EXHIBIT 4.2
SUBSCRIPTION AND
SECURITIES PURCHASE AGREEMENT
dated as of
August 5, 2004
by and between
AVITAR, INC.
as the Issuer,
and
GCA Strategic Investment Fund
CLOSING DATE: AUGUST 5, 2004
SUBSCRIPTION AND
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of August 5, 2004, among Avitar, Inc., a Delaware
corporation (the "Company"), and GCA Strategic Investment Fund Limited (the
"Purchaser").
R E C I T A L S:
WHEREAS, the Company wishes to issue and sell to the Purchaser, and
Purchaser desires to purchase from the Company, for a purchase price of $1,000
per $1,000 in stated value, per share, an aggregate of up to 1,250 shares of the
Company's 15,000 authorized Series A Convertible Preferred Stock, $0.001 par
value per share (the "Preferred Shares" or "Preferred Stock"), of which no
Preferred Shares are presently issued and outstanding as of the date of this
Agreement, on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, the Preferred Shares will be convertible into shares of the
Company's common stock, $0.01 par value per share (the "Common Stock"); and
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable hereunder upon conversion of the Preferred
Shares (the "Conversion Shares") as set forth in the Registration Rights
Agreement in the form attached hereto as Exhibit A;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
6.1 Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Subscription and Securities Purchase Agreement, as
amended, supplemented or otherwise modified from time to time in accordance with
its terms.
"AMEX" means the American Stock Exchange.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Certificate of Designation" means the Certificate of Designation,
Preference and Rights of Series A Convertible Preferred Stock of Avitar, Inc.,
dated May 25, 2004 as filed with the Delaware Secretary of State on May 26,
2004, and amended by Certificate of Correction dated June 9, 2004 as filed with
the Delaware Secretary of State on June 10th, 2004 (as further described in
Section 2.4).
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the
Company without the prior written consent of Purchaser; (ii) any sale or other
disposition (other than by reason of death or disability) to any Person of more
than 75,000 shares of Common Stock of the Company by any executive officers
and/or employee directors of the Company without the prior written consent of
Purchaser; or (iii) individuals constituting the Board of Directors of the
Company on the date hereof (together with any new Directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of at least 50.1% of the Directors still in
office who are either Directors as of the date hereof or whose election or
nomination for election was previously so approved), cease for any reason to
constitute at least two-thirds of the Board of Directors of the Company then in
office.
"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing" and "Closing Date" means the first Business Day upon which all
the conditions set forth in Section 6 have been are fulfilled or deemed to be
fulfilled (or such other date unanimously agreed by the parties), and upon which
this Agreement becomes unconditional.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $0.01 par value per share, of the
Company.
"Company" means Avitar, Inc., a Delaware corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation (as
amended, supplemented or restated) and bylaws of the Company.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of the shares of
Preferred Stock by the holder thereof to the Company.
"Conversion Price" has the meaning set forth in Section 1.9 the Certificate
of Designation.
"Conversion Shares" means the shares of common stock issuable upon
conversion of the Preferred Shares and the exercise of the Warrants.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors of
the Company or similar management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of Hazardous Materials into the environment, including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials or the cleanup
or other remediation thereof.
"Event of Default" has the meaning set forth in Section 13.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" has the meaning set forth in Section 1.2.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Majority Holders" means (i) as of the Closing Date, the Purchaser and (ii)
at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Note outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common stock
preceding the date of determination.
"Material Adverse Effect" means any material adverse effect on the
operations, results of operations, properties, assets or condition (financial or
otherwise) of the Company or the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby or by the agreements or instruments
to be entered into in connection herewith.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Stock Market" means the Nasdaq Stock Market's National Market
System.
"National Market" means the Nasdaq Stock Market, the Nasdaq Small Cap
Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Notice of Conversion" means the notice to be delivered to the Company by a
holder of Preferred Shares upon conversion of all or a portion thereof .
"Notice of Exercise" means the notice to be delivered by a holder of the
Warrant upon exercise of all or a portion thereof to the Company.
"Officer's Certificate" shall mean a certificate executed by the President
of the Company dated the date hereof and substantially in the form set forth in
Exhibit D.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Person" means an individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or any agency or political subdivision thereof)
or other entity of any kind.
"Preferred Shares" or "Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Preferred Stock Warrant" or "Preferred Stock Warrants" have the meanings
set forth in Section 2.3.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.1 hereof.
"Purchaser" means the entity listed on the signature page hereto and its
successors and assigns, including holders from time to time of the Preferred
Shares and Warrants.
"Registration Rights Agreement" means the agreement between the Company and
each of the Purchasers, to be executed and delivered on or before the Closing
Date, substantially in the form set forth in Exhibit B attached hereto.
"Securities" means the Preferred Shares, the Warrants, the Warrant Shares
and the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Solvency Certificate" shall mean a certificate executed by the Chief
Financial Officer of the Company dated the date hereof and substantially in the
form set forth in Exhibit C.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including income, alternative or add-on minimum, profits, gross income, gross
receipts, excise, property, ad valorem, sales, use, value added, withholding,
occupation, use, service, license, payroll, employment, severance, social
security, Medicare, unemployment, franchise, license, stamp, environmental or
windfall profit tax, premium, custom duty, transfer or recording taxes, fees and
charges, imposed by the United States or any state, local or foreign government
or subdivision or agency thereof, whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any interest,
fines, penalties, addition to tax or additional amounts attributable to or
imposed with respect to any such taxes, charges, fees, levies or other
assessments.
