SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of May 9th, 2005, between Galaxy Minerals,
Inc. (the "Company") and GCA Strategic Investment Fund Limited
("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser
desires to purchase from the Company, up to $6,000,000 aggregate principal
amount (the "Commitment Amount") of the Company's Convertible Notes due May 9th,
2007 (the "Convertible Notes"), with terms and conditions as set forth in the
form of Convertible Debenture attached hereto as Exhibit A;
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, no par value per share (the "Common Stock");
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchaser a
warrant to purchase shares of Common Stock upon the Closing equal to fifteen
percent (15%) of the number of shares of Common Stock into which the Convertible
Notes are convertible on the trading day prior to each respective Closing Date
(as defined herein) on the terms and conditions described in the form of the
common stock purchase warrant attached hereto as Exhibit F (the "Warrants"), and
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as interest under, and upon conversion of,
the Convertible Notes (the "Note Shares") and upon exercise of the Warrants (the
"Warrant Shares," the Note Shares and the Warrant Shares being collectively
referred to herein as the "Conversion Shares") as set forth in the Registration
Rights Agreement in the form attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein,
have the following meanings:
"Additional Shares of Common Stock" has the meaning set forth in Section
11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 33a% or more of the outstanding shares of Common Stock of the
Company without the prior written consent of Purchaser; (ii) any sale or other
disposition (other than by reason of death or disability) to any Person of more
than 75,000 shares of Common Stock of the Company by any executive officers
and/or employee directors of the Company without the prior written consent of
Purchaser; (iii) individuals constituting the Board of Directors of the Company
on the date hereof (together with any new Directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth in
Sections 6.1 and 6.2 shall have been satisfied and Convertible Notes in the
aggregate principal amount of $2,200,000 are issued by the Company to Purchaser.
Closing Date also means the date on which all of the conditions set forth in
Section 2.4(e) shall have been satisfied with respect to each Subsequent
Takedown.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, no par value per share, of the Company.
"Company" means Galaxy Minerals, Inc., a Florida corporation, and its
successors.
"Company Corporate Documents" means the certificate of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible
Debenture by the holder thereof to the Company as specified in each Convertible
Debenture.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's Convertible Notes substantially in
the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, Notes, notes, or other similar instruments issued by
such Person, (iii) all obligations of such Person as lessee which (y) are
capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in Section 10.4.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporation and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
`Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4. "Majority
Holders" means (i) as of the Closing Date, Purchaser and (ii)
at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $200,000.
"Maturity Date" shall mean the date of maturity of the Convertible Notes.
"Maximum Number of Shares" shall mean that percentage that the Company may
issue without shareholder approval under the applicable rules of the National
Market or the applicable OTC Bulletin Board or equivalent entity, of the then
issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
stockholders of the Company may have previously approved.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap
Market, the New York Stock Exchange, Inc. or the American Stock Exchange,
Inc..
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Debenture.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of Exhibit C attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock Company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Convertible
Notes.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company
and Purchaser dated the date hereof substantially in the form set forth in
Exhibit B attached hereto.
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any
dividend or other distribution on any shares of capital stock of such Person
(except dividends payable solely in shares of capital stock of the same or
junior class of such Person and dividends from a wholly-owned direct or indirect
Subsidiary of the Company to its parent corporation), (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (a) any shares
of such Person's capital stock or (b) any option, warrant or other right to
acquire shares of such Person's capital stock or (iii) any loan, or advance or
capital contribution to any Person (a "Stockholder") owning any capital stock of
such Person other than relocation, travel or like advances to officers and
employees in the ordinary course of business, and other than reasonable
compensation as determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Convertible Notes, the Warrants and, as applicable,
the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" has the meaning set forth in the recitals.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin Board,
National Market or other automated quotation system or exchange on which the
Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Notes, the
Registration Rights Agreement, and the other agreements contemplated by this
Agreement.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant substantially in the
form set forth in Exhibit F hereto.
Section 1.2 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale of Convertible Notes.
(a) Subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase
from the Company, Convertible Notes up to the aggregate Commitment Amount.
(b) Purchaser shall acquire Convertible Notes on the Closing Date in
an aggregate principal amount of Two Million Two Hundred Thousand Dollars
($2,200,000.00).
Section 2.2 Purchase Price. The purchase price for the Convertible Notes
on the Closing Date and at any Subsequent Takedown (as defined herein) shall be
85% of the principal amount thereof. Therefore, the aggregate consideration
payable by Purchaser to the Company for the Convertible Notes on the Closing
Date shall be One Million Eight Hundred Seventy Thousand Dollars ($1,870,000.00)
(the "Purchase Price").
Section 2.3 Closing and Mechanics of Payment.
(a) The Purchase Price shall be paid on the Closing Date by wire
transfer of immediately available funds on or before 5:00 p.m. (EST).
(b) The Convertible Notes issued on the Closing Date shall be dated
the date hereof.
Section 2.4 Terms of Commitment and Subsequent Takedowns.
(a) Commitment Term. Purchaser's commitment to purchase the
Commitment Amount of Notes from the Company, subject to the terms and conditions
set forth herein, shall expire on the second anniversary of the Closing Date.
(b) Subsequent Takedowns. The Company may request additional funds
from the Commitment Amount (each a "Takedown") during the Commitment Term upon
the submission to the Fund a report setting forth the details of the use of the
funds (the "Use of Proceeds Report").
(c) Takedown Amounts. The maximum amount the Company may request in
any Takedown shall be Two Million Dollars ($2,000,000).
(d) Condition to Takedowns. Each Takedown will be subject to the
conditions set forth in Section 6.1 hereof and the following:
(i) the accuracy and completeness of the Company's
representations and warranties set forth in Article IV hereof as of the closing
date of each Takedown;
(ii) the receipt of a legal opinion from counsel for the
Company in form and substance satisfactory to Purchaser;
(iii) the completion of due diligence investigations regarding
the Company by Purchaser and absence of disputes with respect thereto;
(iv) the absence of material adverse changes in the Company's
financial condition, results or operations or prospects; (v) liquidation of any
and all shares of Common Stock held by the Fund pursuant to conversion of any of
the Company's Convertible Notes; (vi) the receipt of the Use of Proceeds Report
by the Fund and its approval of the proposed uses; and
(vii) the existence of an effective Registration Statement
covering the Conversion Shares.
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES
Section 3.1 Payment of Principal and Interest; Payment Mechanics. The
Company will pay all amounts due on each Convertible Note by the method and at
the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of this Convertible
Note, the holder shall surrender the Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any Convertible
Note, the holder thereof will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender the Convertible Note to the Company in exchange for a
new Convertible Note or Convertible Notes. The Company will afford the benefits
of this Section 3.1 to any direct or indirect transferee of the Convertible Note
purchased under this Agreement that has made the same agreement relating to this
Convertible Note as Purchaser has in this Section 3.1; provided that such
transferee is an "accredited investor" under Rule 501 of the Securities Act.
Section 3.2 Intentionally Omitted.
