EXHIBIT 10.22
THE NEPTUNE SOCIETY, INC.
DEBENTURE AND WARRANT PURCHASE AGREEMENT
This Debenture and Warrant Purchase Agreement (this "Agreement") is entered
into as of November 24, 1999, by and between The Neptune Society, Inc., a
Florida corporation (the "Company"), CapEx, L.P., a Delaware limited partnership
("CapEx"), and ▇.▇. ▇▇▇▇▇ Investment Banking Corp., a New York corporation
("DHB") (together with CapEx, the "Purchasers").
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE
1.1 Sale and Purchase. Subject to the terms and conditions hereof, at the
Closing (as defined in Section 2 below), the Company hereby agrees to issue and
sell to the Purchasers, and the Purchasers agree to purchase from the Company,
the following convertible secured debentures (the "Debentures") due February 24,
2004, in the respective principal amounts set out opposite the name of each of
the Purchasers below, each Debenture to be in the form of the Debenture attached
hereto as Exhibit A and to be convertible (subject to adjustment and therein
provided) into the number of shares of the Company's Common Stock set out
opposite the name of each of the Purchasers below in accordance with the terms
thereof:
Purchaser Principal Amount Shares Convertible Into
--------- ---------------- -----------------------
CapEx $3,000,000 600,000
DHB $2,000,000 400,000
1.2 Sale of Warrant. In connection with and in consideration for the
offering of the Debentures (the "Offering"), the Company will issue to the
Purchasers four warrants (the "Warrants") exercisable for five years from the
date of issue to purchase from the Company the number of shares (subject to
adjustment as therein provided) of the Company's Common Stock set out opposite
the name of each of the Purchasers below, at the respective exercise prices set
out below opposite the name of such Purchaser, each such Warrant to be in the
form of the Warrant attached hereto as Exhibit B:
Purchaser Shares Purchasable Exercise Price per Share
--------- ------------------ ------------------------
CapEx 120,000 $5.21
DHB 80,000 $5.21
CapEx 120,000 $6.25
DHB 80,000 $6.25
2. CLOSING, DELIVERY AND PAYMENT
2.1 The closing of the sale and purchase of the Debentures and the Warrants
under this Agreement (the "Closing") shall take place at 10:00 a.m. on December
24, 1999, at the offices of Moye, Giles, ▇'▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other time or
place as the Company and the Purchasers may mutually agree (such date being
hereinafter referred to as the "Closing Date"). At the Closing, the Purchasers
shall pay to the Company, by certified check or wire transfer of immediately
available funds, the Purchase Price, and the Company shall, at the Closing,
deliver to the Purchasers the Debentures and the Warrants, each dated the
Closing Date.
2.2 At the Closing, upon and in consideration of the completion of the
Offering, the Company shall pay to CapEx, on behalf of the Purchasers, a
non-refundable fee of $100,000.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the Purchasers as
follows:
3.1 Organization, Subsidiaries, Good Standing, Qualification and Power and
Authority. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida. The Company is the sole
registered and beneficial owner of all classes of capital stock of each of
Neptune Society of America, Inc., a California corporation ("Neptune USA").
Neptune USA is the sole registered and beneficial owner of all classes of
capital stock of each of Neptune Management Corp., a California corporation
("Neptune Management"), Neptune Pre-Need Plan, Inc. ("Neptune Pre-Need"), a
California corporation and Heritage Alternatives, Inc. ("Heritage", and together
with Neptune USA and Neptune Management, the "Subsidiaries"). Neptune USA is
also the sole registered and beneficial owner of all classes of capital stock of
Neptune Pre-Need Plan, Inc. ("Neptune Pre-Need"), a California corporation.
Neptune Pre-Need is an inactive company, with no significant assets, liabilities
or business operations. The Company and each Subsidiary has all requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as presently conducted and as presently proposed to be
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business, properties, prospects or
financial condition. The Company and each Subsidiary has all requisite corporate
power and authority (a) to execute and deliver this Agreement, the Debentures,
the Warrants, the Right of First Refusal Agreement the form of which is attached
hereto as Exhibit C (the "Right of First Refusal Agreement") and the other
agreements, instruments and documents contemplated to be executed and delivered
by it pursuant to this Agreement (this Agreement, the Debentures, the Warrants,
the Right of First Refusal Agreement and such other agreements instruments and
documents being herein sometime collectively referred to as, the "Transaction
Documents"), (b) to issue and sell the Debentures and to issue the shares of the
Company's Common Stock issuable upon conversion of the Debentures (the
"Conversion Shares"), (c) to issue and sell the Warrants and to issue the shares
of the Company's Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares"), and (d) to carry out the other provisions of the Transaction
Documents. The Company has no subsidiaries or affiliates other than the
Subsidiaries and Neptune Pre-Need and does not, directly or indirectly, own any
interest in or control any corporation, partnership, joint venture, or other
business entity.
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3.2 Capitalization. All issued and outstanding shares of the common stock
of the Company ("Common Stock") and all issued and outstanding shares of the
common stock of the each of the Subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable. The issued and outstanding
capital stock of the Company and the Subsidiaries immediately prior to the
Closing will be as set forth on Schedule 3.2 attached hereto and incorporated by
reference herein. Except as set forth on Schedule 3.2, there are no outstanding
(or deemed outstanding) options, warrants or other rights to purchase from the
Company or any of the Subsidiaries any of its securities. To the best of the
Company's knowledge, the only persons who beneficially own more than 4% of the
Company's issued and outstanding stock is, through various entities, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and members of his family.
3.3 Authorization; Binding Obligations. All corporate action on the part of
the Company and each Subsidiary, its officers, directors and shareholders
necessary for the authorization of the Transaction Documents and the performance
of all of its obl igations thereunder and for the authorization, sale, issuance
and delivery of the Debentures, the Warrants, the Conversion Shares and the
Warrant Shares has been taken or will be taken prior to the Closing. The
Conversion Shares and the Warrant Shares have been or will prior to the Closing
be duly and validly reserved for issuance and, when issued upon conversion of
the Debentures or upon the exercise of the Warrants, as the case may be, will be
validly issued, fully paid and nonassessable. The Company shall take all such
action as may be necessary to assure that an adequate number of shares of Common
Stock is authorized and reserved for issuance of the Conversion Shares and the
Warrant Shares. This Agreement has been duly authorized and executed by the
Company. This Agreement constitutes, and the Debentures, the Warrants, the Right
of First Refusal Agreement and the other Transaction Documents will once
executed constitute, valid, legal and binding obligations of the Company or the
Subsidiary party thereto, as the case may be, enforceable in accordance with
their terms, except to such limitations as may result from any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the enforcement of creditors' rights generally.
