Exhibit 10.1
PURCHASE AGREEMENT
Purchase Agreement ("Agreement") dated as of June 28, 2002 between Allied
Research Corporation, a Delaware corporation (the "Company"), and RIVERVIEW
GROUP, LLC, a Delaware limited liability company (the "Purchaser"). Undefined
terms contained herein shall have the meaning ascribed to them in the
Debentures.
W I T N E S S E T H:
Whereas, the Company desires to sell and issue to the Purchaser, and the
Purchaser wishes to purchase from the Company, 8% Convertible Debentures (the
"Debentures"), in the aggregate principal amount of $7,500,000 at an aggregate
purchase price of $7,500,000 (the "Purchase Price"), having the rights and
privileges set forth in the Debentures in the form of Exhibit 1A attached
hereto, on the terms and conditions set forth herein;
Whereas, pursuant to the terms of the Debentures, the Debentures will be
convertible into shares ("Common Shares") of common stock, par value $.10, of
the Company ("Common Stock");
Whereas, to induce the Purchaser to purchase the Debentures, the Company
has agreed to issue to the Purchaser warrants (the "Warrants") exercisable for
15,000 shares of Common Stock ("Warrant Shares") in the form attached as Exhibit
1B;
Whereas, pursuant to the terms of this Agreement, both the Company and
the Purchaser may each have the right to cause the purchase by the Purchaser of
additional Debentures and Warrants from the Company up to an aggregate principal
amount of $3,750,000 at an aggregate purchase price equal to the aggregate
principal amount so purchased; and
Whereas, the Purchaser will have registration rights with respect to such
Common Shares and the Warrant Shares pursuant to the terms of that certain
Registration Rights Agreement to be entered into between the Company and the
Purchaser substantially in the form of Exhibit 4.2(e) hereto ("Registration
Rights Agreement");
Now, Therefore, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
Purchase and Sale of Debentures and Warrants, Etc.
Section 1.1 Issuance of Debentures and Warrants.
(a) Issuance. Upon the following terms and conditions, the
Company shall issue and sell to the Purchaser and the Purchaser shall purchase
from the Company,
$7,500,000 principal amount of Debentures and the Warrants to purchase 15,000
shares of Common Stock for the Purchase Price.
(b) The Closing.
(i) The closing of the purchase and sale of the Debentures
and the Warrants (the "Closing") shall take place at the offices
of Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C. ("Purchaser's Counsel")
or at such other place as is mutually agreeable, at 10:00 am.,
local time on: (x) the date on which the last to be fulfilled or
waived of the conditions set forth in Article 4 hereof and
applicable to the Closing shall be fulfilled or waived in
accordance herewith, or (y) such other time and place and/or on
such other date as the Purchaser and the Company may agree. The
date on which the Closing occurs is referred to herein as the
"Closing Date".
(ii) On the Closing Date, the Company shall deliver to the
Purchaser (x) one or more Debentures (with the number of and
outstanding principal amount of each debenture to be as reasonably
requested by the Purchaser) representing the aggregate Debentures
purchased hereunder by the Purchaser at the Closing registered in
the name of the Purchaser or its nominee and (y) the Warrants
registered in the name of the Purchaser or its nominee in such
denominations as reasonably requested by the Purchaser, and the
Purchaser shall deliver the Purchase Price for the Debentures and
Warrants by wire transfer in immediately available funds to an
account designated in writing by the Company. In addition, each
party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement
at or prior to the Closing. In addition, at the Closing, the
Company shall pay (or the Purchaser shall pay for the account of
the Company, with such payment being credited towards Purchaser's
payment of the Purchase Price under this paragraph (b)(ii)) to the
Purchaser's Counsel its legal fees and disbursements as set forth
in Section 3.4. Furthermore, at the option of the Purchaser, at
the Closing the Purchaser may pay for its account and for the
account of the Company, the full fee due to the Transaction Agent
(as defined below) in connection with the transactions
contemplated with respect to the Closing, with 25% of such payment
(equal to 0.5% of the Purchase Price) being credited towards
Purchaser's payment of the Purchase Price under this paragraph
(b)(ii).
ARTICLE 2
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser as of
the date hereof and on the Closing Date:
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(a) Organization and Qualification; Material Adverse Effect. The Company
is a corporation duly incorporated and existing in good standing under the laws
of the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any direct or indirect subsidiaries (defined as any entity of which the
Company owns, directly or indirectly, 50% or more of the equity or voting power)
other than the subsidiaries listed on Schedule 2.1(a) attached hereto. Except
where specifically indicated to the contrary, all references in this Agreement
to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries
of the Company. Except where specifically indicated to the contrary, all
references in this Article 2 to the Company shall be deemed to refer to the
Company and its consolidated subsidiaries. The Company and its subsidiaries are
duly qualified as foreign corporations to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations, properties
or financial condition of the entity with respect to which such term is used and
which is (either alone or together with all other adverse effects) material to
such entity, and any material adverse effect on the transactions contemplated
under this Agreement, the Debentures, the Warrants, the Registration Rights
Agreement or any other agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Debentures, the Warrants and the Registration Rights Agreement (the "Transaction
Documents") and to issue the Debentures and the Warrants in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Common Shares and
the Warrant Shares, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
the Transaction Documents have been duly executed and delivered by the Company
and (iv) the Transaction Documents constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company consists
of 30,000,000 shares of Common Stock and 1,000,000 shares of preferred stock; as
of June 28, 2002, there were 5,253,488 shares of Common Stock and no shares of
preferred stock issued and outstanding; and, except as set forth on Schedule
2.1(c), no shares of Common Stock and no shares of preferred stock were reserved
for issuance to persons other than the Purchaser. All of the outstanding shares
of the Company's Common Stock have been validly issued and are fully paid and
nonassessable. No shares of capital stock are entitled to preemptive rights and,
except as set forth on Schedule 2.1(c), there are no outstanding options and
outstanding warrants for shares of Common
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Stock (excluding the Warrants). Except as set forth on Schedule 2.1(c)(i), there
are no other scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights exchangeable for or
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible or exchangeable into
shares, of capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is
a true and correct copy of the Company's Certificate of Incorporation (the
"Charter"), as in effect on the date hereof, and attached hereto as Exhibit
2.1(c)(ii) is a true and correct copy of the Company's By-Laws, as in effect on
the date hereof (the "By-Laws").
(d) Issuance of Common Shares. The Common Shares and the Warrant Shares
are duly authorized and reserved for issuance and, upon such conversion in
accordance with the Debentures and/or exercise in accordance with the Warrants
such Common Shares and Warrant Shares, as the case may be, will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
claims and encumbrances, and (subject to the registration of such shares in
accordance with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act" or the "Act") and the Securities Exchange Act of
1934, as amended (the "Exchange Act") entitled to be traded on the American
Stock Exchange (or the New York Stock Exchange, the Nasdaq National Market or
the Nasdaq SmallCap Market, collectively with the American Stock Exchange, the
"Approved Markets"), and the holders of such Common Shares and Warrant Shares
shall be entitled to all rights and preferences accorded to a holder of Common
Stock. The outstanding shares of Common Stock are currently listed on the
American Stock Exchange.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby and the issuance of the Debentures,
the Warrants, the Put Debentures, the Put Warrants, the Call Debentures and the
Call Warrants (collectively, the "Securities") do not and will not (i) result in
a violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its subsidiaries is
a party (collectively, "Company Agreements"), or (iii) result in a violation of
any federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected, except (other than
in the case of clause (i) above) where such violation would not reasonably be
expected to have a Material Adverse Effect. The business of the Company and its
direct and indirect subsidiaries is being conducted in compliance with (i) its
Charter and By-Laws, (ii) all Company Agreements and (iii) all applicable laws,
ordinances or regulations of any governmental entity, except (other than in the
case of clause (i) above) where such violation would not
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reasonably be expected to have a Material Adverse Effect. Except for filings,
consents and approvals required under applicable state and federal securities
laws or the rules and regulations of the applicable Approved Markets and covered
by the Registration Rights Agreement, the Company is not required under federal,
state, local or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants or to issue and sell the Debentures, Warrants or the
Common Shares and Warrants Shares issuable upon conversion or exercise thereof
except for the registration provisions provided in the Registration Rights
Agreement.