Section 3.3 Voluntary Prepayment. For so long as no Event of Default shall
have occurred and is continuing, the Company may, at its option, repay, in whole
or in part, the Convertible Notes, per the formula set forth in Section 5.1 of
Exhibit A hereto, thereof following at least five (5) Business Days prior
written notice to Purchaser (the expiration of such five (5) Business Day period
being referred to as the "prepayment date"); provided, however, that if such
date is not a Business Day, the prepayment date shall be the next Business Day
thereafter.
Section 3.4 Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change in Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company
to any Person in a single transaction or series of related transactions,
(iii) a consolidation or merger of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger
which is effected solely to change the jurisdiction of incorporation of
the Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock)
(each of items (i), (ii) and (iii) being referred to as a "Sale Event"),
or (iv) the occurrence of a Registration Default which continues uncured
for a period of twenty (20) days, then, in each case, the Company shall,
upon request of the Majority Holders, redeem the Convertible Notes and
Warrants. The redemption price payable upon any such redemption shall be
the redemption price in Section 5 of the Convertible Notes and Section 13
of the Warrants, respectively (referred to herein as the "Formula Price").
(b) At the option of Purchaser, upon the consummation of one or more
Financings, the Company shall use 25% of the Net Cash Proceeds therefrom
(unless such Net Cash Proceeds from each such Financing is less than
$250,000) to redeem the Convertible Notes.
(c) Upon the issuance of the Maximum Number of Shares, the receipt
by the Company of Notice of Conversion requiring the issuance of shares of
Common Stock in excess of the Maximum Number of Shares, and the failure
within 40 days of such issuance to obtain shareholder approval to issue
additional shares of Common Stock required to be issued in connection with
such Notices of Conversion (the "Redemption Event"), the Company shall
redeem the outstanding balance of each Convertible Note and Warrant for
the Formula Price.
(d) In the event that there is an insufficient number of authorized,
issuable, shares of Common Stock registered under the Registration
Statement filed by the Company to allow Purchaser to fully convert the
Convertible Notes and exercise all Warrants held by Purchaser and sell
such shares issued thereon, then the Company shall immediately file an
amendment to the then current Registration Statement to register a
sufficient number of such shares to convert said Convertible Notes and
Warrants. Upon the failure within twenty (20) Trading Days measured from
the date of filing the Registration Statement to register a sufficient
number of such shares, the Company shall redeem the outstanding balance of
each Convertible Note and Warrant for the Formula Price. In addition,
failure of the Company to register a sufficient number of such shares to
fully convert said Convertible Notes and exercise such Warrants shall be a
Registration Default under Section 10.4(e) from the date of the Notice of
Conversion to the date of the earlier of (i) the redemption of the
outstanding balance of the Convertible Notes and exercise of all such
Warrants or (ii) full conversion of the Convertible Notes and exercise of
all such Warrants.
Section 3.5 Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible Notes
pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and
consummated (for purposes of determining the Formula Price and the time at which
Purchaser shall thereafter not be entitled to deliver a Notice of Conversion for
the Convertible Notes) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event;
(iii) A redemption pursuant to Section 3.4(b), three (3) Business
Days following the date of consummation of the applicable Financing (meaning
closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), the date specified in
each Convertible Debenture.
(b) On the Maturity Date and on the effective date of a repayment or
redemption of the Convertible Notes as specified in Section 3.5(a) above, the
Company shall deliver by wire transfer of funds the repayment/redemption price
to Purchaser of the Convertible Notes subject to redemption. Should Purchaser
not receive payment of any amounts due on redemption of its Convertible Notes by
reason of the Company's failure to make payment at the times prescribed above
for any reason, the Company shall pay to the applicable holder on demand (x)
interest on the sums not paid when due at an annual rate equal to the maximum
lawful rate compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but not
limited to, reasonable attorneys' fees and costs, whether or not suit or other
formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed in any
redemption in which not all of the Convertible Notes are to be redeemed so that
the ratio of the Convertible Notes of each holder selected for redemption to the
total Convertible Notes owned by that holder shall be the same as the ratio of
all such Convertible Notes selected for redemption bears to the total of all
then outstanding Convertible Notes . Should any Convertible Notes required to be
redeemed under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Convertible Notes shall be redeemed on the
earliest possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by Purchaser (including delivery
via telecopy) to the Company prior to the (x) Maturity Date or (y) effective
date of a voluntary repayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above), shall be honored
by the Company and the conversion of the Convertible Notes shall be deemed
effected on the Conversion Date. In addition, between the effective date of a
voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment pursuant
to Section 3.4 as specified in Section 3.5(a) above and the date the Company is
required to deliver the redemption proceeds in full to Purchaser, Purchaser may
deliver a Notice of Conversion to the Company. Such notice will be (x) of no
force or effect if the Company timely pays the redemption proceeds to Purchaser
when due or (y) honored on or as of the date of the
Notice of Conversion if the Company fails to timely pay the redemption proceeds
to Purchaser when due.
Section 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the Convertible
Notes to Purchaser and each "qualified assignee" thereof shall be made free and
clear of and without deduction or withholding for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes") unless
such Taxes are required by law or the administration thereof to be deducted or
withheld. If the Company shall be required by law or the administration thereof
to deduct or withhold any Taxes from or in respect of any sum payable under the
Convertible Notes (i) the holders of the Convertible Notes subject to such Taxes
shall have the right, but not the obligation, for a period of thirty (30) days
commencing upon the day it shall have received written notice from the Company
that it is required to withhold Taxes to transfer all or any portion of the
Convertible Notes to a qualified assignee to the extent such transfer can be
effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or withholdings;
(iii) the sum payable shall be increased as may be necessary so that after
making all required deductions or withholdings (including deductions or
withholdings applicable to additional amounts paid under this Section 3.6)
Purchaser receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall forthwith pay
the full amount deducted or withheld to the relevant taxation or other authority
in accordance with applicable. A "qualified assignee" of a Purchaser is a Person
that is organized under the laws of (i) the United States or (II) any
jurisdiction other than the United States or any political subdivision thereof
and that (y) represents and warrants to the Company that payments of the Company
to such assignee under the laws in existence on the date of this Agreement would
not be subject to any Taxes and (z) from time to time, as and when requested by
the Company, executes and delivers to the Company and the Internal Revenue
Service forms, and provides the Company with any information necessary to
establish such assignee's continued exemption from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement other than Taxes payable solely as a result of the
transfer from Purchaser to a Person of any Security.
(c) The Company shall indemnify Purchaser, or qualified assignee, for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
3.6) paid by Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising there from or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
Purchaser or assignee makes written demand therefore. A certificate as to the
amount of such Taxes or Other Taxes submitted to the Company by Purchaser or
assignee shall be conclusive evidence of the amount due from the Company to such
party.
(d) Within 30 days after the date of any payment of Taxes, the Company
will furnish to Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating that it is
a non-U.S. person, together with any additional tax forms which may be required
under the Code, as amended after the date hereof, to allow interest payments to
be made to it without deduction.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing Date
and again at the closing of each Takedown, the following:
Section 4.1 Organization and Qualification. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. The Company is qualified to conduct business as a
foreign corporation and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except where such failure would not have a Material Adverse Effect. A "Material
Adverse Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
Section 4.2 Authorization and Execution.
