prior
to delivery of such Notice of Conversion.
10.3 Intentionally
Omitted.
23
10.4 Registration
Rights.
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.
(a) The
Company shall prepare and file in accordance with the Settlement Agreement
(the
“Filing Date”), a registration statement (the “Registration Statement”) covering
the resale of the Registrable Securities with the Commission. The Company
shall
use its best efforts to cause the Registration Statement to be declared
effective by the Commission on the earlier of (i) the time set forth in the
Settlement Agreement, (ii) ten days following the receipt of a “No Review”
Letter from the Commission or (iii) the first Business Day following the
day the
Commission determines the Registration Statement eligible to be declared
effective (the “Required Effectiveness Date”). The Company shall pay all
expenses of registration (other than underwriting fees and discounts, if
any, in
respect of Registrable Securities offered and sold under the registration
statement by Purchaser). The Company agrees to file an initial written response
to the Commission within ten calendar days of receipt of any comments by
the
Commission relating to the Registration Statement. If the Company fails to
file
the Registration Statement by the Filing Date, the Company will pay to the
Fund
liquidated damages in the amount of 1% of the principal amount of the then
outstanding Preferred Shares for each 30-day period, prorated, until the
Registration Statement has been filed.
(b) If
the
Registration Statement is not declared effective by the Commission by the
Required Effectiveness Date, the Purchaser may require that the Company redeem
the Preferred Shares and the Warrant as set forth in Section 3 hereof with
respect to the Preferred Shares and Section 13 of the Warrant. Additionally,
the
Company will grant to Purchaser certain 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) If,
following the declaration of effectiveness of the 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 the
Registration Statement in order to allow the Purchaser to resell the Conversion
Shares pursuant to the Registration Statement as 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 Preferred
Shares
or exercise of the Warrants (a "Registration Default"), the Company shall
immediately take all necessary steps to cause the Registration Statement
to be
amended or supplemented so as to cure such Registration Default. Failure
to cure
a Registration Default within ten (10) Business Days shall result in the
Company
paying to Purchaser liquidated damages at the rate of one percent (1%) of
the
Purchase Price of Preferred Shares for each 30 day period (prorated), the
Registration Default remains uncured.
24
10.5 Restriction
on Issuance of Securities.
Without
the prior written consent of the Purchaser, 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, employee and director stock options of the Company, existing
rights and warrants of the Company and securities issued under the Preferred
Shares or Warrants. 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 Preferred Shares and exercised all Warrants.
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 such offering provides
for
the registration of the Common Stock to be received by Purchaser as a result
of
the conversion of the Preferred Shares held by the Purchaser; and (4) other
financing transactions specifically consented to in writing by the
Purchaser.
11.
ADJUSTMENT OF FIXED PRICE
11.1
Reorganization.
The
Conversion Price and the exercise price of the Warrants (collectively, the
“Fixed Prices”) shall be adjusted, as applicable, as hereafter
provided.
11.2
Share
Reorganization.
If and
whenever the Company shall:
(a) subdivide
the outstanding shares of Common Stock into a greater number of
shares;
(b) consolidate
the outstanding shares of Common Stock into a smaller number of
shares;
(c) issue
Common Stock or securities convertible into or exchangeable for shares of
Common
Stock as a stock dividend to all or substantially all the holders of Common
Stock; or
(d) make
a
distribution on the outstanding Common Stock to all or substantially all
the
holders of Common Stock payable in Common Stock or securities convertible
into
or exchangeable for Common Stock;
any
of
such events being herein called a “Share Reorganization,” then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after
the
record date at which the holders of Common Stock are determined for the purposes
of the Share Reorganization or, if no record date is fixed, the effective
date
of the Share Reorganization, by multiplying the applicable Fixed Price in
effect
on such record or effective date, as the case may be, by a fraction of
which:
25
(i) the
numerator shall be the number of shares of Common Stock outstanding on such
record or effective date (without giving effect to the Share Reorganization);
and
(ii) the
denominator shall be the number of shares of Common Stock outstanding after
giving effect to such Share Reorganization, including, in the case of a
distribution of securities convertible into or exchangeable for shares of
Common
Stock, the number of shares of Common Stock that would have been outstanding
if
such securities had been converted into or exchanged for Common Stock on
such
record or effective date.