(f) SEC Documents; No Non-Public Information. The Common Stock of the
Company is registered pursuant to Section 12(b) of the Exchange Act and the
Company and its subsidiaries have filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including all such proxy information, solicitation statements and
registration statements, and any amendments thereto required to have been filed
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "SEC Documents"). The Company has not directly or
indirectly provided, and will not directly or indirectly provide, to the
Purchaser any material non-public information or any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The SEC Documents contain all material information concerning the
Company and its subsidiaries, and no event or circumstance has occurred prior to
the date hereof or will have occurred on the Closing Date which would require
the Company to disclose such event or circumstance in order to make the
statements in the SEC Documents not misleading but which has not, or will have
not, been so disclosed.
(g) Financial Statements. The financial statements of the Company and its
subsidiaries included in the SEC Documents comply as to form and substance in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes, may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company and its subsidiaries as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The audited
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financial statements of each of the Company and its subsidiaries for the fiscal
year ending December 31, 2001 have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be otherwise indicated in such
financial statements or the notes thereto) and fairly present in all material
respects the financial position of the Company and its subsidiaries, as the case
may be, as of the dates thereof and the results of operations and cash flows for
the periods then ended. The auditors who audited such financial statements were
independent of the Company, as such term is defined and interpreted under Rule
2-01 of Regulation S-X.
(h) Principal Exchange. The principal market on which the Common
Stock is currently traded is the American Stock Exchange.
(i) No Material Adverse Change. Since December 31, 2001, no Material
Adverse Effect has occurred or exists, and no event or circumstance has occurred
that with notice or the passage of time or both is reasonably likely to result
in a Material Adverse Effect with respect to the Company or its subsidiaries.
(j) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the Pre-Agreement SEC Documents
(as defined in Section 2.1(q) below), other than those liabilities incurred in
the ordinary course of the Company's or its subsidiaries' respective businesses
since December 31, 2001, which liabilities, individually or in the aggregate, do
not or would not have a Material Adverse Effect on the Company or its direct or
indirect subsidiaries.
(k) No Undisclosed Events or Circumstances. To the best knowledge of
the Company, no material event or circumstance has occurred or exists with
respect to the Company or its direct or indirect subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(l) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Debentures, the Warrants, Common Shares or the Warrant Shares.
(m) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor to its knowledge any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Debentures, the Warrants, the Common Shares or Warrant
Shares under the Securities Act.
The issuance of the Debentures, Warrants, Common Shares or Warrant Shares
to the Purchaser will not be integrated with any other issuance of the Company's
securities
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(past, current or future) which requires stockholder approval under the rules of
the American Stock Exchange.
(n) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Securities Act and rules promulgated thereunder, and Form S-3 is permitted
to be used for the transactions contemplated hereby under the Securities Act and
rules promulgated thereunder.
(o) Intellectual Property. The Company and/or its wholly-owned
subsidiaries owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted or as proposed to be conducted as disclosed in the SEC Documents. The
Company and its subsidiaries have no reason to believe that the material
intellectual property rights which it owns are invalid or unenforceable or that
the use of such intellectual property by the Company or its subsidiaries
infringes upon or conflicts with any right of any third party, and neither the
Company nor any of its subsidiaries has received notice of any such infringement
or conflict, which individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. The Company and its subsidiaries
have no knowledge of any infringement of its intellectual property by any third
party.
(p) Poison Pill Provisions. The Company has a stockholder rights plan
effected pursuant to a Rights Agreement dated as of June 6, 2001. None of the
acquisition of Debentures, Warrants, Common Shares or Warrant Shares nor the
deemed beneficial ownership of shares of Common Stock prior to, or the
acquisition of such shares pursuant to, the conversion of Debentures or the
exercise of the Warrants will in any event under any circumstance trigger the
poison pill provisions of such stockholder rights plan or any other or
subsequently adopted plan or agreement, or delay, prevent or interfere with the
performance of any of the Company's obligations under the Transaction Documents.
(q) No Litigation. Except as set forth in the reports or documents
filed at least 5 Trading Days prior to the Closing Date by the Company pursuant
to Section 13(a) or 15(d) of the Exchange Act (the "Pre-Agreement SEC
Documents"), no litigation or claim (including those for unpaid taxes) against
the Company or any of its subsidiaries is pending or, to the Company's
knowledge, threatened, and no other event has occurred, which if determined
adversely could reasonably be expected to have a Material Adverse Effect on the
Company or could reasonably be expected to materially and adversely affect the
transactions contemplated hereby. There is no legal proceeding described in the
Pre-Agreement SEC Documents that could reasonably be expected to have a Material
Adverse Effect on the Company.
(r) Brokers. The Company has taken no action which would give rise to
any claim by any person, other than ▇▇▇▇▇▇▇ Capital Markets LLC (the
"Transaction Agent") and Source Capital Ltd. (the "Financial Advisor"), for
brokerage commissions,
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finder's fees or similar payments by the Company or the Purchaser relating to
this Agreement or the transactions contemplated hereby. The Company shall be
responsible for any payments to the Financial Advisor, and the Company shall be
responsible for 25% and the Purchaser shall be responsible for 75% of the fees
payable to the Transaction Agent that have been mutually agreed upon by the
Company, the Purchaser and the Transaction Agent.
(s) Other Purchasers. Other than the Securities and except as set
forth on Schedule 2.1(s)(i), there are no outstanding securities issued by the
Company that are entitled to registration rights under the Securities Act. Other
than the Securities and except as set forth on Schedule 2.1(s)(ii), there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock,
or that have anti-dilution or similar rights that would be affected by the
issuance of the Debentures, the Common Shares, the Warrants or the Warrant
Shares.
(t) Certain Transactions. Except as disclosed in the Pre-Agreement
SEC Documents, none of the officers, directors, or key employees of the Company
is presently a party to any transaction with the Company or any of its
subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(u) Permits; Compliance. The Company and each of its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), except where
failure to possess such Company Permits would not have a Material Adverse Effect
on the Company and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits except for such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. To the best of its
knowledge, neither the Company nor any of its subsidiaries is in material
conflict with, or in material default or material violation of, any of the
Company Permits. Since December 31, 2001, neither the Company nor any of its
subsidiaries has received any notification with respect to possible material
conflicts, material defaults or material violations of applicable laws.
(v) Insurance. The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its direct and indirect
subsidiaries are engaged. Neither the Company nor any such subsidiary has any
reason to believe that it will not be
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able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(w) 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 management, to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) Environmental Matters. Except as otherwise disclosed in the
Pre-Agreement SEC Documents, the Company and each of its subsidiaries is in
compliance in all respects with all applicable foreign, local, state and federal
environmental laws except where any such non-compliance would not reasonably be
expected to have a Material Adverse Effect on the Company and no event or
condition has occurred that may interfere with the compliance by the Company or
any of its subsidiaries with any environmental law or that may give rise to any
liability under any environmental law that, individually or in the aggregate,
would have a Material Adverse Effect on the Company.
(y) Solvency.
(i) Based on the financial condition of the Company as of the
Closing Date, the Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known
contingent liabilities) as they mature.
(ii) Based on the financial condition of the Company as of the
Closing Date, the Company's assets do not constitute unreasonably
small capital to carry out its business for the year 2002 as now
conducted and as proposed to be conducted including the Company's year
2002 capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof.
