Exhibit 10.7
STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM) AGREEMENT dated as of
December 30, 1999 (the "Agreement"), between Cripple Creek Securities, LLC, a
limited liability company organized and existing under the laws of the State of
New York (the "Investor"), and Elcom International, Inc., a corporation
organized and existing under the laws of the State of Delaware (the "Company").
W I T N E S S E T H :
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may elect to issue to the Investor,
and, at the Company's option, the Investor shall purchase from the Company, from
time to time as provided herein, shares of the Company's Common Stock, $.01 par
value (the "Common Stock"), for a maximum aggregate Purchase Price of
$50,000,000 (the "Maximum Offering Amount"); and
WHEREAS, such investments, if made, will constitute issuances of
Common Stock not subject to a requirement of registration under the Securities
Act of 1933, as amended (the "Securities Act"), other than registration in
connection with resale of the Common Stock by the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
I.
CERTAIN DEFINITIONS
1.1 Defined Terms. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings specified
or indicated (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Affiliate" shall mean, with respect to a specified Person, a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such specified
Person.
"Applicable Quantity" shall mean the number of shares of Common
Stock that is determined by dividing the Investment Amount by the Purchase
Price, rounded up or down to the nearest whole number of shares.
"Balance Sheet" shall mean the unaudited consolidated balance sheet
of the Company as of September 30, 1999.
"Benefit Plan" shall have the meaning set forth in Section 5.12
hereof.
"Blocking Event" shall have the meaning set forth in Section 2.5(a)
hereof.
"Bloomberg" shall mean Bloomberg Financial Press.
"Blue Sky Laws" shall mean the United States state securities and
takeover laws.
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
any and all equivalent ownership interests in a Person (other than a
corporation).
"Closing" shall mean the consummation of each purchase and sale of
Common Stock pursuant to Section 2.4 hereof.
"Closing Date" shall mean, with respect to each purchase and sale
of Common Stock, subject to the conditions contained herein, the second Trading
Day following the date of receipt of an Investor Notice to the Company of its
election to purchase Common Stock from the Company (as extended pursuant to this
Agreement).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitment Period" shall mean the period commencing on the date
that the first Investment Period begins and expiring on the earliest to occur of
(a) the election by the Company or the Investor to terminate the Investor's
obligation to purchase Common Stock pursuant to Section 10.4 herein, (b) the
date on which the Investor shall have made purchases of Common Stock pursuant to
this Agreement in an aggregate Purchase Price of $50,000,000 or such lesser
maximum purchase amount as determined pursuant to Section 2.2, (c) the date this
Agreement is terminated pursuant to Section 2.5, and (d) the date occurring 18
months (subject to extension as provided by Section 2.5(a)(ii)) after the date
that the first Investment Period begins.
"Common Stock" shall have the meaning set forth in the recitals
above.
"Company Assets" shall have the meaning set forth in Section 5.16
hereof.
"Company Put Amount" shall have the meaning set forth in Section
2.1(a) hereof.
"Company Put Notice" shall have the meaning set forth in Section
2.3(a) hereof.
"Company Put Purchase Date" shall mean any Trading Day upon which
the Investor notifies the Company by delivery of an Investor Notice of the
Investor's election to purchase all or a portion of a Company Put Amount.
"Compensation Plans" shall mean any stock or option or similar
equity-based compensation plans.
"Condition Satisfaction Date" shall have the meaning set forth in
Section 3.2 hereof.
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"Effective Date" shall mean December 30, 1999, or such later date
as all of the three following conditions shall have occurred: (i) the Company
shall have delivered the fully executed Registration Rights Agreement, and any
other documents required to be delivered pursuant to the terms of this
Agreement, (ii) the Company shall have indicated to the Investor in writing that
the Exhibits to this Agreement are in final form and delivered such Exhibits to
the Investor, and (iii) the Registration Statement shall have become effective.
"Environmental Laws" shall mean all federal, state, local and
foreign laws and regulations primarily relating to pollution or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including, without limitation, laws and
regulations primarily relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise primarily relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Equity Offering" shall mean the issuance and sale by the Company,
(a) in a registered public offering or (b) in a transaction exempt from or not
subject to the registration requirements of the Securities Act, of any shares of
Common Stock or securities which are convertible into or exchangeable for the
Company's Common Stock or any warrants, options or other rights to subscribe for
or purchase its Common Stock or any such convertible or exchangeable securities
(other than securities issued or issuable to any present or future or former (at
the time of issuance) employee, officer, director or consultant of the Company
or its Subsidiaries pursuant to any Compensation Plans), upon the conversion or
exchange of convertible or exchangeable securities or upon the exercise of
warrants (excluding the Warrants), or other rights, or upon the issuance of any
shares of Common Stock issued upon exercise of options, conversion or exchange
of convertible or exchangeable securities, warrants or other rights outstanding
on the date of execution and delivery of this Agreement, but other than (i)
those listed or described in the SEC Documents on file with the SEC (other than
the Warrants), (ii) shares of Common Stock which may be issued upon exercise of
options granted under the Compensation Plans, (iii) shares of Common Stock which
may be issued upon exercise of the Warrants, (iv) shares of Common Stock or
securities which are convertible into or exchangeable for Common Stock or any
warrants, options or other rights to subscribe for or purchase Common Stock or
any such convertible or exchangeable securities, in each case which are issued
in strategic corporate partnering transactions that do not result in any
acquisition or other change in control of the Company, (v) shares of Common
Stock which may be issued upon exercise of the warrants issued by the Company
pursuant to the Amended and Restated Lantec Stockholders Agreement, dated as of
April 6, 1996 among the Company, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and the selling
stockholders named therein and (vi) shares of Common Stock which may be issued
upon exercise of warrants issued by the Company pursuant to the letter
agreement, dated July 8, 1999, between the Company and Wit Capital Corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Floor Price" shall be $8.00, or the higher or lower dollar amount
designated after the date hereof by the Company in a Floor Price Notice. In the
event a Floor Price Notice is not
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received with respect to a certain Investment Period, the Floor Price set for
the preceding Investment Period will continue to be the Floor Price.
"Floor Price Notice" shall mean a written notice delivered by the
Company to the Investor on, or as of, the third (3rd) Trading Day preceding the
commencement of an Investment Period which sets forth the Floor Price for such
Investment Period.
"4.9% Limit" shall have the meaning specified in Section 2.2(d)
hereof.
"GAAP" shall have the meaning set forth in Section 5.9(a).
"Governmental Entity" shall mean any federal, state, local or
foreign legislative body, court, government, department or instrumentality, or
governmental, administrative or regulatory authority or agency.
"Included Day" shall have the meaning set forth in Section 2.4(b)
hereof.
"Investment Amount" shall mean the dollar amount paid by the
Investor for the Common Stock on any Closing Date.
"Investment Period" shall mean each successive one-month period
(subject to extension as provided by Section 2.5(a)(ii)) commencing on (a) in
the case of the first Investment Period, the eleventh (11th) Trading Day
following the date the Registration Statement is declared effective, provided
that the first Investment Period may start as of a different date upon the
mutual written consent of the Company and Investor, and (b) in the case of
subsequent Investment Periods, commencing on the first Trading Day subsequent to
the expiration of the immediately preceding Investment Period.
"Investor Call Amount" shall have the meaning set forth in Section
2.1(b) hereof.
"Investor Call Notice" shall have the meaning set forth in Section
2.3(b) hereof.
"Investor Call Purchase Date" shall mean any Trading Day on which
the Investor notifies the Company by delivery of an Investor Notice of the
Investor's election to purchase all or a portion of an Investor Call Amount.
"Investor Notice" shall have the meaning set forth in Section 2.3c)
hereof.
"Knowledge of the Company" shall mean the actual knowledge, without
independent inquiry, of any of the executive officers of the Company.
"Knowledge of the Investor" shall mean the actual knowledge,
without independent inquiry, of any of the executive officers of the Investor.
"Liens" shall have the meaning set forth in Section 5.16 hereof.
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"Material Adverse Effect" shall mean any effect on the business,
operations, properties or financial condition of the Company which is material
and adverse to the Company or to the Company and any other entities controlled
by the Company, taken as a whole, or any condition or situation which could
prohibit, impair or otherwise interfere with the ability of the Company to enter
into and perform its obligations under this Agreement, the Registration Rights
Agreement or the Warrants.
"Materials of Environmental Concern" shall mean hazardous
substances as defined under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. and hazardous wastes
as defined under the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901,
et seq. and petroleum and petroleum products and such other chemicals, materials
or substances as are listed as "hazardous wastes", "hazardous materials", "toxic
substances", or words of similar import under any similar federal, state, local
or foreign laws.
"Maximum Offering Amount" shall have the meaning set forth in the
introductory paragraphs hereof.
"Minimum Commitment Warrant" shall have the meaning set forth in
Section 2.6(b).
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"Person" shall mean an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or subdivision thereof.
"Principal Market" shall mean the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, or any similar organization
or agency succeeding such market or exchange's functions of reporting prices,
whichever is at the time the principal trading exchange or market for the Common
Stock.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any Prospectus supplement, including
post-effective amendments, and all material incorporated by reference in such
Prospectus.
"Purchase Price" shall have the meaning set forth in Section 2.4(b)
hereof.
"Registration Rights Agreement" shall have the meaning set forth in
Section 2.6(d) hereof.
"Registration Statement" shall have the meaning set forth in
Section 3.2(a) hereof.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 5.9
hereof.
"Securities Act" shall have the meaning set forth in the recitals
above.
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"Stock Price" on a given Trading Day shall mean the volume-weighted
average trading price for the Common Stock on the Principal Market during such
Trading Day, calculated in the manner utilized by Nasdaq as reported by
Bloomberg.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited or general partnership, trust, association or other
business entity of which 50% or more of the outstanding Capital Stock or other
interests entitled to vote in the election of the board of directors of such
corporation (irrespective of whether, at the time, Capital Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more Subsidiaries of such Person.
"Tax Return" shall mean any report, return, information statement
or other information required to be supplied to any federal, state, local or
foreign taxing authority, or any election permitted to be made, in connection
with Taxes.