(a) The Company has all requisite corporate power and authority to enter
into and perform each Transaction Agreement and to consummate the transactions
contemplated hereby and thereby and to issue the Securities in accordance with
the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities have
been duly and validly authorized and no further consent or authorization of the
Company, its Board of Directors or its shareholders is required.
(c) This Agreement has been duly executed and delivered by the Company.
(d) This Agreement constitutes, and upon execution and delivery thereof
by the Company, each of the Transaction Agreements will constitute, a valid and
binding agreement of the Company, in each case enforceable against the Company
in accordance with its respective terms.
Section 4.3 Capitalization . As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and except as set forth on Schedule 4.3 no other shares of capital stock
of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Convertible Notes or Conversion Shares. The Company has
furnished to Purchaser true and correct copies of the Company's Corporate
Documents, and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
Section 4.4 Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except
(a) such actions or filings that have been undertaken or made prior
to the date hereof and that will be in full force and effect (or as to which all
applicable waiting periods have expired) on and as of the date hereof or which
are not required to be filed on or prior to the Closing Date,
(b) such actions or filings that, if not obtained, would not result
in a Material Adverse Effect, and
(c) the filing of a "Form D" as described in Section 7.13 below.
Section 4.5 Issuance of Shares. Upon conversion in accordance with the
terms of the Convertible Notes, the Conversion Shares shall be duly and validly
issued and outstanding, fully paid and non-assessable, free and clear of any
Taxes, Liens and charges with respect to issuance and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of Purchaser herein are true and
correct in all material respects, each of the Securities will have been issued
in material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain circumstances,
the issuance of Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Convertible Notes
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
Section 4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
Section 4.7 Financial Information. Since March 31, 2005 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future. The unaudited consolidated balance sheets of the Company
and its Subsidiaries for the periods ending December 31, 2002, December 31, 2003
and December 31, 2004, respectively, and the related consolidated statements of
income, changes in stockholders' equity and changes in cash flows for the
periods then ended, including the footnotes thereto, except as indicated
therein, (i) complied in all material respects with applicable accounting
requirements and (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods indicated, except that the unaudited financial
statements do not contain notes and may be subject to normal audit adjustments
and normal annual adjustments. Such financial statements fairly present the
financial condition of the Company and its Subsidiaries at the dates indicated
and the consolidated results of their operations and cash flows for the periods
then ended and, except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company and its Subsidiaries, fixed or contingent.
Section 4.8 Litigation. Except as set forth on Schedule 4.8, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
Section 4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which as resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a
"going concern" or "winding up" basis and determined in accordance with all
applicable laws and actuarial practices and using actuarial assumptions and
methods that are reasonable in the circumstances. No event has occurred and no
condition exists with respect to any Benefit Plans that has resulted or could
reasonably be expected to result in any pension plan having its registration
revoked or wound up (in whole or in part) or refused for the purposes of any
applicable laws or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or penalties
(in any material amounts) under any applicable laws.
Section 4.10 Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
Section 4.11 Taxes. All United States federal, state, county,
municipality, local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes and other governmental charges have been established in accordance with
GAAP.
Section 4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
Section 4.13 Not an Investment Company. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
Section 4.14 Full Disclosure. The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
Section 4.15 No Solicitation; No Integration with Other Offerings. No form
of general solicitation or general advertising was used by the Company or, to
the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act.
Section 4.16 Permits. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
Section 4.17 Leases. Neither the Company nor any Subsidiary is a party to
any capital lease obligation with a value greater than $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 during the
life of such lease.
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which would reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
Section 4.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
Section 4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
Section 4.21 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
Section 4.22 Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties free and clear of
all Liens.
Section 4.23 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.24 Contracts. All material contracts, leases and other
agreements, including but not limited to the agreements set forth on Schedule
4.24 (the "Contracts"), are valid, binding and enforceable in all respects in
accordance with their terms. The Company and each other party to the Contracts
has complied and is complying in all respects with the terms of the Contracts,
and no event has occurred or circumstances exist that (with or without notice or
lapse of time) may contravene, conflict with or result in a violation or breach
of, or give any party or any other person or entity the right to declare a
default under, any Contract.
Section 4.25 Foreign Practices. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of any
law, rule or regulation.
Section 4.26 Ticker Symbol. The Company is presently trading under the
ticker symbol GAXYE.OB due to its delay in filing its annual 10-K report with
the Commission. The delay has been caused solely by the departure from the
Company of the accountant responsible for preparing the report. As of the date
hereof, the required report has been prepared and is awaiting auditor approval
prior to filing.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1 Purchaser. Purchaser hereby represents and warrants to the
Company that:
(a) Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and, as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and state
securities law; provided that the disposition of Purchaser's property shall at
all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant thereto are within Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly authorized
by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by
Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, or (ii) any agreement, judgment, injunction, order, decree or other
instrument binding upon Purchaser;
(e) Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold except as
specified in this Agreement or the remaining Transaction Agreements;
(f) this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting the enforceability of creditors
rights generally and (ii) equitable principles of general applicability;
(g) Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and Purchaser is capable of bearing the economic
risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; Purchaser has previously invested in securities
similar to the Securities and fully understands the limitations on transfer
described herein; Purchaser has been afforded access to information about the
Company and the financial condition, results of operations, property, management
and prospects of the Company sufficient to enable it to evaluate its investment
in the Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
Purchaser concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall not
limit Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
Purchaser in which any employee benefit plan (or its related trust) has any
interest; and
(j) Purchaser is a corporation organized under the laws of Bermuda.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase.
The obligation of Purchaser hereunder to purchase the Convertible Notes at the
Closing and at each Takedown Closing is subject to the satisfaction, on or
before the Closing Date and each Takedown Closing Date, of each of the following
conditions, provided that these conditions are for Purchaser's sole benefit and
may be waived by Purchaser at any time in its sole discretion:
(a) The Company shall have duly executed this Agreement, the
Warrant, the Mortgages and the Registration Rights Agreement and delivered the
same to Purchaser;
(b) The Company shall have delivered to Purchaser duly executed
certificates representing the Convertible Notes in accordance with Section 2.3
hereof;
(c) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material respects as
of the date when made and as of the Closing Date and each Takedown Closing Date
as though made at such time (except for representations and warranties that
speak as of a specified date) and the Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it at or
prior to the Closing Date and each Takedown Closing Date. Purchaser shall have
received an Officer's Certificate executed by the chief executive officer of the
Company, dated as of the Closing Date and each Takedown Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
Purchaser, including but not limited to certificates with respect to the Company
Corporate Documents, resolutions relating to the transactions contemplated
hereby and the incumbencies of certain officers and Directors of the Company.