3.4 No Real Property. Neither the Company nor any Subsidiary or Neptune
Pre-Need owns or has any interest in any real estate.
3.5 Consents and Approvals. Except as required by the Securities Act of
1933, as amended, or any state securities laws, no filings with, notices to, or
approvals of any governmental or regulatory body are required to be obtained or
made by the Company or any Subsidiary in connection with the consummation of the
transactions contemplated hereby.
3.6 No Violations. The execution and delivery of this Agreement, the
Debentures, the Warrants or the other Transaction Documents and the performance
by the Company and the Subsidiaries party thereto of their obligations hereunder
and thereunder (a) do not and will not conflict with or violate any provision of
the Company's or such Subsidiary's Certificate of Incorporation or bylaws, and
(b) do not and will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any encumbrance upon the capital stock or assets of the Company
or such Subsidiary pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any autho rization, consent, approval, exemption or other action by
or
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notice to any court or administrative or governmental body or other third party
pursuant to, any law, statute, rule or regulation or any agreement or instrument
or any order, judgment or decree to which the Company or such Subsidiary is
subject or by which any of its assets are bound except for such consents which
have been obtained by the Company or such Subsidiary.
3.7 Compliance with Laws. The business of the Company and each Subsidiary
has been conducted in compliance with all applicable laws and regulations of
governmental authorities, except for such violations that have been cured or
that, individually or in the aggregate, may not reasonably be expected to have a
material adverse effect on the business, operations, financial condition or
prospects of the Company or such Subsidiary. Neither the real or personal
properties owned, leased, operated or occupied by the Company or such
Subsidiary, nor the use, operation or maintenance thereof (i) violates any
applicable laws, or regulations of any government or governmental authorities,
or (ii) violates any restrictive or similar covenant, agreement, commitment,
understanding or arrangement.
3.8 Licenses; Permits; Related Approvals. Except for Neptune Management's
funeral establishment licenses and Heritage's crematory license which are
pending transfer from their previous owners by the State of California, the
Company and each of the Subsidiaries possesses all licenses, permits, consents,
approvals, authorizations, qualifications, and orders (hereinafter collectively
referred to as "Permits") of all governments and governmental authorities
legally required to enable the Company or such Subsidiary to conduct its
business in all jurisdictions in which such business is conducted (including
without limitation all federal, state and local Permits relating to the
operation of funeral homes, crematoriums and related operations included in the
Company's and the Subsidiaries' business). All of the Permits are in full force
and effect, and no suspension, modification or cancellation of any of the
Permits is pending or threatened.
3.9 Title to Assets. Except as set forth on Schedule 3.9 attached hereto
and incorporated by reference herein, each of the Company and the Subsidiaries
has good and marketable title to its property and assets free and clear of all
mortgages, security interests, liens, claims, and other encumbrances. With
respect to the property and assets it leases, the Company and each Subsidiary is
in material compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any security interests, liens, claims, or other
encumbrances. As at the Closing Date, the Company and the Subsidiaries will not
have tangible assets having an aggregate book value in excess of $250,000, nor
the chief executive office of any of them, located in any jurisdiction other
than the States of Florida and California.
3.10 Vendor Note. As of the date hereof, Neptune USA is indebted to the
holders of a promissory note dated March 31, 1999 in the initial principal
amount of $19,000,000 (the "Vendor Note"), in the principal amount of
$14,874,215.82. Neither the Company nor any of the Subsidiaries is in default of
any of its obligations owed to the holders of the Vendor Note, as amended by an
amendment agreement between Neptune USA and certain of the holders dated for
reference the 1st of August, 1999, the Security Agreement in favor of the
holders of the Vendor Note entered into by Neptune USA, the Subsidiaries and
Neptune Pre-Need, Management and Heritage dated as of March 31, 1999, the
Guarantee of the Company of Neptune USA's obligations under the Vendor Note, or
any other agreements, instruments or documents relating to the Vendor Note, such
Security Agreement, such Guarantee or such other agreements, instruments and
documents. Without limiting
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the generality of the foregoing, Neptune USA has fully performed all of its
obligations under each of the Acquisition Documents (as such term is defined in
the Vendor Note).
3.11 Defaults. The Company and each of the Subsidiaries is not in default
in the performance, observance or fulfillment of any obligation, agreement,
covenant, or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which it
or any of its properties may be bound, other than such violations or defaults
that would not individually or in the aggregate have a material adverse effect
on the Company's or such Subsidiary's business, prospects, properties, condition
(financial or other), results of operations or net worth.
3.12 Intellectual Property. Except as set forth on Schedule 3.12 attached
hereto and incorporated by reference herein, the following statements are
correct, other than such exceptions that would not have a material adverse
effect on the Company or Subsidiaries. The Company and each of the Subsidiaries
owns or has a license to use all intellectual property used in its business.
Neither the Company nor any Subsidiary has infringed, and is now infringing, on
any proprietary right belonging to any other person, firm, or entity. The
Company and each of the Subsidiaries has the exclusive right and authority to
use all of its creations and inventions, trade secrets, processes, models,
designs, software and formulas as are necessary to enable the Company or such
Subsidiary to conduct and to continue to conduct all phases of its business in
the manner presently conducted by it and in accordance with the its business
plan. The Company and each Subsidiary is the sole owner of the its trade
secrets, free and clear of any liens, encumbrances, restrictions, or legal or
equitable claims of others and the Company or such Subsidiary has taken all
reasonable security measures to protect the secrecy, confidentiality, and value
of these trade secrets. Any of the Company's and the Subsidiaries' employees and
any other persons who, either alone or in concert with others, developed,
invented, discovered, derived, programmed, or designed these secrets, or who
have knowledge of or access to information relating to them, have assigned and
transferred their rights to such trade secrets to the Company or such Subsidiary
and each such person has been put on notice and, if necessary, has entered into
agreements that these secrets are proprietary to the Company or each Subsidiary
and are not to be divulged or misused. All of the Company's and the
Subsidiaries' intellectual property of a proprietary nature is presently valid
and protectible, and is not part of the public knowledge or literature.
3.13 Proprietary Rights. Neither the Company nor any Subsidiary has
received any communications alleging that it has violated or, by conducting its
business as proposed would violate, any proprietary rights of any other person,
nor is the Company or any Subsidiary aware of any basis for the foregoing.