11.3 Rights
Offering
. If and
whenever the Company shall issue to all or substantially all the holders
of
Common Stock, rights, options or warrants under which such holders are entitled,
during a period expiring not more than 45 days after the record date of such
issue, to subscribe for or purchase Common Stock (or Derivative Securities),
at
a price per share (or, in the case of securities convertible into or
exchangeable for Common Stock, at an exchange or conversion price per share
at
the date of issue of such securities) of less than 95% of the Market Price
of
the Common Stock on such record date (any such event being herein called
a
“Rights Offering”), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which holders of
Common
Stock are determined for the purposes of the Rights Offering, by multiplying
the
applicable Fixed Price in effect on such record date by a fraction of
which:
(1) the
numerator shall be the sum of:
(a) the
number of shares of Common Stock outstanding on such record date;
and
(b) a
number
obtained by dividing:
(i) either,
(x) the
product of the total number of shares of Common Stock so offered for
subscription or purchase and the price at which such shares are so offered,
or
(y) the
product of the maximum number of shares of Common Stock into or for which
the
convertible or exchangeable securities so offered for subscription or purchase
may be converted or exchanged and the conversion or exchange price of such
securities, or, as the case may be, by
(ii) the
Market Price of the Common Stock on such record date; and
(2) the
denominator shall be the sum of:
(a) the
number of shares of Common Stock outstanding on such record date;
and
(b) the
number of shares of Common Stock so offered for subscription or purchase
(or, in
the case of Derivative Securities, the maximum number of shares of Common
Stock
for or into which the securities so offered for subscription or purchase
may be
converted or exchanged).
26
To
the
extent that such rights, options or warrants are not exercised prior to the
expiry time thereof, the applicable Fixed Price shall be readjusted effective
immediately after such expiry time to the applicable Fixed Price which would
then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
11.4
Special
Distribution
. If and
whenever the Company shall issue or distribute to all or substantially all
the
holders of Common Stock:
(a) shares
of
the Company of any class, other than Common Stock;
(b) rights,
options or warrants; or
(c) any
other
assets (excluding cash dividends and equivalent dividends in shares paid
in lieu
of cash dividends in the ordinary course);
and
if
such issuance or distribution does not constitute a Share Reorganization
or a
Rights Offering (any such event being herein called a “Special Distribution”),
then in each such case the applicable Fixed Price shall be adjusted, effective
immediately after the record date at which the holders of Common Stock are
determined for purposes of the Special Distribution, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of
which:
the
numerator shall be the difference between:
(i)
the
product of the number of shares of Common Stock outstanding on such record
date
and the Market Price of the Common Stock on such date; and
(ii)
the fair
market value, as determined by the Directors (whose determination shall be
conclusive), to the holders of Common Stock of the shares, rights, options,
warrants, evidences of indebtedness or other assets issued or distributed
in the
Special Distribution (net of any consideration paid therefor by the holders
of
Common Stock), and
(iii)
the
denominator shall be the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common Stock
on such
date.
11.5 Capital
Reorganization
. If and
whenever there shall occur:
(a) a
reclassification or redesignation of the shares of Common Stock or any change
of
the shares of Common Stock into other shares, other than in a Share
Reorganization;
(b) a
consolidation, merger or amalgamation of the Company with, or into another
body
corporate; or
(c) the
transfer of all or substantially all of the assets of the Company to another
body corporate;
27
(any
such
event being herein called a “Capital Reorganization”), then in each such case
the holder who exercises the right to convert the Preferred Shares after
the
effective date of such Capital Reorganization shall be entitled to receive
and
shall accept, upon the exercise of such right, in lieu of the number of shares
of Common Stock to which such holder was theretofore entitled upon the exercise
of the conversion privilege, the aggregate number of shares or other securities
or property of the Company or of the body corporate resulting from such Capital
Reorganization that such holder would have been entitled to receive as a
result
of such Capital Reorganization if, on the effective date thereof, such holders
had been the holder of the number of shares of Common Stock to which such
holder
was theretofore entitled upon conversion; provided, however, that no such
Capital Reorganization shall be consummated in effect unless all necessary
steps
shall have been taken so that such holders shall thereafter be entitled to
receive such number of shares or other securities of the Company or of the
body
corporate resulting from such Capital Reorganization, subject to adjustment
thereafter in accordance with provisions the same, as nearly as may be possible,
as those contained above.