"Taxes" shall mean all taxes, charges, fees, levies, duties or
other assessments, including without limitation all net income, gross income,
gross receipts, franchise, value added, sales, use, property, ad valorem,
transfer, withholding, profits, license, employee, payroll, social security,
unemployment, excise, estimated, severance and any other taxes, duties,
withholdings, fees, assessments or charges of any kind whatsoever, including any
interest, penalties or additional amounts attributable thereto, imposed by any
federal, state, local or foreign taxing authority.
"Trading Day" shall mean any day during which the New York Stock
Exchange shall be open for business and on which trading of the Common Stock on
the Principal Market shall not have been suspended or limited.
"Value of Open Market Trading" shall mean, with respect to any
Trading Day, the product of the reported trading volume of the Common Stock on
the Principal Market, multiplied by the weighted average trading price (by
trading volume) of the Common Stock on such day (each as determined by Bloomberg
or any other reputable pricing service chosen by the Investor and reasonably
acceptable to the Company); provided, however, that in the event that the
Company consummates a registered public offering of Common Stock (whether
primary or secondary), the Trading Day on which such transaction is consummated
shall be excluded from any calculation under this Agreement based upon the Value
of Open Market Trading; provided further, that any block trades of 20,000 shares
or more of Common Stock shall not be included in the calculation when
determining reported trading volume and weighted average trading price.
"Volume Limit" shall have the meaning specified in Section 2.2(b)
hereof.
"Warrant" shall have the meaning set forth in Section 2.6(a)hereof.
"Warrants" shall have the meaning set forth in Section 2.6(a)hereof.
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"Warrant Exercise Price" shall have the meaning set forth in
Section 2.6(a) hereof.
"Warrant Share Amount" shall have the meaning set forth in Section
2.6(a) hereof.
"Warrant Shares" shall have the meaning set forth in Section 2.6(d)
hereof.
II.
PURCHASE AND SALE OF COMMON STOCK
Section 2.1. Investments. Subject to the terms and conditions set
forth herein (including, without limitation, the provisions of Article III
hereof), during the Commitment Period:
(a) Company Put. If the Company, in its sole discretion, elects to
deliver a Company Put Notice with respect to any Investment Period in accordance
with Section 2.3(a) hereof, then upon the Company's delivery of such Company Put
Notice, the Investor shall be obligated in such Investment Period to purchase
from the Company shares of Common Stock during such Investment Period for an
aggregate Purchase Price specified in such Company Put Notice, which Purchase
Price shall be between $1,000,000 and $10,000,000 (with any amount in excess of
$1,000,000 in a multiple of $50,000), subject to the adjustments and limitations
imposed by this Agreement (the "Company Put Amount"). Upon receipt of a Company
Put Notice, subject to the terms and conditions contained herein, the Investor
shall be obligated to purchase on one or more Closing Dates in respect of each
such Company Put Purchase Date or Company Put Purchase Dates as the Investor
elects during the Investment Period, shares of Common Stock for an aggregate
Purchase Price equal to the Company Put Amount.
(b) Investor Call. For any Investment Period with respect to which the
Company has timely delivered a Company Put Notice, the Investor may deliver to
the Company one or more Investor Call Notices in accordance with Section 2.3(b)
hereof at any time prior to the twentieth calendar day following the
commencement of such Investment Period. Upon delivery of such an Investor Call
Notice, the Company shall be obligated to sell shares of Common Stock to the
Investor (in addition to the Company Put Amount) during the corresponding
Investment Period for an aggregate Purchase Price specified by Investor in such
Investor Call Notice, but in no event less (when aggregated with the purchase
prices of all other purchases of Common Stock made pursuant to Investor Call
Notices with respect to such Investment Period) than $1,000,000 or greater (when
aggregated with the purchase prices of all other purchases of Common Stock made
pursuant to Investor Call Notices with respect to such Investment Period) than
the Company Put Amount, subject to the adjustments and limitations imposed by
this Agreement (the "Investor Call Amount"). Upon delivery of such Investor Call
Notice, the Investor shall be obligated to purchase on each Closing Date in
respect of each such Investor Call Purchase Date or Investor Call Purchase Dates
as the Investor elects during the Investment Period to which such Investor Call
Notice relates, shares of Common Stock for an aggregate Purchase Price equal to
the Investor Call Amount.
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(c) Purchase of Less Than or More Than the Company Put Amount and
Investor Call Amounts. Upon delivery of a Company Put Notice to the Investor
and/or delivery of an Investor Call Notice or Investor Call Notices to the
Company, the Investor may purchase an amount of Common Stock in any Investment
Period equal to up to five percent (5%) more than, or less than, the aggregate
dollar amount of the Company Put Amount and the Investor Call Amounts, if any,
with respect to such Investment Period, and any such purchases shall be treated
for purposes of this Agreement as satisfying the Investor's obligations with
respect to the Company Put Amount and the Investor Call Amounts, if any,
respectively.
Section 2.2. Limitations on Investment Amount.
(a) Overall Maximum. In no event shall the aggregate dollar amount of
the purchases of Common Stock made by the Investor at Closings in all Investment
Periods pursuant to Section 2.1 exceed the Maximum Offering Amount; provided,
however, that the Investor may purchase Common Stock in excess of the Maximum
Offering Amount with the prior written consent of the Company.
(b) Investment Period Limits. Notwithstanding the obligation of the
Investor to purchase shares of Common Stock pursuant to Section 2.1(a), the sum
of the Investment Amounts for any Investment Period (whether pursuant to a
Company Put Amount or Investor Call Amount(s) or both) shall not exceed the
lesser of (x) the Company Put Amount plus the sum of all Investor Call Amounts,
if any, (y) an amount equal to the product of (I) 8% of the average daily Value
of Open Market Trading of the Common Stock on the Principal Market for each
Trading Day during the Investment Period immediately preceding such Investment
Period times (II) the sum of (A) the number of Trading Days in which the Stock
Price is above the Floor Price, and (B) the number of Trading Days that are
designated by the Investor as Included Days pursuant to Section 2.4(b), in each
of cases (A) and (B), in such immediately preceding Investment Period, (III)
rounded up to the next increment of $10,000, and (z) an amount equal to the
product of (I) 8% of the average daily Value of Open Market Trading of the
Common Stock on the Principal Market for each Trading Day during such Investment
Period times (II) the sum of (A) the number of Trading Days in which the Stock
Price is above the Floor Price, and (B) the number of Trading Days that are
designated by the Investor as Included Days pursuant to Section 2.4(b), in each
of cases (A) and (B), in such Investment Period, (III) rounded up to the next
increment of $10,000 (the lower of the amounts referred to in clauses (y) and
(z), the "Volume Limit"); provided, however, that the Investor may waive, in
whole or in part, the Volume Limit in any Investment Period.
(c) Floor Price and Pro Rata Reduction of Investor's Obligation.
Notwithstanding anything to the contrary contained herein, the Investor's
obligation to acquire shares of Common Stock shall be reduced in any Investment
Period during which there is one or more Trading Days that the Stock Price is
below the Floor Price (other than Included Days), so that the aggregate number
of shares of Common Stock required to be purchased by the Investor during such
Investment Period shall be that number of shares determined pursuant to Section
2.1, after taking into account any reduction pursuant to Section 2.2(b) hereof,
multiplied by a fraction, the numerator of which shall be the sum of (i) the
number of Trading Days that the Stock Price is
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above the Floor Price and (ii) the number of Included Days, and the denominator
of which shall be the total number of Trading Days during such Investment
Period.
(d) 4.9% Limit. Notwithstanding anything herein to the contrary, the
Investor shall not be required or entitled to purchase shares of Common Stock
pursuant to this Agreement on any Closing Date to the extent such purchase, when
aggregated with all other shares of Common Stock then beneficially owned by the
Investor, all purchases of Common Stock pursuant to this Agreement or otherwise
within the previous sixty days, and with the shares of Common Stock beneficially
or deemed beneficially owned by the Investor pursuant hereto, and the Warrant
Shares (if then issued and outstanding) theretofore issued to the Investor
pursuant to Section 2.6 and still owned by the Investor, would result in the
Investor or any Affiliate of the Investor beneficially owning more than 4.9% of
all the issued and outstanding Common Stock on such Closing Date, as determined
in accordance herewith and Section 13(d) of the Exchange Act (the "4.9% Limit").
Notwithstanding the foregoing, the Investor shall have the right to waive the
4.9% Limit, in whole or in part, upon 61 days' prior written notice to the
Company; provided, however, that such waiver shall not be permitted to the
extent that, if the Investor were to acquire additional shares of Common Stock
pursuant to such waiver, such notice and/or purchase would result in the
Investor or any Affiliate of the Investor beneficially owning more than 9.9% of
all the issued and outstanding Common Stock.
Section 2.3. Mechanics of Notification
(a) Company Put Notice. On or before the third (3rd) Trading Day
preceding the commencement of an Investment Period, unless otherwise agreed by
the parties to this Agreement, the Chief Executive Officer or the Senior Vice
President of the Company (or such other person as designated by either in
writing) may, at the Company's sole discretion, deliver a written notice to the
Investor (each such notice being a "Company Put Notice") which specifies the
Company Put Amount and states that the Investor shall be obligated to purchase
the Company Put Amount during such Investment Period subject to the terms and
conditions contained herein. A Company Put Notice shall be irrevocable.
(b) Investor Call Notices. If the Company has delivered a Company Put
Notice with respect to an Investment Period, the Investor may, in the Investor's
sole discretion, deliver one or more written notices to the Company at any time
prior to the twentieth calendar day following the commencement of such
Investment Period (each such notice being an "Investor Call Notice") which
states that the Investor shall purchase an Investor Call Amount during such
Investment Period subject to the terms and conditions contained herein. An
Investor Call Notice shall be irrevocable.
(c) Investor Notices. During any Investment Period in which the
Investor has an obligation to purchase Common Stock pursuant to a Company Put
Notice and/or an Investor Call Notice, the Investor may deliver a written notice
to the Company at any time during such Investment Period (each such notice being
an "Investor Notice") which specifies one or more Company Put Purchase Dates
and/or Investor Call Purchase Dates.