3.14 No Litigation. Except as set forth on Schedule 3.14 attached hereto
and incorporated by reference herein, there is no action, suit or proceeding
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any of the Subsidiaries or any of their properties or rights before any
court or by or before any governmental body or arbitration board or tribunal,
and the Company and the Subsidiaries are not in default with respect to any
final judgment, writ, injunction, decree, rule or regulation of any court or
federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
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3.15 Financial Statements; Undisclosed Liabilities. Attached hereto as
Schedule 3.15 and incorporated by reference herein are copies of the Company's
audited combined balance sheet as of December 31, 1998, and its unaudited
consolidated balance sheet as of September 30, 1999, the Company's audited
combined statement of operations and retained earnings for the period ended
December 31, 1998 and its unaudited consolidated statement of operations and
retained earnings for the period ended September 30, 1999, and the Company's
audited combined statement of changes in financial position for the period ended
December 31, 1998 and its unaudited combined statement of changes in financial
position for the period ended September 30, 1999 (hereinafter collectively
referred to as the "Financial Statements"). The Financial Statements are in
accordance with the books and records of the Company, are true, correct and
complete and accurately present the Company's financial position as of the dates
set forth therein and the results of the Company's operations and changes in the
Company's financial position for the periods then ended, all in conformity with
generally accepted accounting principles applied on a consistent basis during
each period and on a basis consistent with that of prior periods. Except (i) as
disclosed in the Financial Statements, (ii) as disclosed in this Agreement, and
(iii) as are incurred in the ordinary course of the routine daily affairs of the
Company's and the Subsidiaries' business, nei ther the Company nor any of the
Subsidiaries has any liabilities or obligations of any nature or kind, known or
unknown, whether accrued, absolute, contingent, or otherwise. There is no basis
for assertion against the Company or any of the Subsidiaries of any material
claim, liability or obligation not fully disclosed in the Financial Statements
or in this Agreement.
3.16 Tax Matters. The Company and each of the Subsidiaries has duly and
timely filed, or obtained extensions of time for filing, all material tax
returns required by federal, state and local authorities (the "Returns"). All
information reported on the Returns is true, accurate, and complete. The Company
is not a party to, and is not aware of, any pending or threatened action, suit,
proceeding, or assessment against it for the collection of taxes by any
government. The Company and each of the Subsidiaries has paid in full all taxes,
interest, penalties, assessments and deficiencies owed by it to all taxing
authorities.
3.17 Rule 144. The Company has maintained all reports and documents and has
taken all actions as may be necessary or useful in order to allow a holder of
Registrable Securities (as defined in Article 5 below) to sell any such
securities without registration in accordance with Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act").
3.18 Full Disclosures. All factual information heretofore or herewith
furnished by or on behalf of the Company to the Purchasers for purposes of or in
connection with this Agreement or any transaction contemplated hereby (including
the Company's business plan) is and all statements made by representatives of
the Company in connection with the negotiation of this Agreement do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained herein not misleading. There is no
fact known to the Company which materially adversely affects the accuracy of the
representations and warranties contained in this Agreement or the financial
condition, operations, business, earnings, assets, or liabilities of the Company
or any of the Subsidiaries.
3.19 No Brokers or Finders. The Company has not engaged any broker or
finder and no claims for brokerage commissions or finder's fees arranged by the
Company will arise in connection with the Company's execution of this Agreement.
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4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchasers each severally and not jointly hereby represent and warrant
to the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary power
and authority to execute and deliver this Agreement and to carry out its
provisions. All actions on such Purchaser's part required for the lawful
execution and delivery of this Agreement have been or will be effectively taken
prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that none of the
Debenture, the Warrants, the Conversion Shares and the Warrant Shares to be
acquired by such Purchaser has yet been registered under the Securities Act.
Such Purchaser also understands that such Debenture and such Warrants are being
offered and sold pursuant to an exemption from registration contained in
regulations under the Securities Act based in part upon such Purchaser's
representations contained in this Agreement.
(a) Acquisition for Own Account. Such Purchaser is acquiring the Debenture
and/or the Conversion Shares and the Warrants and/or the Warrant Shares to be
acquired by it for its own account for investment only, and not with a view
towards their distribution in violation of applicable securities laws.
(b) Accredited Investor. Such Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(c) Non-Foreign Status. Such Purchaser certifies that it is not a
nonresident alien for purposes of income taxation (as such term is defined in
the Internal Revenue Code of 1986, as amended, and Income Tax Regulations).
(d) Such Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Debenture, the Warrants, the Debenture Shares and the Warrant
Shares (collectively, the "Securities") and it is able to bear the economic risk
of loss of its entire investment.
(e) The Company has provided to such Purchaser the opportunity to ask
questions and receive answers concerning the terms and conditions of the
Offering and it has had access to such information concerning the Company as it
has considered necessary or appropriate in connection with its investment
decision to acquire the Securities.
(f) Such Purchaser agrees that if it decides to offer, sell or otherwise
transfer any of the Securities, it will not offer, sell or otherwise transfer
any of such Securities directly or indirectly, unless:
(i) the sale is made pursuant to registration under the
Securities Act;
(ii) the sale is made pursuant to the exemption from the
registration requirements under the Securities Act provided
by Rule 144 thereunder and in accordance with any applicable
state securities or "Blue Sky" laws; or
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(iii) the Securities are sold in a transaction that does not
require registration under the Securities Act or any
applicable state laws and regulations governing the offer
and sale of securities, and it has prior to such sale
furnished to the Company an opinion of counsel reasonably
satisfactory to the Company.
(g) Such Purchaser understands and agrees that the certificates
representing the Securities will bear a legend stating that such shares have not
been registered under the Securities Act or the securities laws of any state of
the United States and may not be offered for sale or sold unless registered
under the Securities Act and the securities laws of all applicable states of the
United States or an exemption from such registration requirements is available.
(h) Such Purchaser understands and agrees that the Warrants may not be sold
or transferred unless the Warrant Shares are registered under the Securities Act
and any applicable state securities laws or unless an exemption from such
registration requirements is available and that certificates representing the
Warrants will bear a legend to such effect.
(i) Such Purchaser consents to the Company making a notation on its records
or giving instructions to any transfer agent of the Company in order to
implement the restrictions on transfer set forth and described herein.
5. REGISTRATION RIGHTS RELATING TO CONVERSION SHARES AND WARRANT SHARES
5.1 Definitions. As used in this Article 5, the following terms shall have
the following respective meanings:
(a) "Equity Securities" means (i) any securities of the Company entitled to
participate with the Common Stock in a distribution of the Company's remaining
assets (after distribution to all holders of securities entitled to such
distribution in priority to the holders of Common Stock) and (ii) any securities
convertible into or exercisable or exchangeable for securities of the type
referred to in Section 5.1(a)(i).
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934 (or any
similar successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(c) "Founders" shall mean one or both, as the context requires, of ▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
(d) "Public Offering" shall mean an underwritten public offering (with a
nationally recognized underwriter) of Common Stock pursuant to an effective
registration statement under the Securities Act.
(e) "Public Sale" means any sale of Registrable Securities to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144.
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(f) "registers," "registered," and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement by the SEC.