(iii) The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its
debt). Based on the financial condition of the Company as of the
Closing Date, the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all
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anticipated uses of the cash, would be sufficient to pay all amounts
on or in respect of its debt when such amounts are required to be
paid.
(iv) Neither the Company nor any of its subsidiaries is subject
to any bankruptcy, insolvency or similar proceeding.
(z) Taxes. All foreign, federal, state, city and other tax returns,
reports and declarations required to be filed or extended by or on behalf of the
Company and each of its subsidiaries have been filed or extended and all such
filed returns are complete and accurate and disclose all taxes (whether based
upon income, operations, purchases, sales, payroll, licenses, compensation,
business, capital, properties or assets or otherwise) required to be paid in the
periods covered thereby. All taxes required to be withheld by or on behalf of
the Company or any such subsidiary in connection with amounts paid or owing to
any employees, independent contractor, creditor or other party have been
withheld, and such withheld taxes have either been duly and timely paid to the
proper governmental authorities or set aside in accounts for such purposes.
(aa) Title to Properties; Encumbrances. Schedule 2.1(aa) contains a
complete and accurate list of all material real property, leaseholds, or other
interests therein owned by the Company and its subsidiaries. Each of the Company
and its subsidiaries owns (with good and marketable title in the case of real
property) all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible ("Company Property")) that it purports to own.
Other than the leased property, all material Company Property is free and clear
of all encumbrances and are not, in the case of real property (which, for this
purpose, shall not include the Company's interest as tenant in leaseholds),
subject to any rights of way, building use restrictions, exceptions, variances,
reservations or limitations of any nature, except, with respect to all such
properties and assets, (a) mortgages, liens or security interests shown on
Schedule 2.1(aa) as securing specified liabilities or obligations, with respect
to which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) liens for current taxes not yet due, and (c)
with respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company or any of its subsidiaries, and (ii) zoning laws and other land use
restrictions (including, but not limited to, easements of records) that do not
impair the present or anticipated use of the property subject thereto. All
buildings, plans, and structures owned by the Company or any of its subsidiaries
lie wholly within the boundaries of the real property owned by the Company or
such subsidiaries, and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other person.
(bb) No Reliance on Purchaser. The Company acknowledges and agrees
that the Purchaser is acting solely in the capacity of an arm's length purchaser
with respect to this Agreement and the Registration Rights Agreement and the
performance under the Debentures and the Warrants and the transactions
contemplated hereby and thereby. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the Registration
Rights Agreement and the performance
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under the Debentures and the Warrants and the transactions contemplated hereby
and thereby. The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement and the Registration Rights Agreement and
the performance under the Debentures and the Warrants has been based solely on
the independent evaluation by the Company and its representatives.
(cc) Foreign Corrupt Practices Act. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government or party official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(dd) MFN and Variable Rate Transactions. Except as set forth on
Schedule 2.1(dd), the Company has not entered into any MFN Transaction or
Variable Rate Transaction (other than transactions entered into with the
Purchaser), pursuant to which: (1) securities or potential obligations to issue
securities are still outstanding or (2) the issuance conversion, or exercise, as
the case may be, of the Debentures or the Warrants trigger, or may in the future
trigger, an adjustment.
The term "MFN Transaction" shall mean a transaction in
which the Company issues or sells any securities in a capital raising
transaction or series of related transactions (the "MFN Offering")
which grants to a Purchaser (the "MFN Purchaser") the right to
receive additional shares (including without limitation as a result
of a lower conversion, exchange or exercise price but excluding
customary antidilution protections) based upon subsequent
transactions of the Company on terms more favorable than those
granted to such MFN Purchaser in such MFN Offering. As used herein,
term "Variable Rate Transaction" shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that
are convertible into, exchangeable or exercisable for, or include the
right to receive additional shares of, Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or
equity securities, or (y) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for
the Common Stock (but excluding standard stock split anti-dilution
provisions), or (ii) any securities of the Company pursuant to an
"equity line" structure which provides for the sale, from time to
time, of securities of the Company which are registered for resale
under the Securities Act.
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Section 2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company as of
the date hereof and on the Closing Date:
(a) Organization and Qualification. The Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good
standing would not reasonably be expected to have a Material Adverse Effect on
the Purchaser.
(b) Authorization; Enforcement. (i) The Purchaser has the requisite
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement to purchase the Debentures and to acquire the
Warrants being sold to it hereunder and to acquire the Common Shares and the
Warrant Shares, (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Purchaser and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary limited liability company action, and (iii) this Agreement and the
Registration Rights Agreement constitute valid and binding obligations of the
Purchaser enforceable against the Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the performance under the
Debentures and Warrants and the consummation by the Purchaser of the
transactions contemplated hereby and thereby do not and will not (i) result in a
violation of the Purchaser's organizational documents, (ii) conflict with any
agreement, indenture or instrument to which the Purchaser is a party, or (iii)
result in a material violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the
Purchaser. The Purchaser is not required to obtain any consent or authorization
of any governmental agency in order for it to perform its obligations under this
Agreement and the Registration Rights Agreement.
(d) Purchase Representations.
(i) Access to Other Information. The Purchaser acknowledges that
the Company has made available to the Purchaser the opportunity to
examine such additional documents from the Company and to ask
questions of, and receive full answers from, the Company concerning,
among other things, the Company, its financial condition, its
management, its prior activities and any other information which the
Purchaser considers relevant or appropriate in connection with
entering into this Agreement.
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(ii) Risks of Purchase. The Purchaser acknowledges that the
Securities and the Common Shares and Warrant Shares issuable upon
conversion and/or exercise of the Securities have not been registered
under the Securities Act. The Purchaser is familiar with the
provisions of Rule 144 and understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration
under the Securities Act or some other exemption from the registration
requirements of the Securities Act will be required in order to
dispose of the Securities and the Common Shares and Warrant Shares
issuable upon conversion and/or exercise of the rights granted in the
Securities, and that the Purchaser may be required to hold the
Securities and the Common Shares and Warrant Shares issuable upon
conversion and/or exercise of the Securities received under this
Agreement for a significant period of time prior to reselling them,
subject to the Company successfully registering the Common Shares and
Warrant Shares pursuant to the Registration Rights Agreement. The
Purchaser is capable of assessing the risks of an investment in the
Securities and is fully aware of the economic risks thereof.
(iii) Purchase Representation. The Purchaser is purchasing the
Debentures and Warrants and may purchase the Common Shares and
Warrants Shares in each case, for its own account and not with a view
to distribution in violation of any securities laws. The Purchaser has
no present intention to sell the Debentures, Warrants, Common Shares
or Warrant Shares in violation of federal or state securities laws and
the Purchaser has no present arrangement (whether or not legally
binding) to sell the Debentures, Warrants, Common Shares or Warrant
Shares to or through any person or entity; provided, however, that by
making the representations herein, the Purchaser does not agree to
hold the Debentures, Warrants, Common Shares or Warrant Shares for any
minimum or other specific term and reserves the right to dispose of
the Debentures, Warrants, Common Shares or Warrant Shares at any time
in accordance with federal and state securities laws applicable to
such disposition.
(iv) Restricted Securities. It acknowledges and understands that
the terms of issuance have not been reviewed by the SEC or by any
state securities authorities and that the Securities have been issued
in reliance on the certain exemptions for non-public offerings under
the Securities Act, which exemptions depend upon, among other things,
the representations made and information furnished by the Purchaser.
(v) Ability to Bear Economic Risk. It is an "accredited"
Purchaser as defined in Rule 501 of Regulation D, as amended, under
the Securities Act, and that it (i) is able to bear the economic risk
of its investment in the Debentures, (ii) is able to hold the
Debentures for an indefinite period of time, (iii) can afford a
complete loss of its investment
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in the Debentures and (iv) has adequate means of providing for its
current needs.