11.6
Adjustment
Rules
. The
following rules and procedures shall be applicable to adjustments made in
this
Section 11:
(a) no
adjustment in the applicable Fixed Price shall be required unless such
adjustment would result in a change of at least 1% in the applicable Fixed
Price
then in effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made,
shall
be carried forward and taken into account in any subsequent
adjustment;
(b) if
any
event occurs of the type contemplated by the adjustment provisions of this
Section 11 but not expressly provided for by such provisions, the Company
will
give notice of such event as provided herein, and the Directors will make
an
appropriate adjustment in the Fixed Price so that the rights of the holders
of
the applicable Security shall not be diminished by such event; and
(c) if
a
dispute shall at any time arise with respect to any adjustment of the applicable
Fixed Price, such dispute shall be conclusively determined by the auditors
of
the Company or, if they are unable or unwilling to act, by a firm of independent
chartered accountants selected by the Directors and any such determination
shall
be binding upon the Company and Purchaser.
11.7
Certificate
as to Adjustment
. The
Company shall from time to time promptly after the occurrence of any event
which
requires an adjustment in the applicable Fixed Price deliver to Purchaser
a
certificate specifying the nature of the event requiring the adjustment,
the
amount of the adjustment necessitated thereby, the applicable Fixed Price
after
giving effect to such adjustment and setting forth, in reasonable detail,
the
method of calculation and the facts upon which such calculation is
based.
11.8
Notice
to Holders
. If the
Company shall fix a record date for:
(a) any
Share
Reorganization (other than the subdivision of outstanding Common Stock into
a
greater number of shares or the consolidation of outstanding Common Stock
into a
smaller number of shares),
28
(b) any
Rights Offering,
(c) any
Special Distribution,
(d) any
Capital Reorganization (other than a reclassification or redesignation of
the
Common Stock into other shares),
(e) Sale
Event; or
(f) any
cash
dividend,
the
Company shall, not less than 10 days prior to such record date or, if no
record
date is fixed, prior to the effective date of such event, give to Purchaser
notice of the particulars of the proposed event or the extent that such
particulars have been determined at the time of giving the notice.
12.
OTHER AGREEMENTS
12.1 Registration
Rights.
The
Preferred Shares and any Common Stock into which they may be converted or
exercised, as applicable, shall have the registration rights set forth in
the
Registration Rights Agreement, attached as Exhibit
B
hereto.
12.2 Reserved.
13. EVENTS
OF DEFAULT
13.1 Events
of Default.