The form of such certificate is attached hereto as Exhibit C;
(d) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities and the
consummation of the transactions contemplated by the Transaction Agreements;
(e) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been taken
by any competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(f) No law or regulation shall have been imposed or enacted that, in
the judgment of Purchaser, could adversely affect the transactions set forth
herein or in the other Transaction Agreements, and no law or regulation shall
have been proposed that in the reasonable judgment of Purchaser could reasonably
have any such effect;
(g) Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, in form and substance satisfactory to
Purchaser;
(h) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(i) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or condition
thereof shall have been amended, waived or otherwise modified without the prior
written consent of Purchaser;
(j) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since January 1, 2002;
(k) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
Material Adverse Effect, or any material adverse effect on the enforceability of
the Transaction Agreements or the Securities or the rights of the holders of the
Securities or Purchaser hereunder;
(l) Purchaser shall have confirmed the receipt of the Convertible
Notes to be issued, duly executed by the Company in the denominations and
registered in the name of Purchaser;
(m) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing;
(n) Purchaser shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request;
(o) Company shall have delivered to Purchaser the Use of Proceeds
Schedule
7.8.
Section 6.2 Conditions to the Company's Obligations. The obligations of
the Company to issue and sell the Securities to Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on the Closing Date and
Purchaser shall have performed and complied in all material respects with all
agreements required by this Agreement to be performed or complied with by
Purchaser at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by Purchaser;
(d) The Company shall have received payment of Purchase Price, less
the Expense Reimbursement Fee.
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding and for the benefit of Purchaser:
Section 7.1 Information. The Company will deliver to each holder of the
Convertible Notes:
(a) within two (2) days after any officer of the Company obtains
knowledge of a Default or Event of Default, or that any Person has given any
notice or taken any action with respect to a claimed Default hereunder, a
certificate of the chief financial officer of the Company setting forth the
details thereof and the action which the Company is taking or proposed to take
with respect thereto;
(b) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(c) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible Notes under
Section 3.4, notice thereof together with a summary of all material terms
thereof and copies of all documents and instruments associated therewith;
(d) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum number of
Conversion Shares issuable pursuant to the Transaction Agreements; and
(e) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which the
Company or any Subsidiary is a party in which the amount involved is $250,000 or
more and not covered by insurance or in which injunctive or similar relief is
sought.
Section 7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
Section 7.3 Maintenance of Property; Insurance. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. In
addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
Section 7.4 Maintenance of Existence. The Company will, and will cause
each Subsidiary to, continue to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
Section 7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
Section 7.6 Inspection of Property, Books and Records. The Company will,
and will cause each Subsidiary to, keep proper books of record and account in
which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser' Representative or an affiliate
thereof, as representatives of Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
in the presence of a representative of the Company; provided, however, that such
discussions will not result in any unreasonable expense to the Company, without
Company consent), all at such reasonable times.
Section 7.7 Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
Section 7.8 Use of Proceeds. The proceeds from the issuance and sale of
the Convertible Notes by the Company shall be used in accordance with Schedule
7.8 attached hereto. None of the proceeds from the issuance and sale of the
Convertible Notes by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
Section 7.9 Compliance with Terms and Conditions of Material Contracts.
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject,
including but not limited to those listed on Schedule 4.24.
Section 7.10 Reserved Shares.
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time) (the "Reserved Amount"). The
Company shall not reduce the Reserved Amount without the prior written consent
of Purchaser. With respect to all Securities which contain an indeterminate
number of shares of Common Stock issuable in connection therewith (such as the
Convertible Notes), the Company shall include in the Reserve Amount, no less
than two (2) times the number of shares that is then actually issuable upon
conversion or exercise of such Securities. If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number of
Conversion Shares issued or issuable upon conversion of the Convertible Notes,
the Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, either (x)
calling a special meeting of shareholders to authorize additional shares, in the
case of an insufficient number of authorized shares or (y) in lieu thereof,
consummating the immediate repurchase of the Convertible Notes contemplated in
Sections 3.4(c) hereof.
Section 7.11 Transfer Agent Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
direct the Company's transfer agent to issue certificates, registered in the
name of Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Convertible Notes. Upon conversion of any Convertible Notes in accordance
with their terms, the Company will, and will use its best lawful efforts to
cause its transfer agent to, issue one or more certificates representing shares
of Common Stock in such name or names and in such denominations specified by a
Purchaser in a Notice of Conversion. As long as the Registration Statement
contemplated by the Registration Rights Agreement shall remain effective, the
shares of Common Stock issuable upon conversion of any Convertible Notes shall
be issued to any transferee of such shares from Purchaser without any
restrictive legend upon appropriate evidence of transfer in compliance with the
Securities Act and the rules and regulations of the Commission; provided that
for so long as the Registration Statement is effective, no opinion of counsel
will be required to effect any such transfer. The Company further warrants and
agrees that no instructions other than these instructions have been or will be
given to its transfer agent. Nothing in this Section 7.11 shall affect in any
way a Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
Section 7.12 Maintenance of Reporting Status; Supplemental Information. So
long as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
Section 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D"
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
Purchaser at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.
Section 7.14 Ticker Symbol. The Company shall file all required reports
with the Commission such that the Common stock is traded under the ticker symbol
GAXY.OB on or before May 15, 2005.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Convertible Notes remain outstanding and for the benefit of Purchaser:
Section 8.1 Limitations on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities) (i) any Debt except (x) Debt incurred in a
Permitted Financing, (y) Debt incurred in connection with equipment leases to
which the Company or its Subsidiaries are a party incurred in the ordinary
course of business; and (z) Debt incurred in connection with trade accounts
payable, imbalances and refunds arising in the ordinary course of business and
(ii) any equity securities (including Derivative Securities) (other than those
securities that are issuable (x) under or pursuant to stock option plans,
warrants or other rights programs that exist as of the date hereof, (z) in
connection with the acquisition (including by merger) of a business or of assets
otherwise permitted under this Agreement), unless the Company complies with the
mandatory prepayment terms of Section 3.4(b) hereof.
Section 8.2 Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition or stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, and Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
(with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
Section 8.3 Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
Section 8.4 Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
Section 8.5 Restrictions on Certain Amendments. Neither the Company nor
any Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement,
any Company Corporate Document or Subsidiary Corporate Document if such
amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
Section 8.6 Restrictions on Issuances of Securities.