(vi) No Public Solicitation. At no time was the Purchaser
presented with or solicited by any general mailing, leaflet, public
promotional meeting, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or
general solicitation in connection with the issuance.
(vii) Reliance by the Company. The Purchaser understands that the
Debentures and Warrants are being or will be, as the case may be,
offered and sold and that the Common Shares or Warrant Shares, as the
case may be, will be issued, in reliance on a transactional exemptions
from the registration requirements of federal and state securities
laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of
the Purchaser to acquire the Debentures and Warrants.
(e) Brokers. Other than as set forth in Section 2.1(r) above, the
Purchaser has taken no written action which would give rise to any claim by any
person for brokerage commissions, finder's fees or similar payments by the
Company relating to this Agreement or the transactions contemplated hereby. The
Purchaser shall be responsible for 75% of the fees payable to the Transaction
Agent that have been mutually agreed upon by the Company, the Purchaser and the
Transaction Agent.
(f) Short Position; Hedging Activity.
(i) The Purchaser does not have an uncovered "short position"
with respect to the Common Stock and during the period commencing five
(5) Trading Days prior to the Closing Date and ending on the Closing
Date it has not engaged in and will not engage in: (i) any short sale
(as defined by Rule 3b-3 under the Exchange Act, "short sale") of the
Common Stock; or (ii) any transaction economically equivalent thereto.
(ii) On any Trading Day occurring during a Restricted Period (as
defined below), the Purchaser will not engage in any short sale.
For purposes of this Section 2.2(f), the term "Restricted Period"
means each period commencing thirty (30) calendar days prior to each Maturity
Date of the Debentures (as defined in the Debentures) and ending on (and
including) the Trading Day immediately preceding the related Maturity Date.
Notwithstanding the foregoing, the Restricted Period as to any Maturity Date
shall apply only if there are Debentures outstanding and the Company is in
compliance with all of its agreements or covenants under the Transaction
Documents.
14
(iii) Notwithstanding anything herein to the contrary, the
representations and agreement in Sections 2.2(f)(i) and (ii) above are
not intended to cover the activities of other persons and entities
that are under common control with Purchaser. Such persons and
entities are not controlled by the Purchaser. Purchaser represents
that, with respect to the securities of the Company, it does not trade
in concert with such other persons and entities.
(iv) Further notwithstanding anything herein to the contrary,
nothing in this Section 2.2(f) shall be construed to prevent the
Purchaser from selling any shares of Common Stock at any time, to the
extent that the number of shares so sold do not exceed, in the
aggregate, the number of shares actually received by the Purchaser (or
shares for which (x) Conversion Notices (as defined in the Debentures)
have been properly submitted to the Company in accordance with Section
5 of the Debentures by the Purchaser or (y) the Purchaser is owed a
Share Interest or Share Principal but has not yet received) in
connection with (i) conversions of the Debentures; (ii) shares of
Common Stock received as Share Interest (as defined in the
Debentures); and (iii) shares of Common Stock received as Share
Principal (as defined in the Debentures).
ARTICLE 3
Covenants
Section 3.1 Registration and Listing; Effective Registration. Until the
earlier of (i) such time as no Securities are outstanding and (ii) the third
anniversary of the latest of (x) the Closing Date, (y) the Call Closing Date (if
any), and (z) the Put Closing Date (if any), the Company will cause the Common
Stock issuable upon the exercise or conversion of the Securities to continue at
all times to be registered under Section 12(b) or Section 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, and will not take any action or file any document (whether or
not permitted by the Exchange Act or the rules thereunder) to terminate or
suspend such reporting and filing obligations. Until such time as no Securities
are outstanding, the Company shall continue the listing or trading of the Common
Stock on the American Stock Exchange or one of the other Approved Markets and
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Approved Market on which the Common
Stock is listed. The Company shall cause the Common Stock to be listed on the
American Stock Exchange no later than the registration of the Common Stock under
the Securities Act, and at all times shall continue such listing(s) on one of
the Approved Markets. As used herein and in the Registration Rights Agreement,
the Debenture and the Warrants, the term "Effective Registration" shall mean:
(i) the Company is in compliance with the Transaction Documents; (ii) the resale
of Registrable Securities (as defined in the Registration Rights Agreement) is
covered by an effective registration statement (the "Registration Statement")
and such Registration Statement is not subject to any suspension or stop orders;
(iii) the resale of such securities may be effected pursuant to a
15
current and deliverable prospectus that is not subject to any blackout or
similar circumstance; (iv) the securities are listed on an Approved Market and
are not subject to any trading suspension; (v) no Interfering Event (as
described in the Registration Rights Agreement) then exists; (vi) none of the
Company or any direct or indirect subsidiary of the Company is subject to any
bankruptcy, insolvency or similar proceeding; and (vii) the Purchaser is not
identified as an "underwriter" in the Registration Statement.
Section 3.2 Debentures on Conversion and Warrants on Exercise.
(a) Upon any conversion by the Purchaser (or then holder of
Debentures) of the Debentures pursuant to the terms thereof, the Company shall
issue and deliver to the Purchaser (or holder) within three (3) Trading Days of
the Conversion Date, a new Debenture for the principal amount of Debentures
which the Purchaser (or holder) has not yet elected to convert but which is
evidenced in part by the Debenture(s) submitted to the Company in connection
with such conversion (with the number of and denomination of such new
Debenture(s) designated by the Purchaser or holder).
(b) Upon any partial exercise by the Purchaser (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to the Purchaser
(or holder) within three (3) days of the date on which such Warrants are
exercised, a new Warrant or Warrants representing the number of adjusted Warrant
Shares and/or Common Shares, as the case may be, in accordance with the terms of
such Warrants.
Section 3.3 Replacement Debentures and Warrants.
(a) The Debentures held by the Purchaser (or then holder) may be
exchanged by the Purchaser (or such holder) at any time and from time to time
for Debentures with different denominations of at least $500,000 representing an
equal aggregate number of Debentures or to reflect the actual Conversion Price
pursuant to Section 5(c) of the Debentures, as requested by the Purchaser (or
such holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the Purchaser
(or then holder of the Warrants) at the office of the Company for other Warrants
of different denominations entitling the holder thereof to purchase in the
aggregate the same number of Warrant Shares and/or Common Shares, as the case
may be, as are purchasable under such Warrants. No service charge will be made
for such transfer or exchange.
Section 3.4 Expenses. The Company shall pay to the Purchaser's Counsel in
immediately available funds, at the Closing the sum of $15,000 for the payment
of expenses (including legal fees) incurred by the Purchaser in connection with
the transactions contemplated by this Agreement. In lieu thereof, the Purchaser
may allocate $15,000 of its payment of the Purchase Price to the payment of such
counsel, and such payment to Purchaser's Counsel shall be credited towards the
payment of the Purchase Price.
16
Section 3.5 Securities Compliance. The Company shall notify the SEC, in
accordance with their requirements, of the transactions contemplated by this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants,
and shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Debentures hereunder, the Common Shares issuable upon conversion
thereof, the Warrants and the Warrant Shares issuable upon exercise of the
Warrants.
Section 3.6 Dividends or Distributions; Purchases of Equity Securities.
Prior to
the time that all Registrable Securities are covered by an effective
Registration Statement in accordance with the terms of the Registration Rights
Agreement, the Company agrees that it shall not (a) declare or pay any dividends
or make any distributions to any holder or holders of Common Stock (other than
dividends payable in Common Stock) in their capacity as shareholders, or (b)
purchase or otherwise acquire for value, directly or indirectly, any shares of
Common Stock or other equity security of the Company; provided that the Company
may purchase or acquire shares of Common Stock that are hereafter issued to
employees pursuant to employment, stock repurchase or other similar agreements.
Section 3.7 Notices. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
Section 3.8 Use of Proceeds. The Company agrees that the proceeds received
by the Company from the sale of the Debentures and Warrants hereunder shall be
used for working capital purposes, including acquisitions.