(d) Date of Delivery of Notices.
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(i) Notices to the Investor. A Company Put Notice or any other
notice sent by the Company to the Investor shall be deemed to be delivered on
the Trading Day it is transmitted by facsimile with confirmation of acceptance
or otherwise received in writing via courier, hand delivery or first-class mail
(return receipt requested) by the Investor, or, if received on any day which is
not a Trading Day, shall be deemed to be delivered on the immediately succeeding
Trading Day.
(ii) Notices to the Company. An Investor Call Notice, Investor
Notice or any other notice sent by the Investor to the Company shall be deemed
to be delivered on the Trading Day it is transmitted by facsimile with
confirmation of acceptance or otherwise received in writing via courier, hand
delivery or first-class mail (return receipt requested) by the Company, or, if
received on any day which is not a Trading Day, shall be deemed to be delivered
on the immediately succeeding Trading Day.
Section 2.4. Closings
(a) Deliveries at Closings. On each Closing Date (i) the Company shall
deliver to the Investor one or more certificates representing the Applicable
Quantity of shares of Common Stock registered in the name of the Investor or, at
the Investor's option, deposit such certificate(s) into such account or accounts
previously designated by the Investor, and (ii) the Investor shall deliver to
the Company the Investment Amount (less any amounts withheld pursuant to Section
11.2) by federal funds wire transfer or transfer of New York Clearing House
funds. In addition, on or prior to each Closing Date, each of the Company and
the Investor shall deliver all documents, instruments and writings required to
be delivered or reasonably requested by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated herein.
(b) Purchase Price Per Share. The purchase price per share of the
Company's Common Stock (the "Purchase Price") shall be the lowest Stock Price of
the Stock Prices on each of the five (5) Trading Days immediately prior to but
excluding a Company Put Purchase Date or Investor Call Purchase Date, as the
case may be; provided, however, that (i) upon Investor's prior notice to the
Company, which notice may be provided orally, any Stock Price on a Trading Day
below the Floor Price may be considered to be equal to the Floor Price for
purposes of determining the Purchase Price, and (ii) if no such notice is
provided, any Stock Price on a Trading Day below the Floor Price shall not be
considered in determining the Purchase Price, and the Purchase Price shall be
determined solely by reference to the remaining Trading Days in such five (5)
Trading Day period. A Trading Day with respect to which the Investor provides
notice that the Stock Price shall be considered to be equal to the Floor Price
in accordance with clause (i) above shall be deemed an "Included Day."
Section 2.5. Termination, Suspension and Modification of Investment
Obligation
(a) (i) Blocking Events. The Investor shall not purchase any shares of
Common Stock from the Company on any Closing Date, nor shall a Company Put
Notice or an Investor Call Notice be delivered at any time during the Commitment
Period when there shall exist any
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one or more of the following: (A) the withdrawal of the effectiveness of the
Registration Statement, (B) the Company's failure to satisfy the requirements of
Section 3.2 or 3.3, or (C) any failure or interruption in the compliance by the
Company with the covenants provided in Article VI (each of (A), (B), and (C), a
"Blocking Event").
(ii) Reduction or Elimination of Investor Obligation to
Purchase and Extension of Investment Period. In the event that a Blocking Event
occurs during an Investment Period, the obligation of the Investor to purchase
shares of Common Stock (pursuant to either a Company Put Notice or an Investor
Call Notice) during such Investment Period shall, unless such Blocking Event is
waived in writing by the Investor, be reduced (but in no event shall such
reduction result in a negative number) by subtracting an amount calculated by
multiplying the amount which the Investor would otherwise be obligated to
purchase by a fraction, the numerator of which shall be 1-1/2 times the number
of Trading Days within such Investment Period that such event or events exist
and the denominator of which shall be the number of Trading Days within such
Investment Period (without adjustment pursuant to Section 2.2(c) reflecting the
Stock Price being below the Floor Price) from the Investor's obligation during
such Investment Period. If such event remains uncured for a period of greater
than five (5) Trading Days or exists during the last five (5) Trading Days of
the Investment Period, the remaining obligation of the Investor to purchase
shares of Common Stock pursuant to a Company Put Notice or an Investor Call
Notice shall be canceled for the remainder of the Investment Period. If such
event exists on the last day preceding an Investment Period with respect to
which the Company has delivered a Company Put Notice, the Company shall, unless
waived in writing by the Investor, have five (5) Trading Days in which to cure,
and if cured within such period, the commencement of the Investment Period shall
be postponed for such number of days during such period as the event remained
uncured, but in no event shall such Investment Period be postponed for a period
in excess of five (5) Trading Days.
(b) Additional Events of Termination of Investor Obligation. The
obligation of the Investor to purchase shares of Common Stock under this
Agreement may, if the Investor in its sole and absolute discretion so elects, be
terminated (including with respect to a Closing Date which has not yet occurred)
in the event that (i) the Registration Statement shall not have been declared
effective by the SEC on or before one hundred twenty (120) days from the date of
this Agreement; (ii) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement, or any withdrawal of the
effectiveness of the Registration Statement for a period greater than twenty
(20) Trading Days in any Investment Period for any reason other than as a result
of subsequent corporate developments which would require such Registration
Statement to be amended to reflect such event in order to maintain its
compliance with the disclosure requirements of the Securities Act; or (iii) the
Company shall at any time fail to comply with the requirements of Sections 6.2,
6.3, 6.4, 6.6 or 6.7 and the Company shall fail to cure such noncompliance
within (A) five (5) Trading Days after receipt of notice from the Investor of
its election to terminate this Agreement, provided that the Investor has been
notified by the Company of such noncompliance within two (2) Trading Days of the
occurrence of such noncompliance or, if the noncompliance relates to a failure
of the Company to comply with the provisions of Section 6.6, the Investor
otherwise becomes aware of such noncompliance or (B) otherwise within five (5)
Trading Days of the occurrence of such noncompliance; provided, however, that
notwithstanding the foregoing, the Investor may, in its sole and absolute
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discretion, terminate this Agreement if the Company shall fail to maintain the
listing of the Common Stock on a Principal Market, or if trading of the Common
Stock on a Principal Market shall have been suspended for a period of ten (10)
consecutive Trading Days.
Section 2.6. Warrants
(a) Warrants.
(i) On or before five (5) business days following the
notification by the Investor of its calculation of the Warrant Share Amount, the
Company shall issue to the Investor a warrant which gives the Investor the right
to purchase, on the terms and conditions set forth in this Section 2.6(a), that
number of shares of Common Stock equal to the Warrant Share Amount (as defined
in Section 2.6(a)(iii) below) (the "Warrant," and collectively with the Minimum
Commitment Warrant, the "Warrants").
(ii) The Warrant shall entitle the holder thereof to purchase
Common Stock from time to time within five (5) years from the date the Warrant
is issued at an exercise price per share equal to 120% of the weighted average
of the Purchase Prices at which shares of Common Stock were purchased at the
Closings of all purchases of Common Stock by the Investor during the Commitment
Period (the "Warrant Exercise Price").
(iii) "Warrant Share Amount" shall mean the number of shares
equal to 15,000 times a fraction, of which the denominator is $1,000,000 and the
numerator is the aggregate Purchase Price of Common Stock purchased at the
Closings of all purchases of Common Stock by the Investor during the Commitment
Period (rounded to the nearest $100,000 increment).
(b) Minimum Commitment Warrant. In the event, but only in the event,
that after the end of the Commitment Period the aggregate dollar amount of all
purchases of Common Stock by the Investor during the Commitment Period is less
than $10,000,000, within five (5) Trading Days of the end of the Commitment
Period, the Company will issue to the Investor a warrant, exercisable by the
Investor in its sole and absolute discretion from time to time within five (5)
years from the date of issuance (the "Minimum Commitment Warrant") to purchase
that number of shares of Common Stock equal to 150,000 less the number of shares
issuable upon exercise of any and all Warrants issued pursuant to Section
2.6(a), at an exercise price per share equal to 120% of the average of the Stock
Price for the five (5) Trading Days preceding the termination of this Agreement
in accordance with its terms; provided, however, that notwithstanding the
foregoing, in the event the Board of Directors of the Company sends notice to
the Investor that it has reasonably determined that the review by the SEC of the
Registration Statement may have an adverse effect on the timing or marketability
of a public offering of securities by ▇▇▇▇▇.▇▇▇, inc., a Subsidiary of the
Company, this Agreement shall terminate and the Minimum Commitment Warrant may
be exercised at the above price to purchase 100,000 shares of Common Stock.
(c) Form of Warrant. Each of the Warrant and the Minimum Commitment
Warrant shall be substantially in the form of Exhibit A hereto.
12
(d) Registration Rights for Warrant Shares. The resale by the Investor
of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares")
shall be subject to a registration rights agreement (the "Registration Rights
Agreement") entered into between the Company and the Investor on the date of
execution of this Agreement.
III.
CONDITIONS PRECEDENT
3.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below, which conditions cannot be waived without the prior written consent
of the Company.
(a) Accuracy of the Investor's Representations and
Warranties. The representations and warranties of the Investor set forth in this
Agreement shall be true and correct in all material respects as of the date of
each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investor at or prior to such Closing.
(c) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which, in the reasonable opinion of the Company and its legal
counsel, prohibits or adversely affects any of the transactions contemplated by
this Agreement, and no proceeding shall have been commenced which would be
reasonably likely to have the effect of prohibiting or adversely affecting any
of the transactions contemplated by this Agreement.
3.2 Conditions Precedent to the Obligation of the Investor to
Purchase Pursuant to a Company Put Notice. The obligation of the Investor to
purchase pursuant to a Company Put Notice and the right of the Company to
deliver a Company Put Notice and the obligation of the Investor hereunder to
acquire and pay for Common Stock incident to a Closing is subject to the
satisfaction, on the date of delivery of a Company Put Notice, and on the
applicable Closing Date (each a "Condition Satisfaction Date") of each of the
following conditions, which conditions cannot be waived without the prior
written consent of the Company and the Investor.