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above:
(1) From the Closing Date and continuing until 180 days following the date
on which the Registration Statement becomes effective, the Company agrees that
it will not issue any of its equity securities (or securities convertible into
or exchangeable or exercisable for equity securities (the "Derivative
Securities")) on terms that allow a holder thereof to acquire such equity
securities (or Derivative Securities) at a discount to the Market Price of the
Common Stock at the time of issuance or, in the case of Derivative Securities,
at a conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of issuance
which is below the Market Price on the date of issuance (each such event, a
"Discounted Equity Offering") other than (i) borrowings under conventional
credit facilities existing as of the date hereof, (ii) stock issued or credit
facilities to be established in connection with acquisitions, (iii) equity
securities or Derivative Securities in connection with employee and director
stock option and stock purchase plans and (iv) securities issued under the
Convertible Notes or Warrants. In addition, the Company shall not issue any
equity securities in connection with a strategic alliance entered into by the
Company unless such securities are the subject of a one year statutory or
contractual hold period or, if not subject to such a hold period, unless the
Purchaser has fully converted all outstanding Convertible Notes and exercised
all Warrants. As used herein, "discount" shall include, but not be limited to,
(i) any warrant, right or other security granted or offered in connection with
such issuance which, on the applicable date of grant, is offered with an
exercise or conversion price, as the case may be, at less than the then current
Market Price of the Common Stock or, if such security has an exercise or
conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of issuance,
then at a price below the Market Price on such date of exercise or conversion,
as the case may be, or (ii) any commissions, fees or other allowances paid in
connection with such issuances (other than customary underwriter or placement
agent commissions, fees or allowances). For the purposes of determining the
Market Price at which Common Stock is acquired under this Section, normal
underwriting commissions and placement fees (including underwriters' warrants)
shall be excluded. Notwithstanding the foregoing, the Company may enter into the
following types of transactions (collectively referred to as "Permitted
Financings"): (1) "permanent financing" transactions, which would include any
form of debt or equity financing (other than an underwritten offering), which is
followed by a reduction of the said financing commitment to zero and payment of
all related fees and expenses; (2) "project financing" which provide for the
issuance of recourse debt instruments in connection with the operation of the
Company's business as presently conducted or as proposed to be conducted; (3) an
underwritten offering of Common Stock, provided that such offering provides for
the registration of the Conversion Shares if the Registration Statement has not
been declared effective; and (4) other financing transactions specifically
consented to in writing by the Purchaser.
(2) The 180-day restrictive period set forth in paragraph (1) of this
Section 8.6(a) shall be increased by one day for each day a Registration Default
has occurred and not been cured by the Company.
(b) Until such time as all of the Convertible Notes have been either
redeemed or converted into Conversion Shares in full, the Company agrees it will
not issue any of its equity securities (or Derivative Securities), unless any
shares of Common Stock issued or issuable in connection therewith are
"restricted securities." As used herein "restricted securities" shall mean
securities which may not be sold prior to twelve (12) months following the date
of issuance of such securities by virtue of contractual restrictions imposed by
the Company or otherwise.
Section 8.7 Limitation on Stock Repurchases. Except as otherwise set forth
in the Convertible Notes and the Warrants, the Company shall not, without the
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
Section 8.8 Limitation on Sales By Officers and Employee Directors. For a
period of 180 days following the date the Registration Statement is declared
effective by the Commission, no executive officer or a employee director of the
Company shall, individually, sell or otherwise dispose of (other than by reason
of death or disability) to any Person an amount of Common stock greater than
that allowed by Rule 144, promulgated under the Securities Act.
ARTICLE IX. RESTRICTIVE LEGENDS
Section 9.1 Restrictions on Transfer. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Purchaser will use its best
efforts to cause any proposed transferee of any Securities held by it to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
Section 9.2 Legends. The Conversion Shares, upon resale by the Purchaser
pursuant to the Registration Statement, shall be freely tradeable and
unrestricted.
Section 9.3 Notice of Proposed Transfers. Prior to any proposed Transfer
of the Securities (other than a Transfer (i) registered or exempt from
registration under the Securities Act, (ii) to an affiliate of a Purchaser which
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 10.1 Liquidated Damages.
(a) The Company shall cause its transfer agent to, issue and deliver
shares of Common Stock consistent with Section 7.11 hereof within three (3)
Trading Days of delivery of a Notice of Conversion, as applicable (the
"Deadline") to Purchaser (or any party receiving Securities by transfer from
Purchaser) at the address of Purchaser set forth in the Notice of Conversion.
The Company understands that a delay in the issuance of such certificates after
the Deadline could result in economic loss to Purchaser.
(b) Without in any way limiting Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company agrees
that if delivery of the Conversion Shares is more than one (1) Business Day
after the Deadline (other than a failure due to the circumstances described in
Section 4.3 of the Convertible Notes, which failure shall be governed by such
Section) the Company shall pay to Purchaser, as liquidated damages and not as a
penalty, $500 for each $100,000 of Convertible Notes then outstanding per day in
cash, for each of the first ten (10) days beyond the Deadline, and $1,000 for
each $100,000 of Convertible Notes then outstanding per day in cash for each day
thereafter that the Company fails to deliver such Common Stock. Such cash amount
shall be paid to Purchaser by the last day of the calendar week following the
week in which it has accrued or, at the option of Purchaser (by written notice
to the Company by the first day of the week following the week in which it has
accrued), shall be added to the principal amount of the Convertible Debenture
(if then outstanding) payable to Purchaser, in which event interest shall accrue
thereon in accordance with the terms of the Convertible Notes and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of the Convertible Notes.
Section 10.2 Conversion Notice. The Company agrees that, in addition to
any other remedies which may be available to Purchaser, including, but not
limited to, the remedies available under Section 10.1, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates with
or without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Notes, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion.
Section 10.3 Conversion Limit. Notwithstanding the conversion rights under
the Convertible Notes, unless Purchaser delivers a waiver in accordance with the
immediately following sentence, in no event shall Purchaser be entitled to
convert any portion of the Convertible Notes, in excess of that portion of the
Convertible Notes, as applicable, of which the sum of (i) the number of shares
of Common Stock beneficially owned by Purchaser and its Affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Convertible Note or other Derivative
Securities convertible into or exchangeable for shares of Common Stock which
contain a limitation similar to that set forth in this Section 10.3), and (ii)
the number of shares of Common Stock issuable upon the conversion of the portion
of the Convertible Note with respect to which this determination is being made,
would result in beneficial ownership by Purchaser and its Affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of Section
10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3
of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise
provided in this Section 10.3. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and upon the
occurrence of any voluntary or mandatory redemption or repayment transaction
described herein or in the Convertible Notes, (ii) immediately preceding and
upon any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence
of any Event of Default which is not cured for a period of ten (10) calendar
days.
Section 10.4 Registration Rights.
(a) The Company shall grant Purchaser registration rights covering
the Conversion Shares (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
(b) The Company shall prepare and file on or before the 60th day
following the Closing Date and Subsequent Takedown (each a "Filing Date"), a
registration statement or amendment thereto (the "Registration Statement")
covering the resale of the Registrable Securities with the Commission. In the
event the Company fails to file the Registration Statement by the Filing Date
for any reason other than Purchaser's failure to provide information requested
by the Company for the completion and filing of the Registration Statement, the
Company shall pay to Purchaser as liquidated damages (and not as a penalty) one
percent (1%) of the then outstanding principal amount of Convertible Notes per
day until the Registration Statement is filed with the Commission. The Company
shall use its best efforts to cause the Registration Statement to be declared
effective by the Commission or the earlier of (i) 90 days following the Closing
Date, (ii) ten days following the receipt of a "No Review" Letter from the
Commission or (iii) the first Business Day following the day the Commission
determines the Registration Statement eligible to be declared effective (the
"Required Effectiveness Date"). The Company shall pay all expenses of
registration (other than underwriting fees and discounts, if any, in respect of
Registrable Securities offered and sold under the registration statement by
Purchaser). The Company agrees to file an initial written response to the
Commission within ten calender days of receipt of any comments by the Commission
relating to the Registration Statement.