"Trading Day" shall mean any Business Day in which the AMEX, National
Market or other automated quotation system or exchange on which the Common Stock
is then traded is open for trading for at least four hours.
"Transaction Agreements" means this Agreement and any other agreement,
instrument or document executed, or contemplated herein to be executed, in
relation to the issuance of the Securities described herein.
"Transfer" means any disposition of the Securities that would constitute a
sale thereof under the Securities Act or otherwise result in a violation of the
Securities Act.
"Warrant Shares" means shares of Common Stock of the Company issued upon
exercise of the Preferred Stock Warrant.
1.2 Accounting Terms and Determinations. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
2. PURCHASE AND SALE OF SECURITIES
6.2 Purchase and Sale of Preferred Shares. Subject to the terms hereof, the
Company agrees to issue and sell to Purchaser, and Purchaser hereby agrees to
purchase from the Company, One Thousand Two Hundred Fifty (1,250) Preferred
Shares, at a purchase price of One Thousand Dollars ($1,000.00) per One Thousand
Dollars ($1,000) in stated value per share. The Purchaser shall acquire the
Preferred Shares on the Closing Date in an aggregate principal amount of One
Million Two Hundred Fifty Thousand Dollars ($ 1,250,000) (the "Purchase Price").
2.2 Payment of Cash Purchase Price. Purchaser shall pay the Purchase Price
in cash to the Company by wire transfer of immediately available funds, directed
as follows:
Avitar, Inc.
Bank Name:
ABA/Bank ID:
Acct Name:
Account #:
On the Closing Date, the Preferred Shares and Preferred Stock Warrant issuable
in consideration of the Purchase Price shall be issued by the Company following
the Company's receipt of such Purchase Price.
2.3 Preferred Stock Warrant. In consideration for, and as an inducement to,
Purchaser's purchase of the Preferred Shares hereunder, the Company will issue
to Purchaser upon Closing, in connection with and in addition to the applicable
number of Preferred Shares, a Warrant (in the form attached hereto as Exhibit E,
(the "Preferred Stock Warrant") to purchase 100,000 shares of the Company's
Common Stock.
2.4 Adoption of Certificate of Designation. The Company has adopted and
filed of record with the Delaware Secretary of State a Certificate of
Designation, Preference and Rights of Series A Convertible Preferred Stock of
Avitar, Inc. (the "Certificate of Designation"). The terms of the Certificate of
Designation, among other things, provides that upon consummation of a "Qualified
Future Financing" which contains a "Superior Right" (as each of those terms is
defined in the Certificate of Designation), the terms and conditions of such
Superior Right shall be automatically incorporated into the rights contained in
the Certificate of Designation and will supersede any provisions in the
Certificate of Designation relating to such Superior Right that would conflict
with the exercise or application of such Superior Right; provided, however, that
any such Superior Right may be waived by the holders of the Preferred Stock in
accordance with the applicable provisions of the Certificate of Designation. If
the Company provides any consideration to the holders of any equity or
convertible debt instrument issued in connection with such Qualified Future
Financing that is in addition to the consideration provided to the Purchaser
(such as, for purposes of illustration, a warrant agreement other than a warrant
substantially identical to the Warrants offered in this Agreement and issued in
similar denominations and for substantially identical consideration provided or
a registration rights agreement providing additional registration rights), then
the Company will take all lawful and reasonable steps necessary to ensure that
the Purchaser also receives such additional consideration; provided, however,
that any terms which provide for a conversion price that is, whether expressly
stated or calculated as a result of a formula, greater than or equal to the
conversion price then in place for the Series A Convertible Preferred Stock
shall not be deemed to be a Superior Right.
3. PAYMENT TERMS OF CUMULATIVE CONVERTIBLE PREFERRED
3.1 Payment of Principal and Dividends; Payment Mechanics. The Company will
pay all amounts due on each Preferred Share by the method and at the address
specified for such purpose by Purchaser in writing, without the presentation or
surrender of any Preferred Share or the making of any notation thereon, except
that upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of this Preferred Share, the holder
shall surrender the certificate representing the Preferred Share for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office. Prior to any sale or other disposition of any
Preferred Share, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which
dividends have been paid thereon or surrender the certificate representing the
Preferred Share to the Company in exchange for a new certificate. The Company
will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Preferred Share purchased under this Agreement and that has
made the same agreement relating to the Preferred Shares as Purchaser has in
this Agreement; provided that such transferee is an "accredited investor" under
Rule 501 of the Securities Act.
3.2 Payment of Dividend. Dividends shall be cumulative and payable in kind
or Common Stock of the Company, at the election of the Company, on each
Preferred Share as of the date of issuance and shall be payable in accordance
with the Certificate of Designation and before the payment of any dividend on
the Common Stock.
3.3 Reserved.
3.4...... Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change in Control of the Company, (ii) a
transfer of all or substantially all of the assets of the Company to any Person
in a single transaction or series of related transactions, or (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger which is
effected solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock) (each of items (i), (ii) and
(iii) being referred to as a "Sale Event"), then, in each case, the Company
shall, upon request of the Purchaser, redeem the Preferred Shares, subject to
the provisions of Section 6 of the Certificate of Designation. The redemption
price payable upon any such redemption shall be the Redemption Price in Section
6 of the Certificate of Designation (referred to herein as the "Formula Price").