If one
or more of the following events (each an “Event
of Default”)
shall
have occurred and be continuing:
(a) failure
by the Company to pay (i) within five (5) Business Days following the delivery
of notice to the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under any
Transaction Agreement;
(b) failure
by the Company to timely comply with the requirements of Section 7.11 or
10.1
hereof, which failure is not cured within five (5) Business Days of such
failure;
(c) failure
on the part of the Company to observe or perform any covenant contained in
Section 8 of this Agreement;
(d) failure
on the part of the Company to observe or perform any covenant or agreement
contained in any Transaction Agreement (other than those covered by clauses
(a)
or (b), above) for 30 days from the date of such occurrence;
(e) the
trading in the Common Stock shall have been suspended by the Commission,
OTC
Bulletin Board or any National Market (except for any suspension of trading
of
limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension
on any
National Market, the Common Stock is then listed and approved for trading
on
another National Market within ten (10) Trading Days thereof);
29
(f) the
Company shall have its Common Stock delisted from the OTC Bulletin Board
or a
National Market for at least ten (10) consecutive Trading Days and is unable
to
obtain a listing on the OTC Bulletin Board or a National Market within such
ten
(10) Trading Days;
(g) the
effectiveness of any registration statement required to be made and maintained
effective pursuant to the terms of the Registration Rights Agreement shall
not
be maintained effective for the applicable period of time, and such failure
results in the Company incurring the applicable liquidated damages or default
fees for a continuous period in excess of 30 days;
(h) the
Company or any Subsidiary has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with respect
to
itself or its debts under any bankruptcy, insolvency, moratorium or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief or
to the
appointment of or taking possession by any such official in an involuntary
case
or other proceeding commenced against it, or has made a general assignment
for
the benefit of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any of the foregoing;
(i) an
involuntary case or other proceeding has been commenced against the Company
or
any Subsidiary seeking liquidation, winding-up, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency, moratorium
or
other similar law now or hereafter in effect or seeking the appointment of
a
trustee, receiver, liquidator, custodian or other similar official of it
or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days, or an order
for
relief has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(j) default
in any provision (including payment) or any agreement governing the terms
of any
indebtedness of the Company or any Subsidiary in excess of $500,000, which
has
not been cured within any applicable period of grace associated therewith;
(k) judgments
or orders for the payment of money which in the aggregate at any one time
exceed
$1,000,000 and are not covered by insurance have been rendered against the
Company or any Subsidiary by a court of competent jurisdiction and such
judgments or orders shall continue unsatisfied and unstayed for a period
of 60
days;
(l) any
representation, warranty, certification or statement made by the Company
in any
Transaction Agreement or which is contained in any certificate, document
or
financial or other statement furnished at any time under or in connection
with
any Transaction Agreement shall prove to have been untrue in any material
respect when made; or
30
(m) failure
by the Company to observe or perform any covenant or agreement contained
in the
Settlement Agreement;
then,
and
in every such occurrence, Purchaser may, with respect to an Event of Default
specified in paragraphs (a) or (b), and Purchaser may, with respect to any
other
Event of Default, by notice to the Company, declare the Company to redeem
the
outstanding Preferred Shares, and the Preferred Shares shall thereon be redeemed
immediately; provided
that in
the case of any of the Events of Default specified in paragraph (h) or (i)
above
with respect to the Company or any Subsidiary, then, without any notice to
the
Company or any other act by Purchaser, the outstanding Preferred Shares shall
be
immediately redeemed, provided,
further,
if any
Event of Default has occurred and is continuing, and irrespective of whether
any
Preferred Shares have been declared immediately due and payable hereunder,
Purchaser may proceed to protect and enforce the rights of such Purchaser
by an
action at law, suit in equity or other appropriate proceeding, whether for
the
specific performance of any agreement contained herein, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or
otherwise.
13.2 Powers
and Remedies Cumulative.
No
right or remedy herein conferred upon or reserved to any 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.
14. MISCELLANEOUS
14.1 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, 4 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
14.1.
14.2 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) Unless
specifically noted to the contrary, any provision of this Agreement may be
amended, supplemented or waived after the Closing if, but only if, such
amendment, supplement or waiver is in writing and is signed by the Company
and
the Purchaser.
14.3 Indemnification.
31
(a) The
Company agrees to indemnify and hold harmless each Purchaser, its respective
Affiliates, and each Person, if any, who controls such Purchaser, or any
of its
respective Affiliates, and the respective partners, agents, employees, officers
and Directors of such 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
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 administrative
or
judicial proceeding brought or threatened that relates to or arises out of,
or
is in connection with a breach of any of the Company’s representations and
warranties or covenants contained herein; provided
that the
Company will not be responsible for any claims, liabilities, losses, damages
or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party’s negligence, willful
misconduct or bad faith.
(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 the applicable Purchaser(s). 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 with the consent
of the
Company. In addition, the Company will not, without the prior written consent
of
the applicable Purchaser(s), 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 the applicable Purchaser(s) and the other
Indemnified Parties, satisfactory in form and substance to the applicable
Purchaser(s), from all liability arising out of such action, claim, suit
or
proceeding.