(a) Registration of the Common Stock with the SEC. The
Company shall have filed with the SEC a registration statement (the
"Registration Statement") for the registration of the resale by the Investor of
Common Stock to be acquired pursuant to this Agreement, including Common Stock
to be issued upon exercise of the Warrants (in accordance
13
with the Registration Rights Agreement), under the Securities Act, which
Registration Statement shall have been filed as early as practicable, but in no
event later than thirty (30) days following the date of this Agreement and which
Registration Statement shall have been declared effective by the SEC no later
than one hundred twenty (120) days following the date of this Agreement.
Furthermore, the Company shall have filed (i) with the applicable state
securities commissions such blue sky filings as shall have been reasonably
requested by the Investor, and (ii) any required filings with the NASD or
exchange or market where the Common Stock is traded.
(b) Effective Registration Statement. The Registration
Statement shall be in effect and shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor the Investor shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily or
permanently, or intends or has threatened to do so, and (ii) no other suspension
of the use of the Registration Statement or related Prospectus shall exist.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company as set forth in
this Agreement and the Registration Rights Agreement shall be true and correct
in all material respects as of each Condition Satisfaction Date as though made
at each such time (except for representations and warranties made as of a
specific date).
(d) Performance by the Company. The Company shall have
performed, satisfied and complied with in all material respects all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(f) Adverse Changes. Since September 30, 1999, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the SEC, no event which had or is reasonably
likely to have a Material Adverse Effect has occurred, except as disclosed in
the SEC Documents or Company press releases subsequent to such date.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock shall not have been suspended by the SEC,
the Principal Market or the NASD, and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market.
14
(h) Legal Opinions. Except as otherwise provided in
this Section 3.2(h), the Company shall have caused to be delivered to the
Investor, (i) within five (5) Trading Days following the effective date of the
Registration Statement, (ii) as of a date within five (5) Trading Days after the
date of the Company's filing of its most recent quarterly report on Form 10-Q
(or the date by which such report is required to be filed), (iii) as of a date
within five (5) Trading Days after the date on which the Company announces,
whether on a preliminary or definitive basis, its fourth quarter or full-year
financial results, (iv) to the extent provided by (and only at the times
provided by) Section 3.3, and (v) as of a date within five (5) Trading Days of
the beginning of an Investment Period as to which the Company has delivered a
Company Put Notice (provided, however, that in no event shall such delivery by
the Company be required more than one (1) time during any given Investment
Period unless such delivery is reasonably requested by Investor), a letter of
the Company's independent counsel containing the opinions and statements set
forth in Exhibit B hereto, addressed to the Investor (but not rendering an
opinion) stating also, inter alia, that, without independently checking the
accuracy of or completeness of, or otherwise verifying any statements of fact
contained in the Registration Statement, no facts have come to such counsel's
attention that would cause it to believe that the Registration Statement (as
amended, if applicable), contains an untrue statement of material fact or omits
a material fact required to make the statements contained therein, not
misleading or that the underlying Prospectus (if applicable, as so amended or
supplemented) contains an untrue statement of material fact or omits a material
fact required to make the statements contained therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
in the event that such a letter cannot be delivered by the Company's independent
counsel to the Investor, the Company shall promptly notify the Investor and
promptly revise the Registration Statement, and the Company shall not deliver a
Company Put Notice or, if a Company Put Notice shall have been delivered in good
faith without knowledge by the Company that a letter of independent counsel
cannot be delivered as required, shall postpone, if necessary, any pending
Closing Date (including a Closing Date with respect to an Investor Call Notice)
for a period of up to five (5) Trading Days until such a letter is delivered to
the Investor (or such Closing shall otherwise be canceled). In the event of such
a postponement, the Purchase Price of the Common Stock to be issued at such
Closing as determined pursuant to Section 2.4 shall be the lower of such
Purchase Price as calculated as of the originally scheduled Closing Date or
calculated as of the actual Closing Date. Notwithstanding the foregoing, the
Company's independent counsel shall also deliver to the Investor, on or before
the Effective Date, an opinion in form and substance reasonably satisfactory to
the Investor addressing the matters specified in Exhibit C hereto; provided,
however, that no opinions shall be required to be delivered pursuant to this
Section 3.2(h) unless and until the Company delivers a Company Put Notice with
respect to an Investment Period.
(i) Accountant's Letter.
(i) The Company shall have furnished to the
Investor a comfort letter of its independent auditors in customary form,
including a statement to the effect that they have performed the procedures in
accordance with the provisions of Statement on Auditing Standards No. 71, as
amended, as agreed to by the parties hereto, and reports thereon as shall have
been reasonably requested by the Investor with respect to certain financial
information
15
contained in the Registration Statement and shall have delivered to the Investor
a report addressed to the Investor, (x) within five (5) Trading Days following
the effective date of the Registration Statement and (y) within ten (10) Trading
Days following the filing with the SEC of each SEC Document containing unaudited
financial statements of the Company which is deemed to be incorporated by
reference in the Registration Statement; provided, however, that no "agreed upon
procedures" report shall be required to be delivered pursuant to this Section
3.2(i) unless and until the Company delivers a Company Put Notice with respect
to an Investment Period.
(ii) In the event that the Investor shall have
requested delivery of an "agreed upon procedures" report pursuant to Section
3.3, the Company shall engage its independent auditors to perform certain agreed
upon procedures and report thereon as shall have been reasonably requested by
the Investor with respect to certain financial information of the Company and
the Company shall deliver to the Investor a copy of such report addressed to the
Investor.
(iii) In the event that a report required by
this Section 3.2 cannot be delivered by the Company's independent auditors,
the Company shall, if necessary, promptly revise the Registration Statement and
the Company shall not deliver a Company Put Notice or, if a Company Put Notice
shall have been delivered in good faith without knowledge by the Company that a
report of its independent auditors cannot be delivered as required, postpone
such Closing Date for a period of up to five (5) Trading Days until such a
report is delivered (or such Closing shall otherwise be canceled). In the event
of such a postponement, the Purchase Price of the Common Stock to be issued at
such Closing as determined pursuant to Section 2.4 shall be the lower of such
Purchase Price as calculated as of the originally scheduled Closing Date and as
of the actual Closing Date.
(j) Officer's Certificate. The Company shall have
delivered to the Investor, on each Closing Date, a certificate in form and
substance reasonably acceptable to the Investor, executed by an executive
officer of the Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
(k) Due Diligence. No dispute between the Company and
the Investor shall exist pursuant to Section 3.3 as to the adequacy of the
disclosure contained in the Registration Statement.
3.3 Due Diligence Review. The Company shall make available, during
normal business hours, for inspection and review by the Investor, advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement or amendments or supplements thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees, within a
reasonable time period, to supply all such information reasonably requested by
the Investor or any such representative, advisor or underwriter in
16
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
The Company shall not disclose nonpublic information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
nonpublic information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
nonpublic information for review. The Company may, as a condition to disclosing
any nonpublic information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement (including an
agreement with such advisors and representatives prohibiting them from trading
in Common Stock during such period of time as they are in possession of
nonpublic information) in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by any such persons or entities),
which, if not disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 3.3 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information. The Investor's advisors or representatives shall make complete
disclosure to the Investor's independent counsel of all events or circumstances
constituting nonpublic information discovered by such advisors or
representatives in the course of their due diligence upon which such advisors or
representatives form the opinion that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in the light of the circumstances in which they were made,
not misleading. Upon receipt of such disclosure, the Investor's independent
counsel shall consult with the Company's independent counsel in order to
17
address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus. In the event after such consultation the
Investor's independent counsel reasonably believes that the Registration
Statement contains an untrue statement or a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading, (a) the Company shall file with the SEC an amendment
to the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with copies of
the Registration Statement and related Prospectus, as so amended, (b) if the
Company disputes the existence of any such material misstatement or omission,
(i) and the dispute relates to information other than financial statements,
schedules and other financial or statistical information included or
incorporated by reference therein, the Company's independent counsel shall
provide the Investor's independent counsel with a letter (customary in form and
scope as provided to an underwriter in an underwritten public offering) stating
that, without independently checking the accuracy or completeness of, or
otherwise verifying, any statements of fact contained in the Registration
Statement, nothing has come to their attention that would lead them to believe
that the Registration Statement or the related Prospectus, as of the date of
such letter, contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or the related
Prospectus or necessary to make the statements contained therein, in light of
the circumstances in which they were made, not misleading or (ii) in the event
the dispute relates to the adequacy of financial disclosure and the Investor
shall reasonably request, the Company's independent auditors shall provide to
the Company a letter outlining the performance of such "agreed upon procedures"
as shall be reasonably requested by the Investor and the Company shall provide
the Investor with a copy of such letter, or (c) if the Company disputes the
existence of any such material misstatement or omission, and the dispute relates
to the timing of disclosure of a material event and the Company's independent
counsel is unable to provide the letter referenced in clause (b)(i) above to the
Investor, then this Agreement shall be suspended for a period of up to thirty
(30) days, at the end of which, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide to the Investor the Company's independent counsel letter or a copy
of the letter of the Company's independent auditors referenced above, as
applicable, or (iii) the obligation of the Investor to purchase shares of Common
Stock pursuant to this Agreement shall terminate.
IV.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company as follows:
18
4.1 No Present Arrangement. The Investor is entering into this
Agreement for its own account and the Investor has no present arrangement
(whether or not legally binding) at any time to sell the Common Stock to or
through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold the Common Stock for
any minimum or other specific term and reserves the right to dispose of the
Common Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
4.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D under the
Securities Act) and an accredited investor (as defined in Rule 501 of Regulation
D under the Securities Act), and the Investor has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in Common Stock. The Investor acknowledges that an investment in
the Common Stock is speculative and involves a high degree of risk, and that the
Investor is able to afford the loss of its entire investment herein.
4.3 Authority. The Investor has full power and authority as a
limited liability company to execute and deliver this Agreement, the
Registration Rights Agreement and the Warrants, and to consummate the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the
Investor. No other proceedings on the part of Investor are necessary to approve
and authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby in accordance with the terms hereof.