(c) If the Registration Statement is not declared effective by the
Commission by the Required Effectiveness Date, the Company shall pay to
Purchaser, as liquidated damages (and not as a penalty), an amount equal to 2%
of the outstanding principal amount of the Convertible Notes, prorated, for each
30 day period the Registration Statement is not declared effective by the
Commission, which amount will be increased to 3% of the outstanding principal
amount of the Convertible Notes in the event that the Registration Statement is
not declared effective by the Commission within 120 days of the Closing Date. In
the event the Company fails to obtain a valid registration statement by the
180th day following the Closing Date, the Company will redeem the Convertible
Notes and the Warrants as set forth in Section 5 of the Convertible Notes and
Section 13 of the Warrants, respectively. Additionally, the Company will grant
to Purchaser certain piggyback registration rights in the event the Company
proposes to effect a registered offering of Common Stock or warrants or both
prior to the filing of the Registration Statement referenced above.
(d) Any such liquidated damages shall be paid in cash by the Company
to Purchaser by wire transfer in immediately available funds on the last day of
each calendar week following the event requiring its payment.
(e) If, following the declaration of effectiveness of the
Registration Statement, such registration statement (or any prospectus or
supplemental prospectus contained therein) shall cease to be effective for any
reason (including but not limited to the occurrence of any event that results in
any prospectus or supplemental prospectus containing an untrue statement of a
material fact or omitting a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading), the Company fails to file required
amendments to the Registration Statement in order to allow the Purchaser to
resell the Conversion Shares pursuant to the Registration Statement as
unrestricted, unlegended, freely tradeable shares of Common Stock, or if for any
reason there are insufficient shares of such shares of Common Stock registered
under the then current Registration Statement to effect full conversion of the
Convertible Notes or exercise of the Warrants (a "Registration Default"), the
Company shall immediately take all necessary steps to cause the Registration
Statement to be amended or supplemented so as to cure such Registration Default.
Failure to cure a Registration Default within ten (10) Business Days shall
result in the Company paying to Purchaser liquidated damages at the rate of one
percent (1%) of the outstanding principal amount of Convertible Notes for each
30 day period (prorated), the Registration Default remains uncured.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
Section 11.1 Reorganization. The Conversion Price (the "Fixed
Price") shall be adjusted, as applicable, as hereafter provided.
Section 11.2 Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock; any of such events
being herein called a "Share Reorganization," then in each such case the
applicable Fixed Price shall be adjusted, effective immediately after the record
date at which the holders of Common Stock are determined for the purposes of the
Share Reorganization or, if no record date is fixed, the effective date of the
Share Reorganization, by multiplying the applicable Fixed Price in effect on
such record or effective date, as the case may be, by a fraction of which:
(i) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving effect to the
transaction); and
(ii) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization, including,
in the case of a distribution of securities convertible into or exchangeable for
shares of Common Stock, the number of shares of Common Stock that would have
been outstanding if such securities had been converted into or exchanged for
Common Stock on such record or effective date.
Section 11.3 Rights Offering. If and whenever the Company shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of securities convertible into or exchangeable for Common Stock, at an
exchange or conversion price per share at the date of issue of such securities)
of less than 95% of the Market Price of the Common Stock on such record date
(any such event being herein called a "Rights Offering"), then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which holders of Common Stock are determined for the purposes of
the Rights Offering, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(i) the numerator shall be the sum of:
(i) the number of shares of Common Stock outstanding on such record
date; and
(ii) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common Stock so offered
for subscription or purchase and the price at which such shares are so offered,
or
(y) the product of the maximum number of shares of Common Stock into or
for which the convertible or exchangeable securities so offered for subscription
or
purchase may be converted or exchanged and the conversion or exchange price of
such securities, or, as the case may be, by
(B) the Market Price of the Common Stock on such record date; and
(ii) the denominator shall be the sum of:
(i) the number of shares of Common Stock outstanding on such record
date;
and
(ii) the number of shares of Common Stock so offered for
subscription or
purchase (or, in the case of Derivative Securities, the maximum number of
shares of Common Stock for or into which the securities so offered for
subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised
prior to the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
Section 11.4 Special Distribution. If and whenever the Company shall issue
or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock outstanding on
such record date and the Market Price of the Common Stock on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights,
options, warrants, evidences of indebtedness or other assets issued or
distributed in the Special Distribution (net of any consideration paid
therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
Section 11.5 Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in
each such case the holder who exercises the right to convert Convertible Notes
after the effective date of such Capital Reorganization shall be entitled to
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
Section 11.6 Purchase Price Adjustments. In case at any time and from time
to time the Company shall issue any shares of Common Stock or Derivative
Securities convertible or exercisable for shares of Common Stock (the number of
shares so issued, or issuable upon conversion or exercise of such Derivative
Securities, as applicable, being referred to as "Additional Shares of Common
Stock") for consideration less than the then Market Price at the date of
issuance of such shares of Common Stock or such Derivative Securities, in each
such case the Conversion Price shall, concurrently with such issuance, be
adjusted by multiplying the Conversion Price immediately prior to such event by
a fraction: (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
Section 11.7 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the applicable
Fixed Price then in effect, provided, however, that any adjustments which, but
for the provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent adjustment;
(b) if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such provisions,
the Company will give notice of such event as provided herein, and the Company's
board of directors will make an appropriate adjustment in the Fixed Price so
that the rights of the holders of the applicable Security shall not be
diminished by such event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be conclusively
determined by the auditors of the Company or, if they are unable or unwilling to
act, by a firm of independent chartered accountants selected by the Directors
and any such determination shall be binding upon the Company and Purchaser.