Section 3.9 Additional Equity Financing. From the date hereof until the one
year anniversary of the Closing Date, if the Company or any subsidiary of the
Company desires to enter into any private placement equity financing transaction
(including, without limitation, a financing transaction involving debt which is
convertible into or exchangeable for equity but excluding a debt financing
transaction where the only equity component is a limited amount of options or
warrants for less than 5% (in the aggregate, on a cumulative basis) of the
number of outstanding shares of Common Stock on the Closing Date), the Purchaser
shall have a right of first refusal with respect to each such transaction and
shall have the right to match the terms of any bona fide offer with respect
thereto received from a third party; provided, in the case of an offer
consisting in whole or in part of consideration other than cash, the Purchaser
shall have the right to offer the cash equivalent of such offer. To effect the
foregoing, the Company shall provide written notice to the Purchaser of the
existence of such proposed transaction, but not the material terms thereof
(including, without limitation, the identity of the financing provider and the
amount and nature of such financing), promptly following its receipt of such
offer. The Purchaser shall have two (2) Trading Days after its receipt of such
notice to notify the Company in writing whether or not it wishes to receive
information describing the material terms of such proposed transaction. If the
Purchaser elects not to receive such
17
information, the Company shall not provide any such information to the Purchaser
and the Purchaser shall have no right of first refusal with respect to such
proposed transaction. If the Purchaser elects to receive such information, the
Company shall promptly provide such information to the Purchaser and the
Purchaser may then exercise its right to match by issuing a written
counter-notice of its intention to do so within three (3) Trading Days of its
receipt of such information from the Company, and the consummation of such
counteroffer shall occur by the later of (i) the time provided by the original
bona fide third party offer or (ii) 30 days from the receipt of the Purchaser's
counteroffer. Any material changes or modifications to the terms of the proposed
transaction shall be reflected to the Purchaser pursuant to the procedures of
this Section 3.9. The foregoing right of first refusal shall not apply to
issuances of the Company's equity in connection with a strategic partnership of
the Company with any person in the same, related or complementary business as
the Company or any vendor or customer of the Company entered into, in each such
case, with the intent to further the business of the Company and not for the
primary purpose of providing financing. If the Purchaser elects to receive
information regarding the terms of the proposed transaction but elects not to
exercise its right of first refusal with respect thereto, the Purchaser agrees
that it will keep such information confidential and not buy or sell any shares
of Common Stock from the time it receives such information until the earlier of
(i) the time the Company closes or abandons such proposed transaction or is no
longer actively pursuing it and (ii) the expiration of thirty (30) days from the
date the Purchaser receives such information (such expiration date applying to
both such agreements by the Purchaser). The Company agrees and covenants that it
shall publicly disclose the material terms of each proposed transaction
immediately following the closing thereof and shall promptly notify the
Purchaser if such proposed transaction is no longer being actively pursued, has
been materially modified, or has been abandoned. Notwithstanding the above, the
Purchaser may exercise its right of first refusal specified herein only to the
extent that its and its Aggregation Parties' beneficial ownership of Common
Stock will not exceed the Restricted Ownership Percentage (as such terms are
defined in the Debentures).
Section 3.10 Reservation of Stock Issuable Upon Conversion and Upon
Exercise of the Warrants. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the Debentures and the exercise of
the Warrants, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Debentures and
the full exercise of the Warrants and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Debentures and the full exercise of the
Warrants, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Debentures and the exercise of the Warrants such number of
authorized but unissued shares of Common Stock that is at least equal to 200% of
the aggregate shares issuable upon conversion of Debentures, and 100% of the
aggregate shares issuable on exercise of the Warrants,
18
which number shall be appropriately adjusted for any stock split, reverse split,
stock dividend or reclassification of the Common Stock. If the Company falls
below the reserves specified in the immediately preceding sentence and does not
cure such non-compliance within 30 days of its start, then the Purchaser will be
entitled to the compensatory payments specified in Section 2(b)(i)(A) of the
Registration Rights Agreement. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the conversion of
all the then outstanding Debentures or the full exercise of the Warrants, the
Purchaser shall be entitled to, inter alia, the premium price redemption rights
provided in the Registration Rights Agreement.
Section 3.11 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article 4 of this Agreement.
Section 3.12 Limitations on Liens and Transfers
(a) So long as any Debentures remain outstanding, the Company agrees
that neither the Company nor any of its subsidiaries shall create, incur or
permit to exist any, indebtedness, or any security interest, lien or other
encumbrance on or with respect to any of the assets of the Company or its
subsidiaries, other than institutional or other funded indebtedness and liens
(1) in connection with the purchase money financings referred to above; (2)
non-consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of the Company's business to the extent: (A) such
liens secure indebtedness which is not overdue or (B) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
contested in good faith by appropriate proceedings diligently pursued and
available to the Company, in each case prior to the commencement of foreclosure
or other similar proceedings and with respect to which adequate reserves have
been set aside on its books; (3) zoning restrictions, easements, licenses,
covenants and other restrictions affecting the use of real property which do not
interfere in any material respect with the use of such real property or ordinary
conduct of the business of the Company as presently conducted thereon or
materially impair the value of the real property which may be subject thereto;
(4) liens arising by operation of law securing tax obligations, worker's
compensations, and lease obligations; (5) indebtedness and liens existing on the
date hereof and listed on Schedule 3.12(a) hereto; (6) an aggregate principal
amount of not more than $10 million of senior subordinated indebtedness (which
may or may not be secured) as to which the Debentures shall be expressly
subordinated; provided that no portion of the principal of such indebtedness
shall mature prior to the date on which the entire outstanding principal amount
of Debentures, including any Put Debentures and Call Debentures which have been
issued pursuant hereto, has matured; (7) purchase money security interests
(within the meaning of Section 9-103 of the New York State Uniform Commercial
Code) granted in the ordinary course of business, consistent with past practice;
and (8) the existing Mecar bank pool/syndicate agreement dated March 18, 2002.
(b) In addition to the immediately preceding paragraph, the Company
shall be permitted to incur an aggregate principal amount of senior secured
indebtedness not to exceed $40 million; provided, that at no time may the
product of (x) 2.5 and (y) aggregate principal and interest payments due on such
indebtedness in any 12-month
19
period, exceed an amount equal to the Company's 12-month trailing EBITDA (as
defined below). For the purpose of this Section 3.12(b), the Company's "EBITDA"
shall mean, for any period, the total of the Company's and each of its
subsidiary's net income or net loss (calculated on a pro forma basis to account
for any business acquisitions or dispositions completed by the Company during
such period) plus the sum of their aggregate (A) interest expense net of
interest income, (B) income tax expense, (C) depreciation expense, (D)
amortization expense and (E) non-cash extraordinary or unusual losses less
extraordinary or unusual gains, in each case determined in accordance with U.S.
generally accepted accounting principles consistently applied.
(c) The Purchaser agrees that, in connection with the senior secured
or senior subordinated indebtedness incurred by the Company in compliance with
the limitations set forth in Section 3.12(a)(6) and Section 3.12(b) above, at
the request of the Company, the Purchaser shall enter into reasonable and
appropriate intercreditor agreement(s) with the applicable lender(s).