(g) "Registrable Securities" shall mean (i) the Conversion Shares, (ii) the
Warrant Shares, and (iii) any shares of Common Stock or Equity Securities issued
as a dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in Sections 5.1(g)(i) and 5.1(g)(ii),
provided, however, that Registrable Securities shall not include any such shares
or Equity Securities that have previously been registered under the Securities
Act or that have otherwise been sold to the public in an open-market transaction
under Rule 144.
(h) "Registration Expenses" shall mean all expenses incurred in connection
with effecting any registration pursuant to this Agreement, including without
limitation all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, expenses of any regular or special audits incident to or required
by any such registration, and the fees and expenses of one counsel for the
selling holders of Registrable Securities, but excluding Selling Expenses.
(i) "Rule 144" shall mean Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
(j) "SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
(k) "Securities Act" shall mean the Securities Act of 1933 (or any similar
successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(l) "Selling Expenses" shall mean all stock transfer taxes, underwriting
discounts, expenses for special counsel of a selling stockholder and selling
commissions applicable to the sale of Registrable Securities.
5.2 Demand Registration.
(a) Request for Registration. Subject to Sections 5.2(b) and 5.2(e), at any
time after 8 months from the issue of the Debentures, when any of the Debentures
or any Registrable Securities are outstanding, Agent (as such term is defined in
Section 8) may, by notice (the "Demand Notice") given by Agent, demand that the
Company effect one (1) registration under the Securities Act utilizing either
(i) a registration on Form S-1 or any similar or successor form (provided that
such registered offering represents not fewer than 250,000 shares of Common
Stock), or (ii) a registration on Form S-3 or any similar or successor form, if
available (provided that such registered offerings represent not fewer than
250,000 shares of Common Stock) (either, a "Demand Registration"). Nothing in
this Article 5 shall permit Agent to demand or require the Company to effect any
registration under the Securities Act in respect of the Debentures or the
Warrants, but Agent shall be permitted to give the Demand Notice in respect of
any Registrable Securities issuable upon a future conversion of the Debentures
or exercise of the Warrants, prior to the issue of such Registrable Securities.
The number of shares required for effecting a registration under this Section
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5.2(a) shall be adjusted for stock splits, combinations, stock dividends and
distributions and similar events occurring after the date hereof.
(b) Deferral of Demand Registration. The Company shall use its best efforts
to file a registration statement with respect to a Demand Registration demanded
pursuant to Section 5.2(a) as soon as practicable and in any event within 30
days after receipt of the Demand Notice; provided, however, that if the Company
selects an underwriter to distribute the Registrable Securities covered by the
Demand Regstration and such underwriter determines in good faith that, and
provides Agent with a certificate (an "Underwriter Notice") of an officer of
such underwriter certifying that in its view such Demand Registration would be
materially detrimental to the Company or would negatively impact any other
material corporate transaction and concludes, as a result, that it is advisable
to defer the filing of such registration statement at such time, then the
Company shall have the right to defer such filing for the period during which
such registration would be detrimental; provided, however, that the Company may
not defer the filing for a period of more than 90 days following receipt of the
Demand Notice. In addition, and notwithstanding the Demand Notice, the Company
shall not be required to effect a registration statement if, within 10 days
after receiving any Demand Notice, the Company delivers a notice (a "Company
Registration Notice") to Agent of its intent to file a registration statement
within the following 60 days and does so file such registration within such time
period. In addition, the Company may, not more than once in each calendar year
and provided that in such calendar year neither an Underwriter Notice nor a
Company Registration Notice shall have been previously given, and no Demand
Notice shall have been given at any time prior thereto, be entitled to provide
to Agent a written notice (a "Company Deferral Notice") stating that the Company
has determined that it would be materially detrimental to the Company or would
negatively impact on other material corporate transactions for Agent to give a
Demand Notice within the period of 60 days following the date of receipt of such
Company Deferral Notice, in which case, Agent shall not be permitted, during
such 60 day period, to give a Demand Notice.
(c) Underwriting. If the Purchasers intend to distribute the Registrable
Securities covered by a Demand Registration by means of an underwriting, Agent
shall so advise the Company as a part of its Demand Notice made pursuant to
Section 5.2(a). Agent shall have the right to select the managing underwriter(s)
of recognized national reputation for an underwritten Demand Registration,
subject to the approval of the Company's Board of Directors (which will not be
unreasonably withheld or delayed). The right of any holder of Registrable
Securities to participate in an underwritten Demand Registration shall be
conditioned upon such holder's participation in such underwriting in accordance
with the terms and conditions thereof, and Agent shall be responsible for
ensuring that all holders enter into an underwriting agreement in customary form
with the underwriter and the Company.
(d) Priorities. The holders of Registrable Securities will have absolute
priority over any other securities proposed to be included in a registered
offering pursuant to Section 5.2(a) hereof. If other securities are included in
any Demand Registration that is not an underwritten offering, all Registrable
Securities included in such offering shall be sold prior to the sale of any of
such other securities. If other securities are included in any Demand
Registration that is an underwritten offering, and the managing underwriter for
such offering advises the Company that in its opinion the amount of securities
to be included exceeds the amount of securities which can be sold in such
offering without adversely affecting the marketability thereof (including the
price at which such securities are to be sold), the Company will include in such
registration all Registrable Securities
10
requested to be included therein prior to the inclusion of any other securities.
If the number of Registrable Securities requested to be included in such
registration exceeds the amount of securities which in the opinion of the
underwriter can be sold without adversely affecting the marketability of such
offering, such Registrable Securities shall be included pro rata among the
holders thereof based on the percentage of the outstanding Common Stock held by
each such holder (assuming the complete conversion of the Debent ures, and the
exercise in full of the Warrants and any other options, warrants and similar
rights held by such holders).
(e) One Registration. Where the Company has effected the Registration, it
shall have no obligation to effect any further Demand Registrations; provided,
however, that where at any time within two (2) years after such Demand
Registration was made pursuant to Section 5.2(a)(ii) the time period within
which any issue or trade of Registrable Securities is required to be made under
such registration has passed or will in 30 days pass, the Purchasers shall have
the right to demand (by notice given by Agent on their behalf) that the Company
effect a further registration (including a new Demand Registration) as may be
required for registration of the Registrable Securities.
5.3 Piggyback Registrations.
(a) Request for Inclusion. At any time after the completion of a Public
Offering after the date hereof, if the Company shall determine to register any
of its securities for its own account or for the account of other security
holders of the Company on any registration form (other than a registration
relating to either Form S-4 or S-8) which permits the inclusion of Registrable
Securities (a "Piggyback Registration"), the Company will promptly give Agent
written notice thereof and, subject to Section 5.3(c), shall include in such
registration all of the Registrable Securities requested to be included therein
pursuant to the written request of Agent received within twenty (20) days after
delivery of the Company's notice.