(b) At the option of Purchaser, upon the consummation of one or more
Financings, (other than Qualified Future Financing), the Company shall use 25%
of the Net Cash Proceeds therefrom (unless such Net Cash Proceeds from each such
Financing is less than $250,000) to redeem the Preferred Shares.
(c) Upon the issuance of the Maximum Number of Shares and the failure
within 40 days of such issuance to obtain shareholder approval to issue
additional shares of Common Stock (the "Redemption Event"), the Company shall
redeem the outstanding Preferred Shares for the Formula Price.
(d) In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock registered
under the Registration Statement filed by the Company to fully convert the
Preferred Shares held by Purchaser and sell such shares issued thereon, then the
Company shall immediately file an amendment to the then current registration
statement to register a sufficient number of such shares to convert said
Preferred Shares. Upon the failure within forty-five (45) days to register a
sufficient number of such shares, the Company shall redeem the outstanding
Preferred Shares for the Formula Price.
3.5 Redemption Procedures.
(a) Any permitted redemption of the Preferred Shares pursuant to Sections
3.3 or 3.4 above shall be deemed to be effective and consummated (for purposes
of determining the Formula Price and the time at which Purchaser shall
thereafter not be entitled to deliver a Notice of Conversion for the Preferred
Shares) as follows:
(i) A redemption pursuant to Section 3.3, the "redemption date"
specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of consummation
of the applicable Sale Event;
(iii) A redemption pursuant to Section 3.4(b), three (3) Business Days
following the date of consummation of the applicable Financing (meaning
closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), 40 days from the date of
issuance of the Maximum Number of Shares unless shareholder approval to
issue additional shares of Common Stock is obtained by the Company prior to
the expiration of said 40 days.
(v) A redemption pursuant to Section 3.4(d), three (3) Business Days
following the expiration of forty-five (45) days without registration of a
sufficient number of shares.
(b) On the effective date of a redemption of the Preferred Shares as
specified in Section 3.5(a) above, the Company shall deliver by wire transfer of
funds the redemption price to Purchaser of the Preferred Shares subject to
redemption. Should Purchaser not receive payment of any amounts due on
redemption of its Preferred Shares by reason of the Company's failure to make
payment at the times prescribed above for any reason, the Company shall pay to
the applicable holder on demand (x) interest on the sums not paid when due at an
annual rate equal to the lesser of (I) maximum lawful rate and (II) 18% per
annum compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but not
limited to, reasonable attorneys' fees and costs, whether or not suit or other
formal proceedings are instituted.
(c) The Company shall select the Preferred Shares to be redeemed in any
redemption in which not all of the Preferred Shares are to be redeemed so that
the ratio of the Preferred Shares of each holder selected for redemption to the
total Preferred Shares owned by that holder shall be the same as the ratio of
all such Preferred Shares selected for redemption bears to the total of all then
outstanding Preferred Shares. Should any Preferred Shares required to be
redeemed under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Preferred Shares shall be redeemed on the
earliest possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by Purchaser (including delivery via
telecopy) to the Company prior to the effective date of a voluntary redemption
pursuant to Section 3.3 or a mandatory redemption pursuant to Section 3.4 as
specified in Section 3.5(a) above), shall be honored by the Company and the
conversion of the Preferred Shares shall be deemed effected on the Conversion
Date. In addition, between the effective date of a voluntary redemption pursuant
to Section 3.3 or a mandatory redemption pursuant to Section 3.4 as specified in
Section 3.5(a) above and the date the Company is required to deliver the
redemption proceeds in full to Purchaser, Purchaser may deliver a Notice of
Conversion to the Company. Such notice will be (x) of no force or effect if the
Company timely pays the redemption proceeds to Purchaser when due or (y) honored
on or as of the date of the Notice of Conversion if the Company fails to timely
pay the redemption proceeds to Purchaser when due. Additionally, in the event
the Company fails to make full payment of the redemption price of the Preferred
Shares being redeemed by the tenth (10) day following the notice of redemption,
then the Company waives its right to redeem any of the remaining then
outstanding Preferred Shares, unless such redemption is approved by the
Purchaser.
3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the Preferred
Shares to Purchaser and each "qualified assignee" thereof shall be made free and
clear of and without deduction or withholding for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes") unless
such Taxes are required by law or the administration thereof to be deducted or
withheld. If the Company shall be required by law or the administration thereof
to deduct or withhold any Taxes from or in respect of any sum payable under the
Preferred Shares (i) the holders of the Preferred Shares subject to such Taxes
shall have the right, but not the obligation, for a period of thirty (30) days
commencing upon the day it shall have received written notice from the Company
that it is required to withhold Taxes to transfer all or any portion of the
Preferred Shares to a qualified assignee to the extent such transfer can be
effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or withholdings;
(iii) the sum payable shall be increased as may be necessary so that after
making all required deductions or withholdings (including deductions or
withholdings applicable to additional amounts paid under this Section 3.6)
Purchaser receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall forthwith pay
the full amount deducted or withheld to the relevant taxation or other authority
in accordance with applicable law; provided, however, the Company shall not be
required to pay any taxes owed by Purchaser or any qualified assignee resulting
from (x) the payment of dividends on the Preferred Shares by the Company or (y)
any gain recognized from the transfer of the Preferred Shares by the Purchaser
to a qualified assignee. A "qualified assignee" of a Purchaser is a Person that
is organized under the laws of (i) the United States or (II) any jurisdiction
other than the United States or any political subdivision thereof and that (y)
represents and warrants to the Company that payments of the Company to such
assignee under the laws in existence on the date of this Agreement would not be
subject to any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal Revenue Service
forms, and provides the Company with any information necessary to establish such
assignee's continued exemption from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement other than Taxes payable solely as a result of the
transfer from Purchaser to a Person of any Security.