(d) In the event that at any time during which any Debentures remain
outstanding, the Company enters into a binding bona fide agreement with a third
party pursuant to which the Company will incur senior secured indebtedness in
excess of the limitations set forth in Section 3.12(b) above (a "Consent
Transaction"), the Company shall promptly publicly announce the terms of such
Consent Transaction, with a copy of any such announcement being sent by the
Company to the Purchaser at the same time as it is made public (the date of such
public announcement being the "Release Date"). The Purchaser shall thereafter
have the option to waive the limitations set forth in Section 3.12(b) with
respect to such Consent Transaction by delivering a written notice to the
Company of such election no later than three (3) Trading Days following such
public announcement. If the Purchaser elects not to so waive such limitations
with respect to the Consent Transaction, the Company shall be required to redeem
in cash all of the then-outstanding Debentures at the same time as or
immediately following the closing of the Consent Transaction for a purchase
price equal to the Redemption Price (as defined below) in effect at the time of
such closing. For purposes of this Section 3.12(d), the term "Redemption Price"
shall mean 110% of the Debenture Amount (as defined in the Registration Rights
Agreement) of the Debentures being purchased
Section 3.13 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Debentures, Warrants, Common Shares and Warrant Shares, as
required under Regulation D and to provide a copy thereof to the Purchaser
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall have reasonably determined is necessary to
qualify the Debentures, Warrants, Common Shares and Warrant Shares for sale to
the 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 the Purchaser on or prior to the Closing Date.
Section 3.14 20% Cap. The Purchasers shall, in the aggregate, be entitled
to convert Debentures into a total of 1,050,172 Common Shares (19.99% of the
Common Stock issued and outstanding on the date hereof, which number shall be
subject to
20
readjustment for any stock split, stock dividend or reclassification of the
Common Stock) (the "20% Cap"). Once the Purchaser has received its total
allowable number Common Shares upon conversion of its Debentures, it may request
that the Company redeem its remaining Debentures at a price equal to the Premium
Redemption Price (as defined in the Registration Rights Agreement) plus accrued
but unpaid interest and delay payments in effect at that time. The restrictions
and redemption obligations set forth in this Section 3.14 (including, without
limitation, the Purchaser's right to redeem Debentures at the Premium Redemption
Price) shall cease to apply if (a) the Company obtains written shareholder
approval to issue Common Shares in excess of the 20% Cap pursuant to the
American Stock Exchange Listing Standards Section 713 or (b) the Company
provides the Purchaser with irrevocable written notice, based upon the advice of
its counsel, that any such issuance of Common Shares upon conversion of the
Debentures is not subject to the 20% Cap pursuant to the American Stock Exchange
Listing Standards Section 713. In the event that the number of Common Shares
issued or issuable upon conversion of the Debentures exceeds 75% of the 20% Cap,
the Company will use its best efforts promptly to obtain either the shareholder
approval or the irrevocable notice described in the preceding sentence and to
provide the Purchaser with a copy of same without limiting the foregoing, the
Company shall solicit the aforementioned shareholder approval at the next
shareholders meeting (for whatever purpose it may be called) which, in any
event, shall not be later than within 75 days of such event, in which the
Company will solicit the aforementioned shareholder approval, will solicit
proxies in favor of issuing Common Shares in excess of the 20% Cap and will use
its best efforts to have all affiliates of the Company which own or control
shares of Common Stock to vote their shares in favor of such resolution.
Section 3.15 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its affiliates (other than the
subsidiaries of the Company listed on Schedule 2.1(a) attached hereto) or
employees of the Company shall be effected on an arms' length basis in
accordance with customary commercial practice and, except with respect to grants
of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 3.16 Press Release. Immediately following the Closing, the Company
shall issue a press release in the form set forth in Schedule 3.16 hereto. The
Purchaser shall have the opportunity to review such press release prior to its
issuance. No press release shall name the Purchaser except as shall be required
by law. If the Company fails to issue a press release within 1 business day of
the Closing, the Purchaser may issue a press release covering the Closing and
complying with any legal requirement applicable to the Purchaser.
Section 3.17 Form 8-K. Within 5 calendar days of the Closing, the Company
shall file a Form 8-K with the SEC which discloses the transactions contemplated
hereby and by the Registration Rights Agreement, Warrants and Debentures. The
Purchaser shall have the opportunity to review such Form 8-K prior to its
filing.
Section 3.18 Additional Registration Statements. The Company shall not file
any registration statements under the Securities Act prior to the date which is
three (3)
21
months following the date on which each Registration Statement prepared in
accordance with the terms of the Registration Rights Agreement covering the
resale by the Purchaser of Common Shares and Warrant Shares is first declared
effective by the SEC (the "Effective Date") without first obtaining the written
consent of the Purchaser.
ARTICLE 4
Conditions to Closings
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Debentures and Warrants. The obligation hereunder of the Company to issue
and/or sell the Debentures and Warrants to the Purchaser at the Closing (unless
otherwise specified) is subject to the satisfaction, at or before the Closing,
of each of the applicable conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser will be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties as of an earlier date, which will be
true and correct as of such date).
(b) Performance by the Purchaser. The Purchaser shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive, judicial
or administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement or the Registration Rights Agreement
or the Debentures or the Warrants.
(d) Purchase Price. The Company shall have received the Purchase Price
from the Purchaser.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Debentures and Warrants. The obligation hereunder of the Purchaser
to acquire and pay for the Debentures and Warrants at the Closing (unless
otherwise specified) is subject to the satisfaction, at or before the Closing,
of each of the applicable conditions set forth below. These conditions are for
the Purchaser's benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties as of an earlier date, which shall be
true and correct as of such date).
22
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive, judicial
or administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement or the Registration Rights Agreement
or the Debentures or the Warrants.
(d) Opinion of Counsel. At the Closing, the Purchaser shall have
received an opinion of the independent counsel of the Company, in the form
attached hereto as Exhibit 4.2(d) and such other opinions, certificates and
documents as the Purchaser or its counsel shall reasonably require incident to
the Closing.
(e) Registration Rights Agreement. The Company and the Purchaser shall
have executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit 4.2(e) attached hereto.
(f) Adverse Changes. No event which had or is likely to have, in the
reasonable judgment of the Purchasers, a Material Adverse Effect on the Company
or any of its direct or indirect subsidiaries shall have occurred.
(g) Officer's Certificate. The Company shall have delivered to the
Purchaser a certificate in form and substance of Exhibit 4.2(g) attached hereto,
executed by an officer of the Company, certifying as to satisfaction of closing
conditions, incumbency of signing officers, and the true, correct and complete
nature of the Charter, By-Laws, good standing and authorizing resolutions of the
Company.
(h) Debentures and Warrants. The Purchaser shall have received
certificates representing the Debentures and Warrants in the form and substance
of Exhibit 1A and Exhibit 1B hereto.
Section 4.3 Company Put Rights.
(a) Subject to Section 4.5 below, if at any time or times up to and
including to the six month anniversary of the first date on which there is
Effective Registration (the "Put/Call Period"), the daily VWAP (as defined in
the Debentures) exceeds 130% of the Conversion Price in effect on the Closing
Date (as defined in the Debentures and as adjusted for stock splits, stock
dividends and similar events, but not adjusted for any reduction in the
Conversion Price due to the Company's issuance or sale of any Common Stock or
securities which are convertible into or exchangeable for Common Stock, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of Common Stock at a Per Share Selling Price less than the Conversion
Price on the Adjustment Date) (the "Adjusted Closing Conversion Price") for at
least 20 consecutive Trading Days (including, without limitation, the 20
Consecutive Trading Days immediately preceding the date on which the Put Notice
is received by the Purchaser) then the Company shall have the option (the "Put")
to sell to
23
the Purchaser an additional tranche consisting of at least $1,000,000 but no
more than $3,750,000 aggregate principal amount of Debentures (the "Put
Debentures") containing the same terms as the Debentures, for an aggregate
Purchase Price equal to the principal amount of Put Debentures being purchased,
provided that (1) the initial Conversion Price for such Put Debentures shall be
equal to $25.00 (as adjusted appropriately for any stock splits, reverse stock
splits, stock dividends, recapitalizations and other events that result in an
adjustment in the Conversion Price of the Debentures (the "Put/Call Conversion
Price")), (2) the ten monthly installments of principal payments under such Put
Debenture shall commence on the first anniversary of the Put Closing Date (as
defined below), and (3) the initial payment of interest thereon shall be due on
the first Interest Payment Date following the issuance of the Debenture.