(b) Underwriting. If the Piggyback Registration relates to an underwritten
public offering, the Company shall so advise Agent as a part of the written
notice given pursuant to Section 5.3(a). In such event, the right of any holder
of Registrable Securities to participate in such registration shall be
conditioned upon such holder's participation in such underwriting in accordance
with the terms and conditions thereof. Agent shall be responsible for answering
that all holders of Registrable Securities proposing to distribute their
securities through such underwriting enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company and
the Company.
(c) Priorities. If such proposed Piggyback Registration is an underwritten
offering and the managing underwriter for such offering advises the Company that
the amount of securities requested to be included therein exceeds the amount of
securities that can be sold in such offering, or if the Company and the managing
underwriter shall in good faith determine to reduce the number of shares to be
offered by the Company pursuant to a reasonable assessment of market conditions,
(i) the number of Registrable Securities requested to be included in such
Piggyback Registration, (ii) the number of securities determined by the
directors of the Company in good faith to be sold by the Company, and (iii) the
number of securities, if any, to be sold by any other security holders of the
Company exercising Demand Registration rights in such offering, shall each be
reduced pro rata among the holders on the basis of the percentage of the
outstanding Common Stock held by such
11
holders (assuming the complete conversion of the Debenture and the exercise in
full of the Warrant and any other options, warrants and similar rights held by
such holders).
5.4 Expenses of Registration. Except as provided in this Section 5.4, the
Company shall bear all Registration Expenses incurred in connection with the
Demand Registration and any Piggyback Registrations. All Selling Expenses
incurred by the Company relating to Registrable Securities included in any
Demand Registration or Piggyback Registration, shall be reimbursed by Agent.
5.5 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article 5, the Company will keep Agent advised in
writing as to the initiation of such registration and as to the completion
thereof. The Company will use its reasonable efforts to:
(a) cause such registration to be declared effective by the SEC and, in the
case of a Demand Registration, keep such registration effective for a period of
two years or until the holders of Registrable Securities included therein have
completed the distribution described in the registratio n statement relating
thereto, whichever first occurs;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement (including post-effective amendments) as may be necessary
to comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such registration
statement;
(c) obtain appropriate qualifications of the securities covered by such
registration under state securities or "blue sky" laws in such jurisdictions as
may be requested by Agent;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as Agent
from time to time may reasonably request;
(e) notify Agent at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the circumstances then
existing, and at the request of Agent, prepare and furnish to Agent a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing; cause all Registrable Securities covered by such
registration to be listed on each securities exchange or inter-dealer quotation
system on which similar securities issued by the Company are then listed;
(f) provide a transfer agent and registrar for all Registrable Securities
covered by such registration and, if necessary, a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
12
(g) otherwise comply with all applicable rules and regulations of the SEC,
and make available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least 12 months, but not more
than 18 months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(h) in connection with any underwritten Demand Registration, the Company
will enter into an underwriting agreement reasonably satisfactory to Agent
containing customary underwriting provisions, including indemnification and
contribution provisions.
5.6 Indemnification.
(a) The Company will indemnify each Purchaser, each of such Purchaser's
officers and directors, and each person controlling such Purchaser within the
meaning of Section 15 of the Securities Act, with respect to each registration,
qualification or compliance effected pursuant to this Article 5 or otherwise,
against all expenses, claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such indemnified person for
any legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action; provided, however, that the Company will not be liable in any such
case to the extent that any such claims, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Purchaser and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 5.6(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each of the Purchasers, to the extent it is a holder of Registrable
Securities included in any registration effected pursuant to this Article 5,
shall indemnify the Company, each of its directors, officers, agents, employees
and representatives, and each person who controls the Company within the meaning
of Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse such indemnified persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in strict
conformity with written information furnished to the Company by Agent on behalf
of such Purchaser; provided, however, that (x) such Purchaser shall
13
not be liable hereunder for any amounts in excess of the net proceeds received
by such Purchaser pursuant to such registration, and (y) the obligations of such
Purchaser hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Purchaser (which consent has
not been unreasonably withheld).
(c) Each party entitled to indemnification under this Section 5.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel selected by the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
5.6 to the extent such failure is not prejudicial. No Indemnifying Party in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include an unconditional release of such Indemnified Party from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 5.6 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in an underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
5.7 Other Obligations. With a view to making available the benefits of
certain rules and regulations of the SEC which may effectuate the registration
of Registrable Securities or permit the sale of Registrable Securities to the
public without registration, the Company agrees to:
14
(a) after its initial registration under the Securities Act, exercise best
efforts to cause the Company to be eligible to utilize Form S-3 (or any similar
form) for the registration of Registrable Securities;
(b) at such time as any Registrable Securities are eligible for transfer
under Rule 144(k), upon the request of Agent on behalf of the holder of such
Registrable Securities, promptly remove any restrictive legend from the
certificates evidencing such securities, at no cost to Agent or such holder
where such holder is a Purchaser hereunder, and at the cost of Agent in any
other case;
(c) make and keep available public information as defined in Rule 144 under
the Securities Act at all times from and after its initial registration under
the Securities Act;
(d) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act at any
time after it has become subject to such reporting requirements; and
(e) furnish Agent upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time following
the effective date of the first registration statement filed by the Company
under the Securities Act for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
as a holder of Registrable Securities may reasonably request in availing itself
of any rule or regulation of the Commission (including Rule 144A) allowing a
holder of Registrable Securities to sell any such securities without
registration.
5.8 Termination of Registration Rights. The right of Agent to request
inclusion of Registrable Securities in any registration pursuant to this Article
5 shall terminate at the date that is the earlier of: (a) that date that all
Registrable Securities have been registered under the Securities Act has or
otherwise been sold to the public in an open-market transaction under Rule 144;
and (b) the later of (i) the fifth anniversary of the Closing Date, and (ii) the
second anniversary of the date on which the last Conversion Shares obtainable by
either Purchaser have been obtained by conversion of such Purchaser's Debenture;
provided, however, that where a Company Deferral Notice has been given within 70
days prior to the date on which termination would otherwise occur, it shall not
occur for 60 days beyond the end of the 60 day period during which a Demand
Notice cannot be given pursuant to Section 5.2(b).