This Agreement has been validly executed and delivered by the Investor and is a
valid and binding agreement of the Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
4.4 No Brokers. The Investor has taken no action that would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby.
4.5 Not an Affiliate. The Investor is not an officer, director or
Affiliate of the Company.
4.6 Organization and Standing. The Investor is a limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of New York, and has all requisite power and authority as a limited
liability company to carry on its business as now being conducted, and is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualifications necessary,
except where the failure to be so qualified or in good standing would not
reasonably be expected to have a material adverse effect.
4.7 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements hereof and
19
thereof, will not violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Investor, or the provision of any
indenture, instrument or agreement to which the Investor is a party or is
subject, or by which the Investor or any of its assets is bound, or conflict
with or constitute a material default thereunder, or result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by the Investor
to any third party, or require the approval of any third party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which the Investor is subject or to which
any of its assets, operations or management may be subject.
4.8 Disclosure: Access to Information. The Investor has received
all documents, records, books and other information pertaining to the Investor's
investment in the Company that have been requested by the Investor. The Investor
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Exchange Act, and the Investor has
reviewed or received copies of any such reports that have been requested by it
and that it considers necessary or appropriate for deciding whether to enter
into this Agreement and perform its obligations hereunder. The Investor further
represents that it had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of the purchase of the Common
Stock and the Warrants, and the business, properties, prospects and financial
condition of the Company.
4.9 Manner of Sale. At no time was the Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
4.10 Financial Capability. The Investor presently has the financial
capacity and the necessary capital to perform on a timely basis all of its
obligations hereunder. The Investor has, or has available to it, sufficient
funds to satisfy all of its financial obligations under the Agreement. The
Investor will promptly notify the Company of any event or circumstance that
could be reasonably expected to hinder the Investor's ability to perform its
obligations hereunder.
4.11 No NASD Proceedings. To the Knowledge of the Investor, there
are no disciplinary proceedings involving the Investor or any of its employees
pending before the NASD.
4.12 Not a Broker or Dealer. The Investor is not a "broker" or a
"dealer" (as such terms are defined in the Securities Act or the Exchange Act).
4.13 Not a Member of the NASD. The Investor is not a "member" of
the NASD or a "person associated with a member" of the NASD (as such terms are
defined in the By-laws and rules of the NASD).
4.14 No Hedging or Short Selling. (a) During the period sixty (60)
days prior to the date of this Agreement the Investor has not engaged in any
short sales or hedging of any kind in anticipation of this Agreement, and (b)
during the term of this Agreement the Investor may
20
make sales in anticipation of Company Put Notices, but may not make any sales
with the intention of reducing the price of the Common Stock to Investor's
benefit.
4.15 Compliance with Securities Laws. The Investor acknowledges and
agrees that any transactions in the Common Stock effected by the Investor shall
comply with all applicable securities laws, including, without limitation, if
applicable, Regulation M promulgated under the Exchange Act.
4.16 No Transactions below Floor Price. During each Investment
Period, the Investor will not engage in any transaction in the Common Stock in
which the per share price of the Common Stock is below the Floor Price with
respect to such Investment Period.
V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the SEC Documents, Company press releases or
in the Disclosure Schedule delivered by the Company to the Investor on the date
hereof, the Company represents and warrants to the Investor as follows:
5.1 Corporate Organization. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and, if
applicable, in good standing under the laws of its jurisdiction of
incorporation, and has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing would not reasonably be
expected to have a Material Adverse Effect. The Company has made available to
the Investor or its agents complete and correct copies of the Certificate of
Incorporation, as amended, and by-laws of the Company as in effect on the date
hereof.
5.2 Capitalization.
(a) The authorized Capital Stock of the Company
consists of (i) 50,000,000 shares of Common Stock and (ii) 10,000,000 shares of
preferred stock, $.01 par value (the "Preferred Stock"). As of December 24,
1999, there were (i) 29,134,559.5 shares of Common Stock issued, all of which
are duly authorized and validly issued, fully paid and nonassessable, (ii)
257,739 shares of Common Stock owned by the Company in its treasury and (iii)
8,796,238 shares of Common Stock reserved for issuance pursuant to stock options
granted or which may be granted under the Compensation Plans. The Company has
not issued any Common Stock since December 24, 1999, except pursuant to the
exercise of stock options or pursuant to the Company's Compensation Plans, nor
has the Company since such date repurchased or redeemed or acquired any such
shares. No shares of Capital Stock of the Company are entitled to preemptive
rights.
21
(b) Except as set forth in Section 5.2(a) above,
the Company does not have outstanding any Capital Stock or securities
convertible into or exchangeable for any shares of Capital Stock or any options,
warrants or other rights, agreements, arrangements or commitments of any
character to which the Company is a party or otherwise obligating the Company to
issue or sell or entitling any Person to acquire from the Company, and the
Company is not a party to any agreement, arrangement or commitment obligating it
to repurchase, redeem or otherwise acquire, any shares of its Capital Stock or
securities convertible into or exchangeable for any of its Capital Stock.
(c) Upon issuance of the Common Stock, and payment
of the Purchase Price therefor, pursuant to a purchase and sale in accordance
with the terms of this Agreement, the Company will transfer to the Investor good
and valid title to the Common Stock, free and clear of any material Lien, other
than Liens, if any, created by the Investor and such Common Stock will be duly
authorized, fully paid and nonassessable.
5.3 Subsidiaries.
(a) The Company does not have any Subsidiaries
that own material assets or are subject to material liabilities, other than
those listed on Schedule 5.3(a) of the Disclosure Schedule. Each Subsidiary is,
directly or indirectly, wholly-owned by the Company.
(b) (i) All the outstanding stock or other equity
or ownership interests of each Subsidiary is owned free and clear of all
material Liens and is validly issued and (ii) there are no options, warrants or
other rights, agreements, arrangements or commitments of any character to which
any Subsidiary is a party or otherwise obligating any Subsidiary to issue or
sell, or entitling any Person to acquire from any Subsidiary, and no Subsidiary
is a party to any agreement, arrangement or commitment obligating it to
repurchase, redeem or otherwise acquire, any shares of the Capital Stock or any
securities convertible into or exchangeable for the Capital Stock of any such
Subsidiary.
5.4 Authorization. The Company has full corporate power and
authority to execute and deliver this Agreement, the Registration Rights
Agreement and the Warrants, to issue the Common Stock pursuant to this Agreement
and the Warrants, and to consummate the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement, the Registration Rights Agreement and the Warrants,
and the issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants, and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company. To
the Knowledge of the Company, no other corporate proceedings on the part of the
Company are necessary to approve and authorize the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants, and the
issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants, and the consummation of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof, except for any approval
of the Company's shareholders that may be required pursuant to Rule 4460 of the
Marketplace Rules of the Nasdaq Stock Market. This Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company, and the Common Stock issuable in accordance with the terms of
22
this Agreement or upon exercise of the Warrants, upon the payment of the
purchase price therefor in accordance with the terms hereof and thereof, will be
duly and validly issued, fully paid and nonassessable, and each of this
Agreement, the Registration Rights Agreement and the Warrants, when executed and
delivered constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy, insolvency or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
5.5 No Violation; Consents.
(a) Assuming the making or receipt of all filings,
notices, registrations, consents, approvals, permits and authorizations
described in this Section 5.5, the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants, and the issuance of the Common
Stock, the consummation of the transactions contemplated hereby, by the
Registration Rights Agreement and the Warrants, the compliance by the Company
with any of the provisions hereof or of the Registration Rights Agreement and
the Warrants, will not (i) conflict with, violate or result in any breach of the
Certificate of Incorporation, as amended, or by-laws of the Company or its
Subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default or give rise to any right
of termination, cancellation or acceleration under, or result in the creation of
any Lien on or against any of the properties of the Company or any of its
Subsidiaries pursuant to any of the terms or conditions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their properties or assets may be bound, or (iii) violate any statute,
law, rule, regulation, writ, injunction, judgment, order or decree of any
Governmental Entity, binding on the Company or any of its Subsidiaries or any of
their properties or assets, excluding from the foregoing clauses (i), (ii) and
(iii) conflicts, violations, breaches, defaults, rights of termination,
cancellation or acceleration, and liens which, individually or in the aggregate,
would not have a Material Adverse Effect, would not prevent or materially delay
consummation of the transactions contemplated hereby and would not affect the
validity of the issuance of the Common Stock.
(b) Except for (i) applicable requirements, if any,
under Blue Sky Laws, (ii) the filing of additional listing applications with
Nasdaq, and (iii) the filing of the Registration Statement, no filing, consent,
approval, permit, authorization, notice, registration or other action of or with
any Governmental Entity is required to be made or obtained by or with respect to
the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement, the Registration Rights Agreement and the Warrants,
the issuance of the Common Stock or the consummation by the Company of the
transactions contemplated hereby and thereby.
5.6 Compliance With Applicable Law. The businesses of the Company
are not being conducted in violation of any law, ordinance, rule, regulation,
judgment, decree or order of any Governmental Entity, except for possible
violations which, individually or in the aggregate, would not have a Material
Adverse Effect. The Company and each of its Subsidiaries possess all domestic
and foreign governmental licenses, permits, authorizations and approvals and
have made all registrations and given all notifications required under federal,
state, local or foreign
23
law to carry on in all respects their businesses as currently conducted, except
as otherwise disclosed in writing by the Company to the Investor on or prior to
the date hereof, and except where the failure to have any such licenses,
permits, authorizations or approvals, individually or in the aggregate, would
not have a Material Adverse Effect. No investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company, threatened, other than those the
outcome of which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
5.7 Year 2000 Compliance. The Company's computer systems (both
hardware and software) and telephone systems (collectively, the "Computer
System") are in good working order. The Computer System (i) shall accurately
input, process and output all date and time data, from years in the same century
or in different centuries, including by yielding correct results in arithmetic
operations, comparisons and sorting of date and time data and in leap year
calculations, and (ii) will not abnormally cease to operate, return an error
message or otherwise fail due to date- or time-related processing or due to the
then-current date being before, on or after January 1, 2000 or any other date,
except, in any case, where any error or malfunction, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
5.8 Litigation. There is no claim, action or proceeding (including
any condemnation proceeding) pending or, to the Knowledge of the Company,
threatened against or relating to the Company or any of its Subsidiaries by or
before any Governmental Entity or arbitrator that if adversely determined,
individually or in the aggregate, would have a Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or any of its Subsidiaries that
has had, or would reasonably be expected in the future to have, a Material
Adverse Effect or which reasonably could be expected to materially adversely
affect the transactions contemplated by this Agreement.