(c) The Company shall indemnify Purchaser, or qualified assignee, for the
full amount of Taxes (provided, however, the Company shall not be required to
indemnify or pay any taxes owed by Purchaser or any qualified assignee resulting
from (x) the payment of dividends on the Preferred Shares by the Company or (y)
any gain recognized from the transfer of the Preferred Shares by the Purchaser
to a qualified assignee) or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 3.6) paid by Purchaser, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days from
the date Purchaser or assignee makes written demand therefore. A certificate as
to the amount of such Taxes or Other Taxes submitted to the Company by Purchaser
or assignee shall be conclusive evidence of the amount due from the Company to
such party.
(d) Within 30 days after the date of any payment of Taxes, the Company will
furnish to Purchaser the original or a certified copy of a receipt evidencing
payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating that it
is a non-U.S. person, together with any additional tax forms which may be
required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing Date,
the following:
4.1 Organization and Qualification. The Company and each Subsidiary is a
corporation (or other legal entity) duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with full power
and authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted. The
Company is qualified to conduct business as a foreign corporation and is in good
standing in every jurisdiction in which the nature of the business conducted by
it makes such qualification necessary, except where such failure would not have
a Material Adverse Effect. A "Material Adverse Effect" means any material
adverse effect on the operations, results of operations, properties, assets or
condition (financial or otherwise) of the Company or the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by
the agreements or instruments to be entered into in connection herewith.
4.2 Authorization and Execution.
(a) The Company has all requisite corporate power and authority to enter
into and perform each Transaction Agreement and to consummate the transactions
contemplated hereby and thereby and to issue the Securities in accordance with
the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities have
been duly and validly authorized and no further consent or authorization of the
Company, its Board of Directors or its shareholders is required.
(c) This Agreement has been duly executed and delivered by the Company.
(d) This Agreement constitutes, and upon execution and delivery thereof by
the Company, each of the Transaction Agreements will constitute, a valid and
binding agreement of the Company, in each case enforceable against the Company
in accordance with its respective terms, subject to (i) applicable bankruptcy,
insolvency or similar laws affecting the enforceability of creditors rights
generally and (ii) equitable principles of general applicability.
4.3 Capitalization As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto
and except as set forth on Schedule 4.3 no other shares of capital stock of the
Company will be outstanding as of the Closing Date. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or similar rights of the stockholders of the
Company (other than those rights in favor of holders of the Preferred Stock) or
any liens or encumbrances imposed through the actions or failure to act of the
Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Securities. The Company has furnished to Purchaser true and correct copies of
the Company's Corporate Documents, and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
4.4 Governmental Authorization. The execution and delivery by the Company
of the Transaction Agreements does not and will not, the issuance and sale by
the Company of the Securities does not and will not, and the consummation of the
transactions contemplated hereby and by the other Transaction Agreements will
not, require any action by or in respect of, or filing with, any governmental
body, agency or governmental official except (a) such actions or filings that
have been undertaken or made prior to the date hereof and that will be in full
force and effect (or as to which all applicable waiting periods have expired) on
and as of the date hereof or which are not required to be filed on or prior to
the Closing Date, (b) such actions or filings that, if not obtained, would not
result in a Material Adverse Effect, and (c) the filing of a "Form D" as
described in Section 7.13 below.
4.5 Issuance of Shares. Upon conversion in accordance with the terms of the
Preferred Shares, the Conversion Shares shall be duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens
and charges with respect to issuance and shall not be subject to preemptive
rights or similar rights of any other stockholders of the Company. Assuming the
representations and warranties of Purchaser herein are true and correct in all
material respects, each of the Securities will have been issued in material
compliance with all applicable U.S. federal and state securities laws. The
Company understands and acknowledges that, in certain circumstances, the
issuance of Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company. The
Company shall have a sufficient number of shares of Common Stock authorized and
reserved to provide for the conversion of the Preferred Shares into the
Company's Common Stock and for the exercise of the Warrants.
4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
4.7 Financial Information. Since March 31, 2004 (the "Balance Sheet Date"),
except as disclosed in Schedule 4.7, there has been (x) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its Subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and (y) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Company and its subsidiaries except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the future. The
audited consolidated balance sheets for the fiscal years ending December 31,
2001, 2002 and 2003, and the related consolidated statements of income, changes
in stockholders' equity and changes in cash flows for the periods then ended,
including the footnotes thereto, except as indicated therein, (i) complied in
all material respects with applicable accounting requirements and (ii) have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated, except that the unaudited financial statements do not contain notes
and may be subject to normal audit adjustments and normal annual adjustments.
Such financial statements fairly present the financial condition of the Company
and its Subsidiaries at the dates indicated and the consolidated results of
their operations and cash flows for the periods then ended and, except as
indicated therein, reflect all claims against and all Debts and liabilities of
the Company and its Subsidiaries, fixed or contingent required to be reflected
therein.