5.9 Go-Along Rights. In the event that, in connection with any Public
Offering by the Company, any of the Founders or any other any Equity Securities
becomes entitled to sell some or all of such Equity Securities (or any
securities of the Company into which such Equity Securities are convertible or
for which such Equity Securities are exercisable or exchangeable) as part of
such Public Offering (collectively, the "Selling Shareholders"), the Company
will promptly give Agent written notice thereof and shall include in such
registration all the Registerable Securities requested to be included therein
pursuant to the written request of Agent on behalf of the holders of such
Registerable Securities received within twenty (20) days after delivery of the
Company's notice; provided always, however, that such holders collectively shall
be entitled to sell no more than twenty-five percent (25%) of the aggregate of
all outstanding securities (including such Registerable Securities) sold by the
Selling Shareholders and such holders of Registrable Securities electing to
15
sell Registerable Securities, and to the extent that the aggregate number of
Registerable Securities requested to be included in the Public Offering pursuant
to the written request of Agent received within the aforesaid period exceeds
such entitlement, the number of shares to be included by the holders of such
Registerable Securities in such registration shall be reduced pro rata among
such holders on the basis of the number of shares specified to be included in
such written request of Agent for such holders respectively.
6. CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
The obligation of the Purchasers to purchase and pay for the Debentures and
the Warrants to be delivered to it at the Closing shall be subject to the
satisfaction of the following conditions as of the Closing Date:
6.1 the representations and warranties of the Company contained in this
Agreement, the Debenture and the Warrant shall be true and correct on and as of
the Closing Date;
6.2 prior to or concurrent with the Closing, the other parties (besides the
Purchasers) thereto shall have entered into the Right of First Refusal
Agreement;
6.3 prior to or concurrent with the Closing, ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Intervivos Trust and ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ (the "Notification
Holders"), shall have entered into an agreement in form and substance
satisfactory to Agent in their absolute discretion pursuant to which the
Notification Holders agree to give certain notices to Agent on behalf of
Purchasers and confirm certain matters to the Purchasers;
6.4 prior to or concurrent with the Closing, the holders of that certain
promissory note (the "▇▇▇▇▇▇▇▇▇ Note") dated March 31, 1999, executed by Neptune
USA (then called "Lari Acquisition Company, Inc.") to and in favor of ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Inter Vivos Trust, in the principal amount of $2,000,000, the
Purchasers and the Company shall have entered into a subordination agreement
relating to the ▇▇▇▇▇▇▇▇▇ Note whereby such holders subordinate payment of the
▇▇▇▇▇▇▇▇▇ Note and all security held by them therefor to and in favor of the
prior payment of the Debentures and all security held by Agent for the
Purchasers, in form and substance satisfactory to Agent in its absolute
discretion;
6.5 concurrent with the Closing, Agent shall have received evidence
satisfactory to it that:
(a) the Guarantees of the Subsidiaries and the Security Agreements (as
defined in the Debentures) and any additional security instruments or documents
required by the Purchasers have been executed and delivered, and all necessary
consents, subordinations, releases, discharges and other instruments have been
obtained as may be necessary, for the security constituted thereby to enjoy the
priority thereby contemplated, subject only to the encumbrances permitted by the
Debentures;
(b) the Company has a free cash balance available to it, as of the Closing
Date, of no less than $2,500,000 (less any amounts used by the Company and
disclosed in writing to the Purchasers during the period from September 1, 1999
to the Closing Date for acquisitions or capital expenditures);
16
(c) except as may be required by the Securities Act of 1933, as amended,
and any applicable state securities laws, the Company and the Subsidiaries have
obtained any and all consents, approvals and acknowledgments of all persons
whose consents, approvals and acknowledgments may be required, including without
limitation all requisite corporate, shareholder and governmental consents, as
are necessary for the consummation of the transactions hereby contemplated;
6.6 concurrent with the Closing, the Purchasers shall have received the
opinions of counsel acceptable to Agent in the States of Florida and California,
in form and substance satisfactory to Agent; and
6.7 prior to or concurrent with the Closing, the Company shall have
delivered to Agent its Year 2000 business plan.
7. COMPANY COVENANTS
The Company covenants and agrees with the Purchasers that:
7.1 Use of Proceeds. The Company shall use the proceeds from the sale of
the Debenture solely for the purpose of paying down principal and accrued but
unpaid interest owing under the Vendor Note. Such proceeds shall be paid, and
escrow arrangements mutually acceptable to Agent and the Company, pursuant to
the Company's written direction directly on or after Closing to City National
Bank, N.A., the escrow agent appointed by the holders of the Vendor Note by
Joint Written Instructions to Escrow Agent dated April 22, 1999, as amended.
7.2 Reservation of Common Stock. The Company will reserve and keep
available that maximum number of its authorized but unissued Common Stock as may
be required for the issuance of Conversion Shares and the Warrant Shares.
7.3 Board Meeting Attendance. Until such time as either (a) 75% of the
principal amount of the Debenture has been converted into the Company's Common
Stock, or (b) the Debenture shall have been repaid in full, Agent shall be
entitled to receive notice of and to have a representative attend all meetings
(including telephonic meetings) and all adjournments of meetings of the Board of
Directors and any committee thereof (including committees comprised of both
directors and non-directors). Failure to provide notice (on the same basis as is
required for all board members and in any event on not less than three business
days) of or to permit such representative to attend such meeting shall
constitute a material breach of the provisions of this Agreement. Such
representative shall have no voting rights at any such meeting, but shall be
entitled to participate fully in all discussions that take place thereat.
8. CAPEX AS AGENT FOR THE PURCHASER
8.1 Provisions for the Benefit of Purchasers Only. The provisions of this
Section 8 relate to the rights and obligations of the Purchasers and Agent,
inter se, and shall be operative as between the Purchasers and Agent only, and
the Company shall not have any rights or be entitled to rely for any purposes
upon such provisions, save as provided in section 8.2(b).
17
8.2 Authorization and Action.
(a) Each Purchaser appoints CapEx, L.P. as its agent (in such capacity,
"Agent"), for the purposes of collecting payments, electing to exercise the
rights of the Purchasers under this Agreement and the other Transaction
Documents as herein and therein provided, and holding and enforcing those
security documents referred to in the Debentures (and hereinafter referred to)
as the "Security" in accordance with the terms of this Agreement, and
distributing any funds received either as payments from the Company or on
realization of the Security in accordance with this Agreement. For such
purposes, each Purchaser authorizes Agent on behalf of such Purchaser to take
such action and to exercise such rights, powers and discretions as are expressly
delegated to it under this Agreement and the other Transaction Documents and on
the terms hereof or thereof together with such other rights, powers and
discretions as are reasonably incidental thereto; provided always, however,
that, without the consent of both Purchasers, Agent shall not: (i) effect or
agree to any change in the interest rate, payment dates, maturity date or
conversion rights under the Debentures; or (ii) fail to elect under Section 7.1
of the Debentures to accelerate repayment of all indebtedness owing thereunder
upon the occurrence of a Default Event and proceed to enforce all security held
by Agent for such indebtedness. Agent may perform any of its duties hereunder or
thereunder by or through its agents, officers or employees. Agent shall not be
required to exercise any right, power or discretion or take any action as to any
matters not expressly provided for by this Agreement or the other Transaction
Documents (including, without limitation, enforcement of the collection of any
amounts owing to the Purchasers hereunder). Agent shall not be required to
exercise any right, power or discretion or to take any action which exposes
Agent to personal liability or risk thereof or which is contrary to this
Agreement, the other Transaction Documents or applicable law. The duties of
Agent, as agent, shall be mechanical and administrative in nature. Agent shall
not have, by reason of this Agreement or the other Transaction Documents, a
fiduciary relationship in respect of either Purchaser.