Section 11.8 Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the applicable Fixed Price deliver to Purchaser a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
Section 11.9 Notice to Holders. If the Company shall fix a record date
for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the consolidation of
outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
Section 12.1 Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any part
of the principal on any of the Convertible Notes (whether by virtue of the
agreements specified in this Agreement or the Convertible Notes);
(b) failure by the Company to pay (i) within five (5) Business Days
of the due date thereof any interest on any Convertible Notes or (ii) within
five (5) Business Days following the delivery of notice to the Company of any
fees or any other amount payable (not otherwise referred to in (a) above or this
clause (b)) by the Company under this Agreement or any other Transaction
Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 7.11 or 10.1 hereof, which failure is not cured within five (5) Business
Days of suchfailure;
(d) failure on the part of the Company to observe or perform any
covenant contained in Section 7.10 or Article VIII of this Agreement;
(e) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than those
covered by clauses (a), (b), (c) or (d) above) for 30 days from the date of such
occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission or any National Market (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension on any
National Market, the Common
Stock is then listed and approved for trading on another National
Market within ten (10) Trading Days thereof);
(g) the Company shall have its Common Stock delisted from a National
Market for at least ten (10) consecutive Trading Days and is unable to obtain a
listing on a National Market within such ten (10) Trading Days;
(h) the Registration Statement shall not have been declared
effective by the Commission by the Required Effectiveness Date, or such
effectiveness shall not be maintained for the Registration Maintenance Period,
in each case which results in the Company incurring liquidated damages or a
default fee for a period in excess of 10 days;
(i) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency, moratorium
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or has made a general assignment for
the benefit of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any of the foregoing;
(j) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days, or an order for relief has been entered against the
Company or any Subsidiary under the federal bankruptcy laws as now or hereafter
in effect;
(k) default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess of
$500,000, which has not been cured within any applicable period of grace
associated therewith;
(l) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by insurance
have been rendered against the Company or any Subsidiary by a court of competent
jurisdiction and such judgments or orders shall continue unsatisfied and
unstayed for a period of 60 days;
(m) any representation, warranty, certification or statement made by
the Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection
with any Transaction Agreement shall prove to have been untrue in any
material respect when made;
(n) breach or termination of any of the agreements set forth on
Schedule 4.24;
or
(o) failure of the Company to comply with the requirements of
Section 7.14.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Notes to be, and the Convertible Notes shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (i) or (j) above with respect to the Company or
any Subsidiary, then, without any notice to the Company or any other act by
Purchaser, the entire amount of the Convertible Notes shall become immediately
due and payable, provided, further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible Debenture has been
declared immediately due and payable hereunder, any Purchaser of Convertible
Notes may proceed to protect and enforce the rights of Purchaser by an action at
law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Debenture,
or for an injunction against a violation of any of the terms hereof or thereof,
or in aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default, the amount
declared due and payable on the Convertible Notes shall be the Formula Price
thereof.
Section 12.2 Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by Purchaser.
ARTICLE XIII. MISCELLANEOUS
Section 13.1 Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
Section 13.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing and
is signed by the Company and the Majority Holders; provided, that without the
consent of each holder of any Convertible Debenture affected thereby, an
amendment or waiver may not (a) reduce the aggregate principal amount of
Convertible Notes whose holders must consent to an amendment or waiver, (b)
reduce the rate or extend the time for payment of interest on any Convertible
Debenture, (c) reduce the principal amount of or extend the stated maturity of
any Convertible Debenture or (d) make any Convertible Debenture payable in money
or property other than as stated in such Convertible Debenture. In determining
whether the holders of the requisite principal amount of Convertible Notes have
concurred in any direction, consent, or waiver as provided in any Transaction
Agreement, Convertible Notes which are owned by the Company or any other obligor
on or guarantor of the convertible Notes, or by any Person Controlling,
Controlled by, or under common Control with any of the foregoing, shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; and provided further that no such amendment, supplement or waiver
which affects the rights of Purchaser and their affiliates otherwise than solely
in their capacities as holders of Convertible Notes shall be effective with
respect to them without their prior written consent.
Section 13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act (each,
a "Controlling Person"), and the respective partners, agents, employees,
officers and Directors of Purchaser, their Affiliates and any such Controlling
Person (each an "Indemnified Party") and collectively, the "Indemnified
Parties"), from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether or not
such Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than Purchaser
unless it has received from such Indemnified Party an undertaking to repay to
the Company the costs so advanced if it should be determined by final judgment
of a court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification
hereunder with respect to such costs) which may be incurred by such
Indemnified Party in connection with any investigative, administrative or
judicial proceeding brought or threatened that relates to or arises out of, or
is in connection with any activities contemplated by any Transaction Agreement
or any other services rendered in connection herewith; provided that the Company
will not be responsible for any claims, liabilities, losses, damages or expenses
that are determined by final judgment of a court of competent jurisdiction to
result from such Indemnified Party's gross negligence, willful misconduct or bad
faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company, at its option, may, assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all reasonable fees and expenses. The failure to so notify the
Company shall not affect any obligations the Company may have to such
Indemnified Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party, unless (i) the Company has failed to assume
the defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by Purchaser.
The Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which shall not be unreasonably
withheld) and the Company agrees to indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of settlement of any
action effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of Purchaser, settle or compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
pending or threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of Purchaser
and the other Indemnified Parties, satisfactory in form and substance to
Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying such Indemnified Party, the Company shall contribute to the
amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by Purchaser on the other from the transactions contemplated by this
Agreement or (ii) if the allocation provided by clause (i) is not permitted
under applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the Company on the one hand and Purchaser on
the other, but also the relative fault of the Company and Purchaser as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with respect
to the transactions contemplated hereby shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of material
fact or the omission or alleged omission to state a material fact related to
information supplied by the Company or by Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the other
Transaction Agreements and the payment in full of the Convertible Notes and
(iii) shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Purchaser or any other Indemnified Party.
Section 13.4 Expenses: Documentary Taxes. The Company has incurred an
application fee equal to 3% of the principal amount of the Convertible Notes
which shall be payable on the Closing Date and upon any Subsequent Takedown. In
addition, the Company agrees to pay to Global Capital Advisors, LLC, on the
Closing Date and any Subsequent Takedown closing, a fee equal to 2% of the
principal amount of the Convertible Notes (the "Out of Pocket Fee") in full
satisfaction of all obligations of the Company to Purchaser and its agents in
connection with the negotiation and preparation of the Transaction Agreements,
relevant due diligence, and fees and disbursements of legal counsel. The Company
has paid ▇▇▇▇▇▇▇ money of $25,000 which shall be applied toward the Out of
Pocket Fee at closing. In addition, the Company agrees to pay any and all stamp,
transfer and other similar taxes, assessments or charges payable in connection
with the execution and delivery of any Transaction Agreement or the issuance of
the Securities to Purchaser, excluding their assigns.
Section 13.5 Payment. The Company agrees that, so long as Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder,
the Company will make payments to Purchaser of all amounts due thereon by
wire transfer by 4:00 P.M. (E.S.T.).
Section 13.6 Successors and Assigns. This Agreement shall be binding upon
the Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
Section 13.7 Brokers. Except for ▇▇▇▇▇▇ ▇▇▇▇ Financial and vSource1 (the
"Brokers"), the Company represents and warrants that it has not employed any
broker, finder, financial advisor or investment banker who would be entitled to
any brokerage, finder's or other fee or commission payable by the Company or
Purchaser in connection with the sale of the Securities. The Company represents
and warrants that it is solely responsible for any fees due Brokers.
Section 13.8 Florida Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF FLORIDA. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE STATE OF FLORIDA AND OF ANY FEDERAL DISTRICT COURT SITTING IN ATLANTA,
FLORIDA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY
AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES
ITS RIGHT TO A TRIAL BY JURY.