5.9 SEC Documents, Financial Statements.
(a) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and the Company has filed all reports,
schedules, forms, statements and other documents, together with all exhibits,
financial statements and schedules thereto required to be filed by it with the
SEC pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d) (all of the foregoing, and all
other documents and registration statements, whether heretofore or hereafter
filed by the Company with the SEC since January 1, 1996, and the Registration
Statement, when declared effective, being hereinafter referred to as the "SEC
Documents"). The Common Stock is currently listed or quoted on the Principal
Market, which is, as of the date hereof, the Nasdaq National Market. The Company
has delivered or made available to the Investor true and complete copies of the
SEC Documents through December 30, 1999. The Company has not provided to the
Investor any material information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
24
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated herein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of the
date of delivery by the Investor of the Prospectus contained in the Registration
Statement in connection with sales of Common Stock by the Investor, such
Prospectus will comply in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC promulgated thereunder,
and other federal, state and local laws, rules and regulations applicable to
such Prospectus. The financial statements of the Company included (or
incorporated by reference) in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(b) During the three (3) years preceding the date
hereof, the SEC has not issued an order preventing or suspending the use of
any prospectus relating to the offering of any shares of Common Stock or
instituted proceedings for that purpose.
5.10 No Undisclosed or Contingent Liabilities. Neither the Company
nor any of its Subsidiaries has any claims, liabilities or obligations of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that would be required to be reflected or reserved
against on a consolidated balance sheet of the Company and its consolidated
Subsidiaries under GAAP, except for claims, liabilities or obligations (i)
reflected or reserved against on the Balance Sheet, (ii) disclosed in the
Company's most recent Form 10-K or any SEC Document filed subsequent to such
Form 10-K or (iii) incurred by the Company or any of its Subsidiaries since
September 30, 1999 in the ordinary course of business and consistent with past
practice and that, individually or in the aggregate, would not have a Material
Adverse Effect.
5.11 Taxes. The Company and its Subsidiaries have timely filed all
necessary Tax Returns and notices and have paid all federal, state, county,
local and foreign taxes of any nature whatsoever for all the tax years through
December 31, 1998 indicated on such Tax Returns as being due and payable, to the
extent such taxes have become due (other than taxes which are being challenged
in good faith by the Company and have been adequately reserved for by the
Company), except where any failure to file or pay would not have a Material
Adverse Effect. There are no tax deficiencies which would reasonably be expected
to have a Material Adverse Effect; the Company and its Subsidiaries have paid
all Taxes which have become due and payable by the Company (other than Taxes
that are being challenged in good faith or have been adequately reserved for by
the Company), whether pursuant to any assessments, or
25
otherwise, except where any failure to pay would not have a Material Adverse
Effect, and there is no further liability (whether or not disclosed on such
returns) or assessments for any such Taxes, and no interest or penalties accrues
or accruing with respect thereto; the amounts currently set up as provisions for
Taxes or otherwise by the Company and its Subsidiaries on their books and
records are sufficient in all material respects for the payment of all their
unpaid federal, foreign, state, county and local taxes accrued through the dates
as of which they speak, except where such insufficiency would not have a
Material Adverse Effect, and for which the Company and its Subsidiaries may be
liable in their own right, or as transferee of the assets of, as successor to
any other corporation, association, partnership, joint venture or other entity.
5.12 Employee Benefit Plans. All employee benefit plans and other
benefit arrangements covering the employees of the Company and its Subsidiaries
(the "Benefit Plans") have been operated and administered in all material
respects in compliance with their terms and applicable law, and there are no
claims, liabilities or obligations of any kind whatsoever relating to the
Benefit Plans which individually or in the aggregate would have a Material
Adverse Effect.
5.13 Absence of Certain Changes. Since September 30, 1999, the
business of the Company and its Subsidiaries has been conducted in the ordinary
course consistent with past practices and except in the ordinary course of
business consistent with past practice there has not been:
(i) to the Knowledge of the Company, any
event, occurrence, development or state of circumstances or facts which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect;
(ii) any declaration, setting aside or payment
of any dividend or other distribution with respect to any shares of Capital
Stock of the Company or any repurchase, redemption or other acquisition by the
Company or any Subsidiary of any outstanding shares of Capital Stock or other
securities of, or other ownership interests in, the Company or any Subsidiary;
(iii) any amendment of any material term of
any outstanding security of the Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee
by the Company or any Subsidiary of any indebtedness for borrowed money, other
than (i) working lines of credit or borrowings under existing lines of credit or
floor plan financing arrangements, (ii) any license fees and royalties and (iii)
pursuant to any lease;
(v) any creation or assumption by the Company
or any Subsidiary of any Lien on any material asset other than in the ordinary
course of business consistent with past practice;
(vi) any making of any loan, advance or
capital contributions to or investment in any Person in excess of $500,000
other than loans, advances or capital
26
contributions to or investments in wholly-owned Subsidiaries made in the
ordinary course of business consistent with past practice;
(vii) any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the business or
assets of the Company or any Subsidiary which, individually or in the aggregate,
has had or would reasonably be expected to have a Material Adverse Effect;
(viii) any transaction or commitment made, or
any contract or agreement entered into, by the Company or any Subsidiary
relating to its assets or business (including the acquisition or disposition of
any assets) or any relinquishment by the Company or any Subsidiary of any
contract or other right, in any such case, material to the Company and the
Subsidiaries, taken as a whole, other than transactions and commitments in the
ordinary course of business consistent with past practice and those contemplated
by this Agreement; or
(ix) any material change in any method of
accounting or accounting practice by the Company or any Subsidiary.
5.14 Environmental Matters.
(a) The Company and its Subsidiaries have obtained
all permits, licenses and other authorizations, and have made all registrations
and given all notifications, that are required with respect to the operation of
their respective businesses under all applicable Environmental Laws other than
those permits, licenses, other authorizations, registrations and notifications
the failure of which to obtain or make, individually or in the aggregate, would
not have a Material Adverse Effect.
(b) The Company and its Subsidiaries are in
compliance in all material respects with all terms and conditions of the
required permits, licenses and other authorizations referred to in subsection
(a) of this Section 5.14, and also in compliance in all material respects with
any other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, settlement agreement, notice or demand letter issued,
entered, promulgated or approved thereunder, other than where the failure to be
in such compliance, individually or in the aggregate, would not have a Material
Adverse Effect.
(c) There is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter (collectively, "Actions") pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries relating in any way to Environmental Laws or any regulation, code,
plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder other than Actions that, if
determined adversely to the Company or such Subsidiaries, would not reasonably
be expected to have a Material Adverse Effect.
27
5.15 Material Contracts.
(a) Neither the Company nor any Subsidiary is a
party to or bound by any agreement or arrangement material to the Company and
its Subsidiaries taken as a whole ("Material Contracts").
(b) Each Material Contract is in full force and
effect and constitutes a legal, valid and binding obligation of the Company or
the Subsidiary party thereto and, to the Knowledge of the Company, each other
party thereto, and is enforceable against the Company or its Subsidiaries and,
to the Knowledge of the Company, each other party thereto in accordance with its
terms, except to the extent that such enforceability is limited by (i)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity, and neither the Company nor any of its
Subsidiaries, nor, to the Knowledge of the Company, any other party thereto is
in conflict therewith or in violation or breach thereof or default thereunder,
except for such conflicts, violations, breaches and defaults which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
5.16 Properties; Encumbrances. Subject to the next succeeding
sentence, each of the Company and its Subsidiaries has good and valid title, and
in the case of real property, insurable title, to all material properties and
assets which it purports to own (real, personal and mixed, tangible and
intangible, including all forms of goodwill, rights, intellectual property and
intellectual property rights) (collectively, the "Company Assets"), including,
without limitation, all the material properties and assets reflected on the
Balance Sheet (except for (i) real and personal property sold since the date of
the Balance Sheet or which was obsolete or no longer useful in connection with
the businesses of the Company and its Subsidiaries and (ii) capital leases
reflected on the Balance Sheet), and all material properties and assets
purchased by the Company and its Subsidiaries since the date of the Balance
Sheet. All Company Assets are free and clear of all liens, mortgages, claims,
interests, charges, security interests or other encumbrances or adverse
interests of any nature whatsoever and other title or interest retention
arrangements ("Liens"), except (A) as reflected on the Balance Sheet, (B) as set
forth on Schedule 5.16 of the Disclosure Schedule, (C) statutory Liens of
carriers, warehousemen, mechanics, workmen and materialmen for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice that are not yet delinquent or being contested in good faith, (D) such
defects, irregularities, encumbrances and other imperfections of title as
normally exist with respect to property similar in character and that,
individually or in the aggregate together with all other such exceptions, do not
have a Material Adverse Effect, (E) Liens for Taxes and (F) Liens that do not
interfere with the present use of the property subject to the Lien.
5.17 Insurance. All current primary, excess and umbrella policies
of insurance owned or held by or on behalf of or providing insurance coverage to
the Company or any of its Subsidiaries are in full force and effect. With
respect to all such insurance policies purchased by the Company or any of its
Subsidiaries, no premiums are in arrears and no notice of cancellation or
termination has been received with respect to any such policy, other than
notices of cancellation or termination routinely sent at the end of a policy
term. To the Knowledge of the
28
Company, the insurance coverage of the Company and its Subsidiaries is
consistent with the coverage generally maintained by corporations of similar
size and engaged in similar lines of business.
5.18 Employee Claims; Labor Matters. There are no claims or actions
pending or, to the Knowledge of the Company, threatened between the Company or
any of its Subsidiaries and any of their respective employees, unions, or former
employees that would be reasonably likely to, individually or in the aggregate,
have a Material Adverse Effect. The Company and each of its Subsidiaries have no
collective bargaining agreements covering employees of the Company or any
Subsidiary.