(b) Agent shall only act on behalf of the Purchasers in dealings and
communications with the Company as set out in this Agreement, and shall be the
only person to so act, except as may be otherwise agreed in writing between the
parties hereto. The Company and the Subsidiaries may rely upon the grant and
delegation of authority provided in this section 8 from each of the Purchasers
to Agent without further inquiry.
8.3 Exoneration.
(a) Agent and its limited and general partners, and their respective
directors, officers, managers, members, shareholders, agents or employees shall
not be liable to any person, company or firm (including the Purchasers and the
Company) for any action taken or omitted to be taken by any of them (other than
actions taken or omitted to be taken by Agent in its capacity as a Purchaser,
including, without limitation, actions giving rise to indemnification
obligations pursuant to Section 5.6(b)) under or in connection with this
Agreement or the other Transaction Documents unless directly due to their own
gross negligence or wilful misconduct.
(b) Without limiting the generality of the foregoing Section 8.3(a):
(i) subject to sections 8.8 and 9, Agent may retain, consult with and
pay legal counsel, independent accountants and other experts selected
by it (provided that all
18
reasonable costs and fees in respect thereof shall be paid by the
Company as provided for in Section 9) and Agent shall not be liable
for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts;
(ii) Agent shall not incur any liability by acting upon any notice,
consent, certificate or other instrument or writing (which may be by
telegram, telecopy, cable or telex) believed by it at the time to be
genuine or by acting upon any representation or warranty of the
Company made hereunder;
(iii) Agent may assume without inquiry or investigation that no event
of default, default, or other event which is, or which with the
passing of time or giving of notice or both would become an event of
default under the Debentures or any other Transaction Document, has
occurred unless it has received from the Company or any Purchaser a
notice thereof specifying the nature of the relevant event whereupon
Agent may assume that such event has occurred as therein described and
that an default hereunder or default or event of default thereunder,
as the case may be, has occurred; and
(iv) Agent shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Transaction Document, to
inspect the property (including the books and records) of the Company,
the Subsidiaries or any of the other parties, or to conduct any other
inquiry usual for a lender; Agent shall not be responsible to any
Purchaser for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any other
Transaction Document or any security provided by the Company and the
Subsidiaries.
8.4 Agent as Purchaser. Agent, which is also a Purchaser as to its
Debenture, shall have the same rights and powers under this Agreement and the
other Transaction Documents as any other Purchaser and may exercise the same as
though it were not Agent; and the terms "Purchaser" or "Purchasers" shall,
unless otherwise expressly indicated, include Agent in its capacity as
Purchaser. Subject to any restrictions on the Company herein, Agent may accept
deposits from, lend money to, and generally engage in any kind of business with
the Company and any other party, all as if Agent were not agent hereunder and
without any duty to account therefor to either Purchaser.
8.5 Credit Decision. Each Purchaser has entered into this Agreement after
its own negotiations with the Company and is and will continue to be solely
responsible for its own independent appraisal of and investigations into the
financial condition, creditworthiness, affairs and nature of the Company and all
other credit and banking matters relative to this Agreement and the other
Transaction Documents. Each Purchaser confirms to Agent that it has not relied,
and will not hereafter rely, on Agent:
(a) to check or inquire on its behalf into the adequacy, accuracy or
completeness of any information provided by the Company under or in connection
with this Agreement or the transactions herein contemplated and that each
Purchaser shall be responsible for obtaining directly
19
from the Company, through requests made by Agent to the Company on its behalf,
such information, documents or other information as each Purchaser deems
necessary from time to time; or
(b) to assess or keep under review on its behalf the financial condition,
creditworthiness, affairs or nature of the Company, the Subsidiaries or their
respective properties or any other credit or banking matters relative to this
Agreement.
A copy of this Agreement including all Schedules hereto has been, or prior to
such Purchaser entering into this Agreement will be, made available to each
Purchaser for review by it and each Purchaser is, or will be, satisfied with the
form and substance of this Agreement including all Schedules hereto; and Agent
is not liable in any way to such Purchaser in respect thereof or in respect of
the accuracy or completeness of any information or data, financial or otherwise,
made available to such Purchaser in connection with the negotiation of this
Agreement or for any statements, warranties or representations whether made in
writing or orally made in connection with the negotiation of this Agreement.
8.6 Security.
(a) Each of the Purchasers hereby acknowledges that the guarantees of the
Subsidiaries and the Security Agreements, and any and all security now or
hereafter held to secure the aggregate of all indebtedness owing by the Company
under the Debentures (the "Security") and the remedies provided hereunder or
thereunder are for the benefit of the Purchasers such that the Security and such
remedies shall enure to benefit of all the Purchasers until such indebtedness
shall have been repaid in full.
(b) Except as contemplated by section 8.6(c), no part of the Security shall
be discharged or otherwise surrendered to the Company, in whole or in part, by
Agent or any of the Purchasers without the consent of all of the Purchasers, but
none of the Purchasers or Agent shall be liable or responsible to the others for
any loss or damages suffered as a result of any action taken or omitted to be
taken with respect to any of the Security, except as provided in this Agreement,
or any invalidity or unenforceability of any of the Security for any reason
whatsoever, including without limiting the generality of the foregoing, any
negligent omission to comply with any filing or registration requirement or any
renewal filing or registration requirement or other requirement necessary to
perfect or maintain any security interest.
(c) Each of the Purchasers agrees that its rights under the Security are to
be exercised not severally, but collectively, by Agent in accordance with the
terms hereof or thereof. The Company hereby confirms that Agent may exercise the
rights of the Purchasers under the Security collectively if the Purchasers so
require, or severally for the benefit of the Purchasers, if the Purchasers so
require. Notwithstanding the foregoing, where, in the sole opinion of Agent, the
exigencies of the situation warrant such action, Agent may (but shall not be
required to do so) without notice to or the consent of the Purchasers take such
action on behalf of the Purchasers as it deems appropriate or desirable in the
interests of the Purchasers. Each of the Purchasers covenants that upon any such
consent of the Purchasers being given, it shall co-operate fully with Agent to
the extent requested by Agent in the collective realization of the Security.
Each Purchaser agrees to do all acts and things and to make, execute and deliver
all agreements and other instruments so as to fully carry out and effect the
intent and purpose of this section 8.