Notwithstanding the foregoing, the aggregate principal amount of any Call
Debentures (as defined below) purchased (or exercised for purchase under Section
4.4 below) by the Purchaser pursuant to the Call (as defined below) shall be
subtracted from the aggregate principal amount of Put Debentures that may be
sold pursuant to this provision. In connection with any Put exercise, the
Purchaser shall also receive without additional consideration, on a pro rata
basis, warrants in the same form as the Warrants to purchase an aggregate number
of shares of Common Stock equal to 5% of the principal amount of Put Debentures
divided by the applicable Put/Call Conversion Price (the "Put Warrants"),
provided that (1) the Put Warrants shall have a term of 48 months, and (2) the
exercise price of the Put Warrants shall initially equal 115% of the Put/Call
Conversion Price.
(b) The Put must be exercised by the Company by written notice to the
Purchaser (the "Put Notice"), which must be sent no later than 5 Trading Days
after the occurrence of the condition set forth in Section 4.3(a) above. The Put
Notice shall set forth the date (the "Put Closing Date") of the transaction
contemplated by Section 4.3(a) above (the "Put Closing") which shall be no
sooner than 5 Trading Days but no more than 10 Trading Days following the date
of the Put Notice, subject to the conditions set forth below.
(c) The obligation of the Purchaser to purchase the Put Debentures is
subject to the following conditions, which may be waived by the Purchaser:
(i) No Event of Default, or any event which, with the giving of
notice or the passage of time or both, would constitute an Event of
Default, shall have occurred with respect to any Debenture or Call
Debenture.
(ii) The Company shall not be in breach with respect to any
representation, warranty or covenant contained in any of the
Transaction Documents.
(iii) The closing conditions set forth in Section 4.2, including,
without limitation, the issuance of a satisfactory legal opinion and
the issuance of the Put Debentures and Put Warrants, shall have been
satisfied, mutatis mutandis with respect to the Put Debentures and Put
24
Warrants as if the Closing Date as such term is used therein was the
Put Closing Date.
(iv) If the Put Closing is to take place on or after the
Effectiveness Deadline (as defined in the Registration Rights
Agreement), there shall be Effective Registration (as defined in
Section 3.1 above) on the Put Closing Date and for the Trading Days
between delivery of the Put Notice and the Put Closing Date.
(d) The number of shares issuable upon conversion of the Put
Debentures, when added to (i) the number of shares of Common Stock previously
issued to Purchaser upon exercise of the Warrants or on conversion or payment of
the Debentures; (ii) the number of Warrant Shares issuable upon exercise of the
Warrants (without regard to any limitations on ownership set forth therein or in
this Agreement); and (iii) the number of Common Shares issuable upon conversions
of the Debentures (based on the lowest conversion price applicable and without
regard to any limitations on ownership set forth therein or in this Agreement),
shall not exceed the 20% Cap.
Section 4.4 Purchaser Call Rights.
(a) Subject to Section 4.5 below, at any time or times during
Put/Call Period, if the average VWAP over any five (5) consecutive Trading Days
exceeds $25.00 (as may be adjusted for subsequent stock splits, reverse splits,
stock dividends and similar events, but not adjusted for any reduction in the
Conversion Price due to the Company's issuance or sale of any Common Stock or
securities which are convertible into or exchangeable for Common Stock, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of Common Stock at a Per Share Selling Price less than the Conversion
Price on the Adjustment Date), then the Purchaser shall have the option (the
"Call") to purchase an additional tranche consisting of at least $1,000,000 but
no more than $3,750,000 aggregate principal amount of Debentures (the "Call
Debentures") containing the same terms as the Debentures, for an aggregate
Purchase Price equal to the principal amount of Call Debentures being purchased,
provided that (1) the initial Conversion Price for such Call Debentures shall be
equal to the Put/Call Conversion Price, (2) the ten monthly installments of
principal payments under such Call Debenture shall commence on the first
anniversary of the Call Closing Date (as defined below), and (3) the initial
payment of interest thereon shall be due on the first Interest Payment Date
following the issuance of the Debenture. Notwithstanding the foregoing, the
aggregate principal amount of any Put Debentures actually purchased (or
exercised for sale under Section 4.3 above) by the Purchaser pursuant to the Put
shall be subtracted from the aggregate principal amount of Call Debentures that
may be purchased pursuant to this provision. In connection with any Call
exercise, the Purchaser shall also receive without additional consideration,
warrants in the same form as the Warrants to purchase an aggregate number of
shares of Common Stock equal to 5% of the principal amount of Call Debentures
divided by the applicable Put/Call Conversion Price (the "Call Warrants"),
provided that (1) the Call Warrants shall have a term of 48 months, and (2) the
exercise price of the Call Warrants shall initially equal 115% of the Put/Call
Conversion Price.
25
(b) The Call Right must be exercised by the Purchaser by written
notice (the "Call Notice") after the occurrence of the condition set forth in
Section 4.4(a) above. The Call Notice shall set forth the date (the "Call
Closing Date") of the transaction contemplated by Section 4.4(a) above (the
"Call Closing") which shall be no sooner than 5 Trading Days but no more than 10
Trading Days after the date of the Call Notice, subject to the conditions set
forth below.
(c) The obligation of the Purchaser to purchase the Call Debentures
is subject to the following conditions, which may be waived by the Purchaser:
(i) No Event of Default, or any event which, with the giving of
notice or the passage of time or both, would constitute an Event of
Default, shall have occurred with respect to any Debenture or Put
Debenture.
(ii) The Company shall not be in breach with respect to any
representation, warranty, or covenant contained in any of the
Transaction Documents.
(iii) The closing conditions set forth in Section 4.2, including,
without limitation, the issuance of a satisfactory legal opinion and
the issuance of the Call Debentures and Call Warrants, shall have been
satisfied, mutatis mutandis with respect to the Call Debentures and
Call Warrants as if the Closing Date as such term is used therein was
the Call Closing Date.
(d) The number of shares issuable upon conversion of the Call
Debentures, when added to (i) the number of shares of Common Stock previously
issued to Purchaser upon exercise of the Warrants or on conversion or payment of
the Debentures; (ii) the number of Warrant Shares issuable upon exercise of the
Warrants (without regard to any limitations on ownership set forth therein or in
this Agreement); and (iii) the number of Common Shares issuable upon conversions
of the Debentures (based on the lowest conversion price applicable and without
regard to any limitations on ownership set forth therein or in this Agreement),
shall not exceed the 20% Cap.
Section 4.5 Termination of Put/Call Period. If at any time during the
Put/Call Period, the daily VWAP exceeds 130% of the Adjusted Closing Conversion
Price for 20 consecutive Trading Days, then (i) the Put/Call Period with respect
to the Purchaser's Call shall expire at the close of business on the 5th Trading
Day following such 20th Trading Day, and (ii) if the Purchaser does not exercise
its Call in full, the Put/Call Period with respect to the Company's Put shall
expire at the close of business on the 10th Trading Day following such 20th
Trading Day. Following the expiration of the Put/Call Period with respect to the
Purchaser or the Company, the Purchaser's Call or the Company's Put, as
applicable, to the extent not previously exercised, shall terminate and
thereafter be null and void and unexercisable.
26
Section 4.6 Mutatis Mutandis. All terms, covenants, agreements and
conditions contained in this Agreement shall apply mutatis mutandis to the Put
Debentures, Put Warrants, Call Debentures, Call Warrants, Put Closing and Call
Closing in the same manner as the Debentures, Warrants and Closing,
respectively, and each of the representations and warranties contained herein
shall be deemed made as of any Put Closing Date and Call Closing Date in
addition to the Closing Date. Notwithstanding the above, the representations,
warranties and covenants of the Purchaser contained in Section 2.2(f) above
shall not be applicable in any respect to the Put Warrants and Put Closing, or
the Call Warrants and Call Closing.