4.8 Litigation. Except as set forth on Schedule 4.8, there is no action,
suit or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
of an adverse decision which could materially adversely affect the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or which challenges the validity of any Transaction
Agreements.
4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
4.10 Environmental Matters. The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses
in compliance in all material respects with all applicable Environmental Laws.
4.11 Taxes. All United States federal, state, county, municipality, local
or foreign income tax returns and all other material tax returns (including
foreign tax returns) which are required to be filed by or on behalf of the
Company and each Subsidiary have been filed and all material taxes due pursuant
to such returns or pursuant to any assessment received by the Company and each
Subsidiary have been paid except those being disputed in good faith and for
which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
4.12 Investments, Joint Ventures. Other than as set forth in Schedule 4.12,
the Company has no Subsidiaries or other direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
4.13 Not an Investment Company. Neither the Company nor any Subsidiary is
an "Investment Company" within the meaning of Investment Company Act of 1940, as
amended.
4.14 Full Disclosure. The information heretofore furnished by the Company
to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
4.15 No Solicitation; No Integration with Other Offerings. No form of
general solicitation or general advertising was used by the Company or, to the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Securities. Neither the Company,
nor, to its knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person (other than
Purchaser) any of the Securities or, within the six months prior to the date
hereof, any other similar security of the Company except as contemplated by this
Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act.
4.16 Permits. (a) Each of the Company and its Subsidiaries has all material
Permits; (b) all such Permits are in full force and effect, and each of the
Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.
4.17 Leases. Neither the Company nor any Subsidiary is a party to any
capital lease obligation with a value greater than $100,000 or to any operating
lease with an aggregate annual rental greater than $500,000 during the life of
such lease.
4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
4.19 Public Utility Holding Company. Neither the Company nor any Subsidiary
is, or will be upon issuance and sale of the Securities and the use of the
proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
4.20 Intellectual Property Rights. Each of the Company and its Subsidiaries
owns, or is licensed under, and has the rights to use, all material patents,
trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
4.21 Proprietary Information of Third Parties. To the best of the Company's
knowledge, no Person has claimed or has reason to claim that any employee of the
Company or any Subsidiary has (a) violated or may be violating any of the terms
or conditions of his employment, non-competition or non-disclosure agreement
with such Person, (b) disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation of such
Person or (c) interfered or may be interfering in the employment relationship
between such Person and any of its present or former employees. No Person has
requested information from the Company which suggests that such a claim might be
contemplated. To the best of the Company's knowledge, no employee of the Company
or any Subsidiary has employed or proposes to employ any trade secret or any
information of documentation proprietary to any former employer, and to the best
of the Company's knowledge, no employee of the Company or any Subsidiary, has
violated any confidential relationship which such Person may have had with any
Person, in connection with the development or sale of any service or proposed
service of the Company or any Subsidiary, and the Company or any Subsidiary has
no reason to believe there will be any such employment or violation. To the best
of the Company's knowledge, none of the execution or delivery of this Agreement,
or the carrying on of the business of the Company or any Subsidiary as officer,
employee or agent by any officer, director or key employee of the Company or any
Subsidiary, or the conduct or proposed conduct of the business of the Company or
any Subsidiary, will conflict with or result in a breach of the terms,
conditions or provisions of or constitute a default under any contract, covenant
or instrument under which such Person is obligated.
4.22 Insurance. The Company and its Subsidiaries maintain, with financially
sound and reputable insurance companies, insurance in at least such amounts and
against such risks such that any uninsured loss would not have a Material
Adverse Effect. All insurance coverages of the Company and its Subsidiaries are
in full force and effect and there are no past due premiums in respect of any
such insurance.
4.23 Title to Properties. The Company and its Subsidiaries have good and
marketable title to all their respective properties free and clear of all Liens.
4.24 Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's Board of Directors, to provide reasonable assurance that (i)
transactions are executed in accordance with managements' general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4.25 Brokers. Except as set forth on Schedule 4.25 or except for any fee
due Global Capital Advisors, LLC, the Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
4.26 Foreign Practices. Neither the Company nor any of its Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payments of funds of the Company or Subsidiary, or
received or retained any funds, in each case in violation of any law, rule or
regulation.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Purchaser. Purchaser hereby represents and warrants to the Company
that:
(a) Purchaser is an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act and the Securities to be acquired by it pursuant to
this Agreement are being acquired for its own account and, as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and state
securities law; provided that the disposition of Purchaser's property shall at
all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant thereto are within Purchaser's corporate or
partnership powers, as applicable, and have been duly and validly authorized by
all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by Purchaser;
(d) the execution and delivery by Purchaser of the Transaction Agreements
to which it is a party does not, and the consummation of the transactions
contemplated hereby and thereby will not, contravene or constitute a default
under or violation of (i) any provision of applicable law or regulation, or (ii)
any agreement, judgment, injunction, order, decree or other instrument binding
upon Purchaser;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as specified
in this Agreement or the remaining Transaction Agreements;
(f) this Agreement constitutes a valid and binding agreement of Purchaser
enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency or similar laws affecting the enforceability of creditors rights
generally and (ii) equitable principles of general applicability;
(g) Purchaser has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Securities and Purchaser is capable of bearing the economic risks of such
investment;
(h) Purchaser is knowledgeable, sophisticated and experienced in business
and financial matters; Purchaser has previously invested in securities similar
to the Securities and fully understands the limitations on transfer described
herein; Purchaser has been afforded access to information about the Company and
the financial condition, results of operations, property, management and
prospects of the Company sufficient to enable it to evaluate its investment in
the Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
Purchaser concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall not
limit Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
Purchaser in which any employee benefit plan (or its related trust) has any
interest; and
(j) Purchaser is a corporation organized under the laws of Bermuda.