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(d) No representation or warranty with respect to the authorization,
execution, delivery, registration, validity, enforceability or value of the
Security or of any other kind or character in relation thereto shall be binding
on any of the Purchasers or Agent unless expressly made in writing. The
Purchasers acknowledge that Agent has not made any representation or warranty
whatsoever to the Purchasers with respect to any of the Security held or to be
held by it.
8.7 Sharing of Payments. All Purchasers shall share in payments received
from or other recoveries from the Company or any of the Subsidiaries in respect
of their indebtedness (including amounts paid by the Company in accordance with
the Debentures and this Agreement, amounts received on any exercise of any right
of counterclaim, set-off, banker's lien or similar right and amounts recovered
on the realization of the Security) pari passu, equally and ratably on a pro
rata basis between the Purchasers, based upon the respective amounts of
indebtedness owing under their Debentures.
8.8 Indemnification. The Purchasers agree to indemnify Agent (to the extent
not reimbursed by the Company) ratably according to the respective amounts of
indebtedness owing under their Debentures from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any nature or kind whatsoever which may be
imposed on, incurred by, or asserted against Agent in its capacity as Agent
hereunder in any way relating to or arising out of this Agreement, any other
Transaction Document or any action taken or omitted by Agent under this
Agreement or any other Transaction Document; provided that no Purchaser shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from Agent's gross negligence or wilful misconduct. Without limitation each
Purchaser agrees to reimburse Agent promptly upon demand for its rateable share
as above described of out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by Agent in connection with the determination
or preservation of any rights of Agent or the Purchasers under, or the
enforcement of, or legal advice in respect of rights or responsibilities under,
this Agreement or other Transaction Documents, to the extent that Agent is not
reimbursed for such expenses by the Company on demand.
8.9 Selling Expenses. Agent shall be entitled to be reimbursed for all
Selling Expenses incurred by it pursuant to Section 5.4 by the holders of
Registrable Securities included in the Registration to which such Selling
Expenses relate, and may require payment of any holder's estimated share thereof
to it as a precondition to including such Registrable Securities in such
Registration.
8.10 Exchange of Information. The Company agrees that each Purchaser and
Agent may provide to the other Purchasers or Agent such information concerning
the financial position and property and operations of the Company and the
Subsidiaries as, in the opinion of such Purchaser or Agent, is relevant to the
ability of the Company and the Subsidiaries to fulfil their obligations under or
in connection with this Agreement and the other Transaction Documents.
8.11 Replacement of Agent. Upon any dissolution of Agent, Agent shall be
entitled to transfer to its limited partners or to one or more corporations or
limited partnerships, the majority of the shareholders or partners of which are
limited and or general partners of Agent, all of its rights as Agent under the
Transaction Documents. In connection with such distribution, Agent shall be
21
entitled to assign to its limited partners or such corporations or partnerships
Agent's rights hereunder. In addition, after the occurrence of a Default Event,
as defined in the Debentures, should Agent fail to take any of the steps
referred to in Section 8.2(a)(ii) forthwith after the occurrence of such Default
Event (or any subsequent Default Event), either Purchaser may immediately remove
Agent from its position and appoint a successor Agent in the stead of CapEx,
L.P. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be then discharged from its further duties and obligations
as Agent under this Agreement provided that the Agent shall execute such
documents as may be necessary or desirable to assign and transfer the retiring
Agent's interest in this Agreement, the Security and the other Transaction
Documents to the successor Agent. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was an
Agent under this Agreement.
9. EXPENSE REIMBURSEMENT
The Company hereby agrees to reimburse Agent on behalf of the Purchasers
for all of its out-of-pocket expenses incurred in connection with the
transactions contemplated hereby, including all out-of-pocket expenses
(including filing fees and other third party charges) incurred in connection
with its third party due diligence costs, the preparation and negotiation of
this Agreement, the Debenture, the Security Agreement (as defined in the
Debenture), the Warrant, and the Right of First Refusal Agreement, and all other
documents evidencing the transactions contemplated herein (including reasonable
attorneys' fees). Agent acknowledges receiving a $7,500.00 advance on or before
mutual execution of the term sheet dated November 17, 1999 on account of such
expenses.
10. MISCELLANEOUS
10.1 Currency. Except as may be otherwise expressly provided, all dollar
amounts herein are references to United States dollars.
10.2 Governing Law. This Agreement shall be governed by the internal law,
and not the law of conflicts, of the State of Colorado.
10.3 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by or on behalf of the
Purchasers and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
10.4 Successors and Assigns. Except as provided in Section 8.11, neither
Purchaser shall be entitled to assign its rights under this Agreement or any of
the other Transaction Documents, without the consent of the Company, which
consent shall not be unreasonably withheld or delayed; provided always, however,
that no such consent shall be required for either Purchaser to assign such
rights to any person or group of persons controlling or owning the majority of
all beneficial interests in such Purchaser, any other entity controlled by such
person or persons, or an entity controlled by such Purchaser, provided that such
entity shall continue to be so controlled by such persons or such
22
Purchaser as applicable. The provisions hereof shall inure to the benefit of,
and be binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties hereto.
10.5 Entire Agreement; Amendment and Waiver. This Agreement, the Schedules
and Exhibits hereto and the other documents expressly delivered pursuant hereto
or thereto supersede any other agreement, whether written or oral, that may have
been made or entered into by the parties hereto relating to the matters
contemplated hereby, and constitute the full 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 in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth or incorporated by reference herein and therein. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated except by a
written instrument signed by the Company and the Purchasers.
10.6 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
10.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent:
to the Company at:
The Neptune Society Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, President
23
to the Purchasers, prior to January 15, 2000, at:
c/o CapEx, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Managing Partner
and, thereafter, at:
▇/▇ ▇▇▇▇▇, ▇.▇.
▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Managing Partner
with a copy to:
Moye, Giles, ▇'▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ III, Esq.
or at such other address as the Company or Agent on behalf of Purchasers may
designate by ten (10) days advance written notice to the other parties hereto.
10.8 Counterparts; Facsimile. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement may be executed and delivered by
facsimile.
24
10.9 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
THE NEPTUNE SOCIETY, INC.
By: -----------------------------
Name: --------------------------
Title: -------------------------
PURCHASERS:
CAPEX, L.P. D.H. ▇▇▇▇▇ INVESTMENT BANKING CORP.
By Its General Partner, RBP, LLC
By: ---------------------------------- By: --------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇ Name: J. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Member Title: Chairman
25
Exhibit A
FORM OF THE DEBENTURE
26
Exhibit B
FORM OF THE WARRANT
27
Exhibit C
FORM OF RIGHT OF FIRST REFUSAL AGREEMENT
28