5.19 Material Disclosure. To the Knowledge of the Company, there is
no fact, transaction or development which the Company has not disclosed to the
Investor in writing (including pursuant to the SEC Documents filed prior to the
date hereof) which would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. This Agreement (including any
Exhibit or Schedule hereto) and any written statements, documents or
certificates furnished to the Investor by the Company or its Subsidiaries prior
to the date hereof in connection with the transactions contemplated hereby,
taken as a whole, do not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated herein or therein or
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
5.20 Intellectual Property. The Company and its Subsidiaries own or
possess adequate patent rights or licenses or other rights to use patent rights,
inventions, trademarks, service marks, trade names and copyrights material to
the general business now operated by them and neither the Company nor any of its
Subsidiaries has received any notice of infringement or conflict with asserted
rights of others with respect to any patent, patent rights, inventions,
trademarks, service marks, trade names or copyrights which, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.
5.21 No General Solicitation in Regard to this Transaction. Neither
the Company nor any of its Subsidiaries or Affiliates nor any distributor or any
person acting on its or their behalf has conducted any general solicitation (as
that term is used in Rule 502(c) of Regulation D under the Securities Act) with
respect to any of the Common Stock offered hereby, nor have they made any offers
or sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock offered hereby
under the Securities Act.
5.22 No Undisclosed Events or Circumstances. To the Knowledge of
the Company, since September 30, 1999, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company.
5.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any
29
offers or sales of any security or solicited any offers to buy any security,
other than pursuant to this Agreement, under circumstances that would require
the offering of such other securities to be integrated with the offering of the
shares of Common Stock to be issued under this Agreement.
5.24 No Brokers. The Company has taken no action which would give
rise to any claim by any Person for brokerage commissions, finder's fees or
similar payments by the Investor relating to this Agreement for the transactions
contemplated hereby.
5.25 No Violation of Covenants. To the Knowledge of the Company, no
event of default has occurred and is continuing (or event which with the lapse
of time or notice or both would constitute such an event) which has not
otherwise been waived under any revolving credit facility, indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument for money
borrowed or any other material agreement to which the Company or any of its
Subsidiaries is bound, or to which any of the property or assets of the Company
or any of its Subsidiaries is subject, and in any case, which the failure to
cure or obtain a waiver with respect to such default would have a Material
Adverse Effect.
VI.
COVENANTS OF THE COMPANY
6.1 Registration Rights. The Company shall comply in all respects
with the terms of the Registration Rights Agreement.
6.2 Reservation of Common Stock. Except as disclosed in the SEC
Documents, the Company has reserved and will continue to reserve and keep
available at all times in any Investment Period, such number of shares of Common
Stock, free of preemptive rights, necessary to enable the Company to satisfy any
obligation to issue shares of its Common Stock incident to the Closings in such
Investment Period and incident to the exercise of the Warrants issued hereunder;
such amount of shares of Common Stock to be reserved to be calculated based upon
the Floor Price therefor under the terms of this Agreement, and assuming the
full exercise of the Warrants. The number of shares so reserved from time to
time, as theretofore increased or reduced as hereinafter provided, may be
reduced by the number of shares actually delivered hereunder and the number of
shares so reserved shall be increased to reflect (a) potential increases in the
Common Stock which the Company may thereafter be so obligated to issue by reason
of adjustments to the Purchase Price therefor and the issuance of the Warrants
and (b) stock splits and stock dividends and distributions.
6.3 Listing of Common Stock. During the term of this Agreement, the
Company hereby agrees to maintain the listing of the Common Stock on a Principal
Market, and as soon as reasonably practicable but in any event prior to the
commencement of the Commitment Period to list the additional shares of Common
Stock issuable under this Agreement (including Common Stock issuable upon
exercise of the Warrants). The Company further agrees that, if the Company
applies to have the Common Stock traded on any other
30
Principal Market, it will include in such application the Common Stock issuable
under this Agreement (including Common Stock issuable upon exercise of the
Warrants), and will take such other action as is necessary or desirable to cause
the Common Stock to be listed on such other Principal Market as promptly as
possible. If the Principal Market is the Nasdaq National Market, the Company
shall maintain sufficient net tangible assets to satisfy the requirements of the
NASD for the listing of the Common Stock on the Nasdaq National Market.
6.4 Exchange Act Registration. During the term of this Agreement,
the Company will cause its Common Stock to continue to be registered under
Section 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act. If
required, the Company will take all action to continue the listing and trading
of its Common Stock on the Principal Market and will comply in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
6.5 Registration on Form S-3. If the Company does not initially
file the Registration Statement on Form S-3, the Company shall use its best
efforts to refile and amend the Registration Statement on Form S-3.
6.6 Legends. Except as otherwise provided by Section 7.1 hereof,
the certificates evidencing the Common Stock to be issued to the Investor at
each Closing and upon the exercise of the Warrants shall be free of legends or
stop transfer or other restrictions.
6.7 Corporate Existence. During the term of this Agreement, the
Company will take all steps necessary to preserve and continue the corporate
existence of the Company; provided, however, that nothing herein shall be
construed to limit the ability of the Company to partake in any merger, asset
sale or acquisition transaction involving the Company, subject to the Company
complying with the terms of this Agreement.
6.8 Additional SEC Documents. During the term of this Agreement,
the Company will notify the Investor, as and when all SEC Documents are
submitted to the SEC for filing.
6.9 "Blackout Period". During the term of this Agreement, the
Company will immediately notify the Investor upon the occurrence of any of the
following events in respect of a registration statement or related Prospectus in
respect of an offering of securities required to be registered under this
Agreement or the Registration Rights Agreement: (a) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the registration statement for
amendments or supplements to the registration statement or related Prospectus;
(b) the issuance by the SEC or any other federal or state governmental authority
of any stop order suspending the effectiveness of the registration statement or
the initiation of any proceedings for that purpose; (c) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of such registrable securities for sale in any
jurisdiction or the initiation or threatening of any proceeding
31
for such purpose; (d) the happening of any event which makes any statement made
in the registration statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or which requires the making of any changes in the registration statement,
related Prospectus or documents so that, in the case of the registration
statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the related
Prospectus, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and (e) the Company's reasonable determination that a
post-effective amendment to the registration statement would be appropriate, in
which event the Company will promptly make available to the Investor any such
supplement or amendment to the related Prospectus. The Investor shall not be
obligated to purchase any shares pursuant to a Company Put Notice during the
Investment Period in which any of the foregoing events continued.
VII.
LEGENDS AND DELIVERY OF CERTIFICATES
7.1 Legends and Delivery of Certificates. The Warrants and, unless
otherwise provided below, the certificates evidencing the Common Stock to be
issued to the Investor at any Closing and upon exercise of the Warrants, will
bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
In the event shares of Common Stock are issued incident to a
Closing or upon exercise of the Warrants in circumstances pursuant to which
shares of Common Stock are either required to bear the Legend or are not to bear
the Legend, such certificates (bearing or not bearing the Legend, as
appropriate) shall be issued and delivered to the Investor or as otherwise
directed by the Investor on the applicable Closing Date or within two Trading
Days of the surrender of the Warrants for exercise (together with all other
documentation required to be delivered to effect such exercise), as applicable,
in each case against payment therefor.
The Company shall cause the transfer agent for the Common Stock to
issue and deliver to the Investor or as otherwise directed by the Investor,
shares of Common Stock not bearing the Legend, during the following periods and
under the following circumstances and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Investor:
32
(a) At any time from and after the effective date
of the applicable registration statement: (i) incident to the issuance of any
shares of Common Stock pursuant to a Closing; (ii) incident to the exercise of
the Warrants; and (iii) upon any surrender of one or more certificates
evidencing Common Stock and which bear the Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered; provided that in connection with such event the
Investor confirms to the transfer agent in a writing that the Company and its
counsel are entitled to rely upon that the Investor intends to sell such Common
Stock to a third party which is not an Affiliate of the Company or the Investor,
and the Investor agrees to redeliver such Common Stock to the transfer agent to
add the Legend in the event the Common Stock is not sold; and
(b) At any time from and after the Closing Date, upon
any surrender of one or more certificates evidencing Common Stock and which
bear the Legend, to the extent accompanied by a notice requesting the issuance
of new certificates free of the Legend to replace those surrendered and
containing or also accompanied by representations, in a writing that the Company
and its counsel are entitled to rely upon, that (i) the then holder thereof is
permitted to dispose of such Common Stock pursuant to Rule 144(k) under the
Securities Act, (ii) such holder intends to effect the sale or other disposition
of such Common Stock whether or not pursuant to the Registration Statement, to a
purchaser or purchasers who will not be subject to the registration requirements
of the Securities Act or (iii) such holder is not then subject to such
requirements; provided that in the case of surrenders described in clauses (ii)
and (iii) thereof, the holder provides an opinion of counsel in form and
substance reasonably satisfactory to the Company.
7.2 No Other Legend or Stock Transfer Restrictions. No legend has
been or shall be placed on the share certificates representing the Common Stock
and no instructions or stop transfers or other restrictions on transfer have
been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VII.
7.3 Investor's Compliance. Nothing in this Article VII shall affect
in any way the Investor's obligations under any agreement or otherwise to comply
with all applicable securities laws upon resale of the Common Stock.
VIII.
OTHER ISSUANCES OF COMMON STOCK
8.1 Equity Offering Adjustment to Purchase Price. In the event that
the Company makes an Equity Offering during an Investment Period, then
notwithstanding anything herein to the contrary, the purchase price per share of
Common Stock for any Investment Amount made solely within such Investment Period
but following the consummation of the Equity Offering shall be the lower of (a)
the lowest effective purchase price per share of Common Stock received by the
Company in any such Equity Offering, and (b) the price per
33
share of Common Stock determined hereunder with respect to purchases of Common
Stock effected by the Investor during such Investment Period.