6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
6.1 Conditions Precedent to Purchasers' Obligations to Purchase. The
obligation of Purchaser hereunder to purchase the Preferred Shares at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole discretion:
(a) The Company shall have duly executed this Agreement, the Registration
Rights Agreement and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser (i) a duly executed
certificate representing the Preferred Shares and (ii) a duly executed Warrant
exercisable for the applicable number of shares to which Purchaser is entitled
pursuant to this Agreement;
(c) The representations and warranties of the Company contained in each
Transaction Agreement shall be true and correct in all material respects as of
the date when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified date)
and the Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by such Transaction Agreements to be
performed, satisfied or complied with by it at or prior to the Closing Date.
Purchaser shall have received an Officer's Certificate executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by Purchaser,
including but not limited to certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company. The form of such
certificate is attached hereto as Exhibit D;
(d) The Company shall have received all governmental, Board of Directors,
shareholders and third party consents and approvals necessary or desirable in
connection with the issuance and sale of the Securities and the consummation of
the transactions contemplated by the Transaction Agreements;
(e) All applicable waiting periods in respect to the issuance and sale of
the Securities shall have expired without any action having been taken by any
competent authority that could restrain, prevent or impose any materially
adverse conditions thereon or that could seek or threaten any of the foregoing;
(f) No law or regulation shall have been imposed or enacted that, in the
judgment of Purchaser, could adversely affect the transactions set forth herein
or in the other Transaction Agreements, and no law or regulation shall have been
proposed that in the reasonable judgment of Purchaser could reasonably have any
such effect;
(g) Purchaser shall have received an opinion, dated the Closing Date, of
counsel to the Company, in form and substance satisfactory to Purchaser;
(h) All fees and expenses due and payable by the Company on or prior to the
Closing Date shall have been paid;
(i) The Company Corporate Documents and the Subsidiary Corporate Documents,
if any, shall be in full force and effect and no term or condition thereof shall
have been amended, waived or otherwise modified without the prior written
consent of Purchaser;
(j) There shall have occurred no material adverse change in the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or any Subsidiary since March 31, 2004;
(k) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
Material Adverse Effect, or any material adverse effect on the enforceability of
the Transaction Agreements or the Securities or the rights of the holders of the
Securities or Purchaser hereunder;
(l) Purchaser shall have confirmed the receipt of the Preferred Shares to
be issued, duly executed by the Company in the denominations and registered in
the name of Purchaser;
(m) Immediately before and after the Closing Date, no Default or Event of
Default shall have occurred and be continuing;
(n) Purchaser shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as they shall
reasonably request; and
(o) Company shall have delivered to Purchaser the Use of Proceeds Schedule
7.8.
6.2 Conditions to the Company's Obligations. The obligations of the Company
to issue and sell the Securities to Purchaser pursuant to this Agreement are
subject to the satisfaction, at or prior to any Closing Date, of the following
conditions:
(a) The representations and warranties of Purchaser contained herein shall
be true and correct in all material respects on the Closing Date and Purchaser
shall have performed and complied in all material respects with all agreements
required by this Agreement to be performed or complied with by Purchaser at or
prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this Agreement
and the Registration Rights Agreement signed by Purchaser;
(d) The Company shall have received payment of Purchase Price, less the
applicable application fee, discount fees, broker fees and Expense Reimbursement
Fee.
7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Preferred Stock remain outstanding and for the benefit of Purchaser:
7.1 Information. The Company will deliver to each holder of the Preferred
Shares:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q and 8-K
(or other equivalents) which the Company or any Subsidiary has filed with the
Commission (collectively, "SEC Reports")
(b) simultaneously with the delivery of each item referred to in clause (a)
above, a certificate from the chief financial officer of the Company stating
that no Default or Event of Default has occurred and is continuing, or, if as of
the date of such delivery a Default shall have occurred and be continuing, a
certificate from the Company setting forth the details of such Default or Event
of Default and the action which the Company is taking or proposes to take with
respect thereto;
(c) within two (2) days after any officer of the Company obtains knowledge
of a Default or Event of Default, or that any Person has given any notice or
taken any action with respect to a claimed Default hereunder, a certificate of
the chief financial officer of the Company setting forth the details thereof and
the action which the Company is taking or proposed to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy statements so
mailed and any other document generally distributed to shareholders;
(e) at least five (5) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Preferred Shares under
Section 3.4, notice thereof together with a summary of all material terms
thereof and copies of all documents and instruments associated therewith;
(f) notice promptly upon the occurrence of any event by which the Reserved
Amount becomes less than the sum of (i) 1.5 times the maximum number of
Conversion Shares issuable pursuant to the Transaction Agreements; and
(g) promptly following the commencement thereof, notice and a description
in reasonable detail of any litigation or proceeding to which the Company or any
Subsidiary is a party in which the amount involved is $100,000 or more and not
covered by insurance or in which injunctive or similar relief is sought.