Section 4.7 Put and Call Closings. On any Put Closing Date and/or Call
Closing Date, the Company shall deliver to the Purchaser (x) the Put Debentures
and Put Warrants, or Call Debentures and Call Warrants, as the case may be,
representing the aggregate debentures and warrants purchased hereunder by the
Purchaser at the Put Closing or Call Closing, as the case may be, in each case
registered in the name of the Purchaser or its nominee and in such denominations
as reasonably requested by the Purchaser, and the Purchaser shall deliver to the
Company the Purchase Price for such Put Debentures and Put Warrants, or Call
Debentures and Call Warrants, as the case may be, by wire transfer in
immediately available funds to an account designated in writing by the Company.
ARTICLE 5
Legend and Stock
The Company will issue one or more certificates representing the Debentures
and the Warrants in the name of the Purchaser and in such denominations to be
specified by the Purchaser prior to (or from time to time subsequent to)
Closing. Each certificate representing the Debentures and the Warrants and any
shares of Common Stock issued upon conversion or exercise thereof initially
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
TRANSFERRED, ASSIGNED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED BECAUSE OF AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Debentures and reissue or issue Warrants, as
the case may be, without the legend set forth above at such time as (i) the
holder thereof is permitted to dispose of such Debentures and/or Warrants and
Common Stock issuable upon conversion or exercise thereof pursuant to Rule 144
under the Securities Act, or (ii) such Debentures and/or Warrants are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably
27
satisfactory to the Company and its counsel) are able to dispose of such shares
publicly pursuant to an Effective Registration or exemption.
Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Debentures or Warrant Shares or Common Shares issued upon exercise
of the Warrants shall bear a legend in the same form as the legend indicated
above. Upon such Registration Statement becoming effective, or Rule 144 under
the Securities Act becoming available the Company agrees to promptly, but no
later than three (3) Trading Days thereafter, issue new certificates
representing such Common Shares and Warrant Shares without such legend. Any
Common Shares issued pursuant to conversion of Debentures or shares of Common
Stock issued upon exercise of the Warrants after the Registration Statement has
become effective shall be free and clear of any legends, transfer restrictions
and stop orders. Notwithstanding the removal of such legend, the Purchaser
agrees to sell the Common Shares and Warrant Shares represented by the new
certificates in accordance with the applicable prospectus delivery requirements
(if copies of a current prospectus are provided to the Purchaser by the Company)
or in accordance with an exemption from the registration requirements of the
Securities Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE 6
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and the Purchaser.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors of the Company or by the Purchaser at any time if the
Closing shall not have been consummated by the third business day following the
date of this Agreement; provided, however, that the party (or parties) prepared
to close shall retain its (or their) right to ▇▇▇ for any breach by the other
party (or parties).
ARTICLE 7
Miscellaneous
Section 7.1 Stamp Taxes. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities and the
shares of Common Stock issued upon conversion or exercise thereof.
Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants
were not performed
28
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
(B) THE COMPANY AND THE PURCHASER (I) HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, THE DELAWARE
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ SITTING IN THE STATE OF
DELAWARE FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE
COMPANY AND THE PURCHASER CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT,
ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN
THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY APPLICABLE LAW.
(C) EACH OF THE COMPANY AND THE PURCHASER HEREBY WAIVES ALL RIGHTS TO
A TRIAL BY JURY.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with the
Registration Rights Agreement, the Warrants, the Debentures and the agreements
and documents executed in connection herewith and therewith, contains the entire
understanding of the parties with respect to the matters covered hereby and
thereby, supercedes any prior understanding, memoranda or other written or oral
agreements between or among any of them respecting the matters covered hereby
and thereby and, except as specifically set forth herein or therein, neither the
Company nor the Purchaser makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended except by a written instrument signed by both the Company and
the Purchaser. No provision of this Agreement may be waived or amended other
than by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, fax or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications are:
to the Company:
Allied Research Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
29
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
to the Purchaser:
Riverview Group, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. In consideration of the Purchaser's execution and
delivery of this Agreement and the Registration Rights Agreement and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Purchaser and all
of its officers, managers, employees, members and direct or indirect investors
and any of the foregoing persons' agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other
30
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of the Purchaser or holder of the Securities as Purchasers in the
Company, and (d) the enforcement of this Section. Notwithstanding the foregoing,
Indemnified Liabilities shall not include any liability of any Indemnitee to the
extent it arises out of such Indemnitee's willful misconduct, gross negligence,
or fraudulent action(s). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 7.5 shall be the same as those set forth in
Section 6 (other than Section 6(b)) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.
Section 7.6 Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 7.7 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Purchaser (which consent may be withheld for any
reason in its sole discretion). The Purchaser may not assign this Agreement (in
whole or in part) or any rights or obligations hereunder without the consent of
the Company (which shall not be unreasonably withheld), except that the
Purchaser may assign its rights hereunder in connection with an assignment of
Debentures or Warrants (in accordance with the respective terms thereof);
provided that: (i) the Purchaser may not assign Debentures in an amount less
than $500,000 in principal amount, and (ii) any transferee of Debentures or
Warrants must agree in writing to be bound by the applicable terms of the
Transaction Documents.
Section 7.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
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Section 7.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED ENTIRELY THEREIN.
Section 7.11 Survival. The representations, warranties, agreements and
covenants of the Company and the Purchaser contained herein shall survive the
Closing.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser without
the express written agreement of the Purchaser, unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. The Company agrees that it will deliver a copy of any public
announcement regarding the matters covered by this Agreement or any agreement
and document executed herewith to the Purchaser and any public announcement
including the name of the Purchaser to the Purchaser, reasonably in advance of
the release of such announcements.
Section 7.14 Like Treatment of Holders; Redemption. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or Warrants, for or as an
inducement to, or in connection with the solicitation of, any consent, waiver or
amendment of any terms or provisions of the Debenture or this Agreement or the
Registration Rights Agreement or the Warrants, unless such consideration is
required to be paid to all holders of Debentures and Warrants bound by such
consent, waiver or amendment whether or not such holders so consent, waive or
agree to amend and whether or not such holders tender their Debentures or
Warrants for redemption, conversion or exercise. The Company shall not, directly
or indirectly, redeem any Debentures or Warrants unless such offer of redemption
is made pro rata to all holders of Debentures or Warrants, as the case may be,
on identical terms.
Section 7.15 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against either
party.
Section 7.16 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
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Section 7.17 Obligations Absolute. The Company's obligations under the
Transaction Documents are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
COMPANY:
ALLIED RESEARCH CORPORATION
By: ____________________________
Name:
Title:
PURCHASER:
RIVERVIEW GROUP, LLC
By: ____________________________
Name:
Title:
Signature page to Allied Research Corporation Purchase Agreement
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EXHIBITS AND SCHEDULES
Exhibit 1.1A Form of Debenture
Exhibit 1.1B Form of Warrant
Schedule 2.1(a) List of Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(c)(i) Capitalization
Exhibit 2.1(c)(i) Certificate of Incorporation of the Company
Exhibit 2.1(c)(ii) By-Laws of the Company
Schedule 2.1 (s)(i) Outstanding securities entitled to registration
rights
Schedule 2.1 (s)(ii) Outstanding securities affected by the issuance of
Debentures, etc.
Schedule 2.1(aa) Real Property
Schedule 2.1(dd) MFN and Variable Rate Transactions
Schedule 3.12(a) Permitted Liens
Schedule 3.16 Press Release
Exhibit 4.2(d) Opinion of Company Counsel
Exhibit 4.2(e) Registration Rights Agreement
Schedule 4.2(g) Officer's Certificate