8.2 Other Adjustments to Purchase Price and Floor Price. The daily
low trading or closing sale price, as applicable, of the Common Stock for any
Trading Day used to calculate the Purchase Price and the Floor Price shall be
adjusted proportionally to reflect any stock splits, stock dividends,
reclassifications, combinations and similar transactions involving the Company's
Common Stock.
IX.
CHOICE OF LAW AND VENUE, WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR
CHOICE OF LAW. The parties hereby agree that all actions or proceedings arising
directly or indirectly from or in connection with this Agreement shall, at the
option of either party, be litigated only in the United States District Court
for the Southern District of New York located in New York County, New York,
unless such District Court declines jurisdiction, in which case such actions or
proceedings shall be litigated only in the state court located in New York
County, New York. The parties consent to the jurisdiction and venue of the
foregoing courts and consent that any process or notice of motion or other
application to said courts or a judge thereof may be served inside or outside
the State of New York or the Southern District of New York by registered mail,
return receipt requested, directed to the party for which it is intended at its
address set forth in this Agreement (and service so made shall be deemed
complete five (5) Trading Days after the same has been posted as aforesaid) or
by personal service or in such other manner as may be permissible under the
rules of said court. The parties hereto hereby irrevocably waive any and all
right to a trial by jury with respect to any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
X.
ASSIGNMENT, ENTIRE AGREEMENT, AMENDMENT, TERMINATION
10.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's rights and obligations
under this Agreement may be assigned at any time, in whole, with the prior
written consent of the Company (which consent shall not be unreasonably
withheld) to any Affiliate of the Investor (a "Permitted Transferee"). The
rights and obligations of the Investor under this Agreement shall inure to the
benefit of, and be enforceable by and against, any such Permitted Transferee.
10.2 Entire Agreement; Amendment. This Agreement, the Registration
Rights Agreement, the Warrants and the other documents delivered pursuant hereto
constitute the full
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and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
10.3 Publicity. Each of the Company and the Investor agree that
they will not disclose, and will not include in any public announcement, the
name of the other without its prior consent, unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Except as may be required by law, each of the Company and the
Investor shall consult with the other before issuing any press release or
otherwise making any public statements with respect to this Agreement and shall
not issue any such press release or make any such public statement prior to such
consultation.
10.4 Termination. (a) The Company may, in its sole discretion,
terminate this Agreement and Investor's obligation to purchase any Investment
Amount for the remainder of the Commitment Period.
(b) The Investor may terminate this Agreement as a result of (i) a
breach by the Company of any material representation, warranty, covenant or
other obligation in this Agreement or the Registration Rights Agreement or (ii)
if the Investor reasonably determines, in its sole discretion, at any time that
the adoption of, or change in, or any change in the interpretation or
application of, any law, regulation, rule, guideline or treaty (including, but
not limited to, changes of capital adequacy) makes it illegal or materially
impractical for the Investor to fulfill its commitment pursuant to this
Agreement, but in the case of either (i) or (ii) above, Investor may terminate
this Agreement only after a 60-day period in which the parties negotiate in good
faith, in the case of (i), a reasonable substitute for such provision or, in the
case of (ii), a reasonable alternative manner not illegal or impossible for the
Investor to fulfill its commitment pursuant to this Agreement.
XI.
NOTICES, COSTS AND EXPENSES, INDEMNIFICATION
11.1 Notices. All notices, demands, requests, consents, approvals
or other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served or deposited in the mail, registered or certified, return receipt
requested, postage prepaid, or delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice:
If to the Company, to:
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Elcom International, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which shall not constitute notice) to:
▇▇▇▇▇▇, Halter & ▇▇▇▇▇▇▇▇ LLP
1400 ▇▇▇▇▇▇▇▇ Investment Center
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor, to
Cripple Creek Securities, LLC c/o The Palladin Group
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attention: ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Subject to Section 2.3(d), notice shall be deemed given on the date of service
or transmission if personally served or transmitted by telegram, telex or
facsimile during normal business hours of the recipient. Notice otherwise sent
as provided herein shall be deemed given on the third (3rd) business day
following the date mailed or on the second business day following the date of
deposit for delivery of such notice with a reputable air courier service.
11.2 Costs and Expenses. The Company shall be responsible for the
Investor's reasonable (a) legal fees and related expenses incurred in entering
into this Agreement up to a maximum amount of $40,000, which shall be payable
upon execution and delivery of this Agreement, and (b) out-of-pocket costs and
expenses in connection with the performance of its obligations hereunder up to a
maximum amount of $35,000 initially, and $7,500 quarterly thereafter. The
Company agrees to pay the Investor the amounts due under clause (b) of the
preceding sentence within thirty (30) days following the Investor's request
therefor upon presentation of supporting documentation. In the event payment is
not received within such
36
thirty (30) day period, Investor shall have the right to deduct any such amounts
owed by the Company to the Investor from any amounts owed by the Investor to the
Company pursuant to Section 2.4(a) herein.
11.3 Indemnification.
(a) Indemnification of Investor. The Company
agrees to indemnify and hold harmless the Investor and each person, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act as follows:
(i) against any and all loss, liability,
claim, damage and reasonable expense whatsoever, as incurred, arising out of any
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto) or the Prospectus, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statement therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability,
claim, damage and reasonable expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or any investigation
or proceeding by any governmental agency or body, based upon any such untrue
statement or omission, or any such alleged untrue statement or omission;
provided that (subject to Section 11.3(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all reasonable expenses
whatsoever, as incurred (including the fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened in writing, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above; provided, however, that no indemnity obligation of the Company shall not
apply to any loss, liability, claim, damage or expense to the extent arising out
of any untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Investor expressly for use in the Registration
Statement (or any amendment thereto), including the Prospectus (or any amendment
or supplement thereto).
(b) Indemnification of Company. The Investor
agrees to indemnify and hold harmless the Company, its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or
37
omissions, made in the Registration Statement (or any amendment thereto),
including the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Investor expressly for use in the Registration Statement (or any
amendment or supplement thereto) or the Prospectus.
(c) Action against Parties; Notification. Each
indemnified party shall give notice as promptly as reasonably practicable to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder, in
any case, to the extent it is not prejudiced as a result thereof and in any
event shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party reasonably promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
own counsel in any such case but the reasonable fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action at the expense
of the indemnifying party, (ii) the indemnifying party shall not have employed
counsel to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnified party or
parties shall have reasonably concluded that there are fundamental defenses
available to it or them which are inconsistent with those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of the
indemnified parties), in any of which events such reasonable fees and expenses
of one additional counsel shall be borne by the indemnifying party. In no event
shall the indemnifying party be liable for fees and expenses of more than one
counsel (in addition to one local counsel) separate from their own counsel for
the indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry or any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 11.3 or Section 11.4 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each such nonconsenting indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of an any such nonconsenting indemnified party.
(d) Settlement without Consent if Failure to
Reimburse. If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for the fees and expenses
of counsel, such indemnifying party agrees, subject to the arbitration
provisions set forth in this paragraph, that it shall be liable for any
settlement of the nature contemplated by Section 11.3(a)(ii) effected without
its written consent if (i) such
38
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement; provided, however, that if the indemnifying party disputes the
reasonableness of the fees and expenses of the indemnified party, each party
agrees that such dispute shall be governed by and finally settled under the
rules of binding arbitration of the American Arbitration Association (the "AAA")
by a panel of three arbitrators familiar with Delaware corporate law (at least
one of whom shall be an attorney) appointed by the AAA. Any such claim or
controversy under this Section 11.3(d) shall first be promptly submitted to the
AAA under its minitrial procedures. Until such dispute is resolved in accordance
with this paragraph, the indemnifying party shall not be liable for any
settlement effected without its written consent and such fees and expenses shall
not become payable, unless otherwise agreed to by the indemnifying party and the
indemnified party.
11.4 Contribution. If the indemnification provided for in Section
11.3 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses to the extent provided for herein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred (a) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Investor on the other hand from the offering of
the Common Stock pursuant to this Agreement and the receipt of Warrants issued
or issuable hereunder or (b) if the allocation provided by clause (a) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (a) above but also the relative
fault of the Company on the one hand and of the Investor on the other hand and
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and
the Investor on the other hand in connection with the offering of the Common
Stock pursuant to this Agreement shall be deemed to be in the same respective
portions as the total proceeds from the offering of the Common Stock pursuant to
this Agreement received by the Company from the Investor, on the one hand, and
the total profits received by the Investor upon the sale of such Common Stock
and the receipt of Warrants issued or issuable hereunder, on the other hand,
bear to the aggregate public offering price.
The relative fault of the Company on the one hand and the Investor
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Investor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any
39
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 11.4. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 11.4 shall be deemed to include any
reasonable legal or other expenses reasonably incurred by such indemnified party
in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investor
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Common Stock purchased by it and resold to the
public and the value of Warrants issued or issuable hereunder exceeds the amount
of any damages which the Investor has otherwise been required to pay by reason
of any such untrue or alleged untrue statement or omission or alleged 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.
For purposes of this Section 11.4, each person, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Investor, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
11.5 General Indemnification. Each party shall indemnify the other
against any material loss, cost or damages (including reasonable attorney's fees
and expenses) incurred as a result of such party's breach of any representation,
warranty, covenant or agreement in this Agreement.
11.6 Indemnification of Accountants. The Investor hereby agrees to
hold harmless the Company's independent auditors from any liability that may
arise out of the delivery of an "agreed upon procedures" letter pursuant to
clause (b)(ii) in the third paragraph of Section 3.3 hereof.
XII.
MISCELLANEOUS
12.1 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
40
12.2 Survival; Severability. (a) The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall survive and remain operative and in full force and effect
regardless of (i) any termination of this Agreement or of the Commitment Period,
(ii) any investigation made by or on behalf of any indemnified party or by or on
behalf of the Company, and (iii) the consummation of the sale or successive
resales of the Common Stock. 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.
12.3 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.
12.4 Effectiveness of the Agreement. This Agreement shall
be effective as of the Effective Date.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the date
hereof.
CRIPPLE CREEK SECURITIES, LLC ELCOM INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Principal Title: Chief Financial Officer