7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
7.3 Maintenance of Property; Insurance. The Company will, and will cause
each Subsidiary to, keep all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted. In addition,
the Company and each Subsidiary will maintain insurance in at least such amounts
and against such risks as it has insured against as of the Closing Date.
7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
7.5 Compliance with Laws. The Company will, and will cause each Subsidiary
to, comply, in all material respects, with all federal, state, municipal, local
or foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings or (ii) where non-compliance therewith could not
reasonably be expected, in the aggregate, to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or such Subsidiary.
7.6 Inspection of Property, Books and Records. The Company will, and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and correct entries shall be made of all dealings and transactions in
relation to their respective businesses and activities; and will permit, during
normal business hours, Purchaser' Representative or an affiliate thereof, as
representatives of Purchaser, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will not
result in any unreasonable expense to the Company, without Company consent), all
at such reasonable times.
7.7 Investment Company Act. The Company will not be or become an open-end
investment trust, unit investment trust or face-amount certificate company that
is or is required to be registered under Section 8 of the Investment Company Act
of 1940, as amended.
7.8 Use of Proceeds. The proceeds from the issuance and sale of the
Preferred Shares by the Company shall be used in accordance with Schedule 7.8
attached hereto. None of the proceeds from the issuance and sale of the
Preferred Shares by the Company pursuant to this Agreement will be used directly
or indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
7.9 Compliance with Terms and Conditions of Material Contracts. The Company
will, and will cause each Subsidiary to, comply, in all respects, with all terms
and conditions of all material contracts to which it is subject.
7.10 Reserved Shares.
(a) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Preferred Shares and issuance of the
Conversion Shares (based on the conversion price of the Preferred Shares in
effect from time to time) (the "Reserved Amount"). The Company shall not reduce
the Reserved Amount without the prior written consent of Purchaser. With respect
to all Securities which contain an indeterminate number of shares of Common
Stock issuable in connection therewith (such as the Preferred Shares), the
Company shall include in the Reserve Amount, no less than two (2) times the
number of shares that is then actually issuable upon conversion or exercise of
such Securities. If at any time the number of shares of Common Stock authorized
and reserved for issuance is below the number of Conversion Shares issued or
issuable upon conversion of the Preferred Shares, the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, either (x) calling a special meeting of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares or (y) in lieu thereof, consummating the immediate
repurchase of the Preferred Shares contemplated in Sections 3.4(c) hereof.
(b) The Company will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the AMEX, or the
National Association of Securities Dealers, Inc. (the "NASD"), as applicable.
The Company shall promptly provide to Purchaser copies of any notices it
receives regarding the continued eligibility of the Common Stock for listing on
the AMEX.
7.11 Transfer Agent Instructions. Upon receipt of a Notice of Conversion or
Notice of Exercise, as applicable, the Company shall immediately direct the
Company's transfer agent to issue certificates, registered in the name of
Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Preferred Shares. Upon conversion of any Preferred Shares in accordance
with their terms, the Company will, and will use its best lawful efforts to
cause its transfer agent to, issue one or more certificates representing shares
of Common Stock in such name or names and in such denominations specified by a
Purchaser in a Notice of Conversion. As long as the Registration Statement
contemplated by the Registration Rights Agreement shall remain effective, the
shares of Common Stock issuable upon conversion of any Preferred Shares shall be
issued to any transferee of such shares from Purchaser without any restrictive
legend upon appropriate evidence of transfer in compliance with the Securities
Act and the rules and regulations of the Commission; provided that for so long
as the Registration Statement is effective, no opinion of counsel will be
required to effect any such transfer. The Company further warrants and agrees
that no instructions other than these instructions have been or will be given to
its transfer agent. Nothing in this Section 7.11 shall affect in any way a
Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
7.12 Maintenance of Reporting Status; Supplemental Information. So long as
any of the Securities are outstanding, the Company shall use its best lawful
efforts to timely file all reports required to be filed with the Commission
pursuant to the Exchange Act. The Company shall not terminate its status as an
issuer required to file reports under the Exchange Act, even if the Exchange Act
or rules and regulations thereunder would permit such termination. If at any
time the Company is not subject to the requirements of Section 13 or 15(d) of
the Exchange Act, the Company will promptly furnish at its expense, upon
request, for the benefit of the holders from time to time of the Securities, and
prospective purchasers of Securities, information satisfying the information
requirements of Rule 144 under the Securities Act.
7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with
respect to the Securities as required under Regulation D of the Securities Act
and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
Purchaser at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.
8. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Preferred Shares remain outstanding and for the benefit of Purchaser:
8.1 Limitations on Debt or Other Liabilities. Neither the Company nor any
Subsidiary will create, incur, assume or suffer to exist (at any time after the
Closing Date, after giving effect to the application of the proceeds of the
issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted
Financing (hereinafter defined), (y) Debt incurred in connection with equipment
leases to which the Company or its Subsidiaries are a party incurred in the
ordinary course of business; and (z) Debt incurred in connection with trade
accounts payable, imbalances and refunds arising in the ordinary course of
business and (ii) any equity securities (including Derivative Securities) (other
than those securities that are issuable (x) under or pursuant to stock option
plans, warrants or other rights programs that exist as of the date hereof and
(z) in connection with the acquisition (including by merger) of a business or of
assets otherwise permitted under this Agreement), unless the Company complies
with the mandatory prepayment terms of Section 3.4(b) hereof.