Section 13.9 Entire Agreement. This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Convertible Debenture and the
Registration Rights Agreement, set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 13.10 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.11 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.12 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
Section 13.13 Publicity. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
Galaxy Minerals, Inc.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: Galaxy Minerals, Inc. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇
▇▇▇▇▇
Fax:
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
GCA Strategic Investment Fund Limited
By:
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
Address: c/o Prime Management Limited
Mechanics ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ ▇▇, ▇▇▇▇▇▇▇
Fax:
441-295-3926
Tel.:
▇▇▇-▇▇▇-▇▇▇▇
Securities Purchase Agreement
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS ........................................................1
Section 1.1 Definitions ..............................................1
Section 1.2 Accounting Terms and Determinations ......................9
ARTICLE II. PURCHASE AND SALE OF SECURITIES ...................................9
Section 2.1 Purchase and Sale of Convertible Notes ..................9
Section 2.2 Purchase Price .........................................10
Section 2.3 Closing and Mechanics of Payment .......................10
Section 2.4 Terms of Commitment and Subsequent Takedowns ...........10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES ..............................11
Section 3.1 Payment of Principal and Interest; Payment Mechanics ...11
Section 3.2 Intentionally Omitted ..................................11
Section 3.3 Voluntary Prepayment ...................................11
Section 3.4 Mandatory Prepayments ..................................12
Section 3.5 Prepayment Procedures ..................................13
Section 3.6 Payment of Additional Amounts ..........................14
ARTICLE IV. REPRESENTATIONS AND WARRANTIES ...................................15
Section 4.1 Organization and Qualification .........................15
Section 4.2 Authorization and Execution ............................16
Section 4.3 Capitalization .........................................16
Section 4.4 Governmental Authorization .............................17
Section 4.5 Issuance of Shares .....................................17
Section 4.6 No Conflicts ...........................................17
Section 4.7 Financial Information ..................................17
Section 4.8 Litigation .............................................18
Section 4.9 Compliance with ERISA and other Benefit Plans ..........18
Section 4.10 Environmental Matters ..................................19
Section 4.11 Taxes ..................................................19
Section 4.12 Investments, Joint Ventures ............................19
Section 4.13 Not an Investment Company ..............................19
Section 4.14 Full Disclosure ........................................19
Section 4.15 No Solicitation; No Integration with Other Offerings ...20
Section 4.16 Permits ................................................20
Section 4.17 Leases .................................................20
Section 4.18 Absence of Any Undisclosed Liabilities or
Capital Calls ..........................................20
Section 4.19 Public Utility Holding Company .........................20
Section 4.20 Intellectual Property Rights ...........................21
Section 4.21 Insurance ..............................................21
Section 4.22 Title to Properties ....................................21
Section 4.23 Internal Accounting Controls ...........................21
Section 4.24 Contracts ..............................................21
Section 4.25 Foreign Practices ......................................21
Section 4.26 Ticker Symbol ..........................................22
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER .......................22
Section 5.1 Purchaser ..............................................22
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES ...................23
Section 6.1 Conditions Precedent to Purchaser's Obligations
to Purchase ............................................23
Section 6.2 Conditions to the Company's Obligations ................25
ARTICLE VII. AFFIRMATIVE COVENANTS ...........................................25
Section 7.1 Information ............................................26
Section 7.2 Payment of Obligations .................................26
Section 7.3 Maintenance of Property; Insurance .....................26
Section 7.4 Maintenance of Existence ...............................27
Section 7.5 Compliance with Laws ...................................27
Section 7.6 Inspection of Property, Books and Records ..............27
Section 7.7 Investment Company Act .................................27
Section 7.8 Use of Proceeds ........................................27
Section 7.9 Compliance with Terms and Conditions
of Material Contracts ..................................28
Section 7.10 Reserved Shares ........................................28
Section 7.11 Transfer Agent Instructions ............................28
Section 7.12 Maintenance of Reporting Status;
Supplemental Information ...............................29
Section 7.13 Form D; Blue Sky Laws ..................................29
Section 7.14 Ticker Symbol ..........................................29
ARTICLE VIII. NEGATIVE COVENANTS .............................................29
Section 8.1 Limitations on Debt or Other Liabilities ...............29
Section 8.2 Transactions with Affiliates ...........................30
Section 8.3 Merger or Consolidation ................................30
Section 8.4 Limitation on Asset Sales ..............................30
Section 8.5 Restrictions on Certain Amendments .....................30
Section 8.6 Restrictions on Issuances of Securities ................30
Section 8.7 Limitation on Stock Repurchases ........................32
Section 8.8 Limitation on Sales By Officers and
Employee Directors .....................................32
ARTICLE IX. RESTRICTIVE LEGENDS ..............................................32
Section 9.1 Restrictions on Transfer ...............................32
Section 9.2 Legends.................................................32
Section 9.3 Notice of Proposed Transfers ...........................33
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES ...........................33
Section 10.1 Liquidated Damages .....................................33
Section 10.2 Conversion Notice ......................................34
Section 10.3 Conversion Limit .......................................34
Section 10.4 Registration Rights ....................................34
ARTICLE XI. ADJUSTMENT OF FIXED PRICE ........................................36
Section 11.1 Reorganization .........................................36
Section 11.2 Share Reorganization ...................................36
Section 11.3 Rights Offering ........................................37
Section 11.4 Special Distribution ...................................38
Section 11.5 Capital Reorganization .................................38
Section 11.6 Purchase Price Adjustments .............................39
Section 11.7 Adjustment Rules .......................................39
Section 11.8 Certificate as to Adjustment ...........................40
Section 11.9 Notice to Holders ......................................40
ARTICLE XII. EVENTS OF DEFAULT ...............................................41
Section 12.1 Events of Default.......................................41
Section 12.2 Powers and Remedies Cumulative .........................43
ARTICLE XIII. MISCELLANEOUS .................................................43
Section 13.1 Notices ................................................43
Section 13.2 No Waivers; Amendments .................................43
Section 13.3 Indemnification ........................................44
Section 13.4 Expenses: Documentary Taxes ............................46
Section 13.5 Payment ................................................46
Section 13.6 Successors and Assigns .................................47
Section 13.7 Brokers ................................................47
Section 13.8 Florida Law; Submission to Jurisdiction;
Waiver of Jury Trial;Appointment of Agent ..............47
Section 13.9 Entire Agreement .......................................47
Section 13.10 Survival; Severability.................................48
Section 13.11 Title and Subtitles ...................................48
Section 13.12 Reporting Entity for the Common Stock..................48
LIST OF SCHEDULES
Schedule 4.3 Schedule 4.7 Schedule 4.8 Schedule 4.12 Schedule 4.24 Schedule
7.8 Schedule 8.2
Capitalization Financial Information Litigation Investments, Joint Ventures
Contracts Use of Proceeds Transactions with Affiliates
LIST OF EXHIBITS
Exhibit A Form of Convertible Notes Exhibit B Form of Registration Rights
Agreement Exhibit C Form of Solvency Certificate Exhibit D Form of Officer's
Certificate Exhibit E Form of Escrow Agreement Exhibit F Form of Common Stock
Purchase Warrant
SECURITIES PURCHASE AGREEMENT dated as of May ___, 2005 by and between Galaxy
Minerals, Inc. as the Issuer, and GCA Strategic Investment Fund Limited