32
(c) The
indemnification, contribution and expense reimbursement obligations set forth
in
this Section
14.3
(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 Closing Date for
a
period of two (2) years and (iii) shall remain operative and in full force
and
effect regardless of any investigation made by or on behalf of any Purchaser
or
any other Indemnified Party.
(d) Each
Purchaser acknowledges such Purchaser’s understanding of the representations,
warranties and covenants set forth herein and that the Company relied upon
such
representations, covenants and warranties and each Purchaser agrees to
indemnify, defend and save harmless the Company, its directors, officers,
agents
and employees, and each of them, from and against any and all loss, liability,
claim, damage and expense (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever), arising out
of or
based upon any false representation or warranty or breach or failure by such
Purchaser to comply with any covenant or agreement made by such Purchaser
herein
or in any other document furnished by such Purchaser to any of the foregoing
in
connection with such Purchaser’s investment in the Securities.
14.4 Reserved.
14.5 Successors
and Assigns.
This
Agreement shall be binding upon the Company and Purchaser and its respective
successors and assigns upon execution hereof by the Company and Purchaser.
Neither the Company nor Purchaser may transfer or assign this Agreement or
any
right, title or interest in, to or under this Agreement without the prior
written consent of the other applicable party, and any attempted assignment
without such consent shall be void and without further force or
effect.
14.6 Governing
Law.
This
Agreement shall be governed by and controlled in accordance with the laws
substantive of the State of Georgia without regard to conflict of law
provisions.
14.7 Entire
Agreement.
This
Agreement, the Exhibits or Schedules hereto, which includes, but is not limited
to 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.
14.8 Survival;
Severability.
All
representations, warranties, covenants, acknowledgments and agreements contained
herein shall survive (a) he acceptance of this Agreement and the Closing
and the
delivery of the Securities, the Conversion Shares, and the Warrant Shares,
and
(b) with respect to any Purchaser, the death, disability, incompetency,
termination, bankruptcy, insolvency or dissolution of such Purchaser. 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.
33
14.9 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.
14.10 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, or any successor thereto.
The written mutual consent of the holders of more than fifty percent (50%)
of
the then outstanding shares of Preferred Stock and the Company shall be required
to employ any other reporting entity.
14.11 Confidentiality.
Each
Purchaser acknowledges that certain of the information provided to such
Purchaser is confidential and non-public and agrees that all such information
shall be kept in confidence by such Purchaser and neither used by such Purchaser
to such Purchaser’s personal benefit (other than in connection with this
Agreement) nor disclosed to any Person not a party to this Agreement for
any
reason; provided,
that
this obligation shall not apply to any such information which (i) is or becomes
part of the public knowledge or literature and readily accessible (except
as a
result of violation of any confidentiality agreements); or (ii) is received
from
third parties (except third parties who disclose such information in violation
of any confidentiality agreements including, but not limited to, any Agreement
they may have with the Company).
14.12 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, in which
case the Company shall provide Purchaser with prior written notice of such
public disclosure.
14.13 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 Preferred
Shares or by law may be exercised from time to time, and as often as shall
be
deemed expedient, by Purchaser.
(Signature
pages follows)
34
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.
| SPEEDEMISSIONS, INC. | |||
| By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ | |||
|
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ |
|||
| Title: President and Chief Executive Officer | |||
| Address: | |||
| Speedemissions, Inc. | |||
| ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ | |||
| ▇▇▇▇▇ ▇-▇ | |||
| ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | |||
| Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ | |||
| Phone: ▇▇▇-▇▇▇-▇▇▇▇ | |||
| with a copy to: | |||
| The Lebrecht Group | |||
| ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ | |||
| ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | |||
| Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |||
| Fax: ▇▇▇-▇▇▇-▇▇▇▇ |
| PURCHASER: | |||
| Global Capital Funding Group, L.P. | |||
| By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, | |||
|
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President |
|||
| Global Capital Management Services, Inc., | |||
| Its General Partner |