8.2 Transactions with Affiliates. The Company and each Subsidiary will not,
directly or indirectly, pay any funds to or for the account of, make any
investment (whether by acquisition or stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate, except, (1) pursuant to those agreements
specifically identified on Schedule 8.2 attached hereto (with a copy of such
agreements annexed to such Schedule 8.2) and (2) on terms to the Company or such
Subsidiary no less favorable than terms that could be obtained by the Company or
such Subsidiary from a Person that is not an Affiliate of the Company upon
negotiation at arms' length, as determined in good faith by the Board of
Directors of the Company; provided that no determination of the Board of
Directors shall be required with respect to any such transactions entered into
in the ordinary course of business.
8.3 Merger or Consolidation. The Company will not, in a single transaction
or a series of related transactions (i) consolidate with or merge with or into
any other Person, or (ii) permit any other Person to consolidate with or merge
into it, unless the Company shall be the survivor of such merger or
consolidation and (x) immediately before and immediately after given effect to
such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
8.4 Limitation on Asset Sales. Neither the Company nor any Subsidiary will
consummate an Asset Sale of material assets of the Company or any Subsidiary
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. As used herein, "Asset Sale" means any sale, lease,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) or sales of capital stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purpose
of this definition as a "disposition"), including any disposition by means of a
merger, consolidation or similar transaction other than a disposition of
property or assets at fair market value in the ordinary course of business.
8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement,
any Company Corporate Document or Subsidiary Corporate Document if such
amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
8.6 Prohibition on Discounted Equity Offerings; Registration Rights.
(a) In addition to and not in lieu of the covenant specified in Section 8.1
above, beginning on the Closing Date and continuing until 180 days following the
date on which the Registration Statement is declared effective by the Commission
(the "Effective Date") or until such time as all of the Preferred Shares have
been either redeemed or converted into Conversion Shares in full, whichever is
later to occur, the Company agrees that it will not, without the written consent
of the Purchaser or Majority Holders, issue any of its equity securities (or
securities convertible into or exchangeable or exercisable for equity securities
(the "Derivative Securities")) on terms that allow a holder thereof to acquire
such equity securities (or Derivative Securities) at a discount to the Market
Price of the Common Stock at the time of issuance or, in the case of Derivative
Securities at a conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later than the
date of issuance so long as such conversion is not below the Market Price on the
date of issuance (each such event, a "Discounted Equity Offering"). As used
herein, "discount" shall include, but not be limited to, (i) any warrant, right
or other security granted or offered in connection with such issuance which, on
the applicable date of grant, is offered with an exercise or conversion price,
as the case may be, at less than the then current Market Price of the Common
Stock or, if such security has an exercise or conversion price based on any
formula (other than standard anti-dilution provisions) based on the Market Price
on a date later than the date of issuance, then at a price below the Market
Price on such date of exercise or conversion, as the case may be, or (ii) any
commissions, fees or other allowances paid in connection with such issuances
(other than customary underwriter or placement agent commissions, fees or
allowances). For the purposes of determining the Market Price at which Common
Stock is acquired under this Section, normal underwriting commissions and
placement fees (including underwriters' warrants) shall be excluded. The 180-day
restrictive period set forth in this paragraph (a) of this Section 8.6 shall be
increased by one day for each day a Registration Default has occurred and not
been cured by the Company.
(b) Beginning on the Closing Date and continuing until 180 days following
the Effective Date or until such time as all of the Preferred Shares have been
either redeemed or converted into Conversion Shares in full, whichever is later
to occur, the Company agrees it will not, without the written consent of the
Purchaser of Majority Holders, issue any of its equity securities (or Derivative
Securities), unless any shares of Common Stock issued or issuable in connection
therewith are "restricted securities." As used herein "restricted securities"
shall mean securities which may not be sold by virtue of contractual
restrictions imposed by the Company either pursuant to an exemption from
registration under the Securities Act or pursuant to a registration statement
filed by the Company with the Commission, in each case prior to twelve (12)
months following the date of issuance of such securities.
(c) The restrictions contained in this Section 8.6 shall not apply to the
issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this Agreement,
(ii) stock option or other compensatory plans, (iii) the Exchange Agreement
dated the date hereof between the Company and Global Capital Funding Group, L.P.
or (iv) Qualified Future Financing (hereinafter defined).
8.7 Limitation on Stock Repurchases. Except as otherwise set forth in the
Certificate of Designation and the Warrants, the Company shall not, without the
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
9. RESTRICTIVE LEGENDS
9.1 Restrictions on Transfer. From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Section 9, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Section 9.
9.2 Legends. The Preferred Shares and Preferred Share Warrants shall bear a
restrictive legend in accordance with applicable securities laws. The Conversion
Shares, upon resale by the Purchaser pursuant to the Registration Statement,
shall be freely tradeable and unrestricted.
9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of the
Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
10. ADDITIONAL AGREEMENTS AMONG THE PARTIES
10.1 Liquidated Damages.
The Company shall cause its transfer agent to, issue and deliver shares of
Common Stock consistent with Section 7.11 hereof within three (3) Trading Days
of delivery of a Notice of Conversion, as applicable (the "Deadline") to
Purchaser (or any party receiving Securities by transfer from Purchaser) at the
address of Purchaser set forth in the Notice of Conversion. The Company
understands that a delay in the issuance of such certificates after the Deadline
could result in economic loss to Purchaser.
(b) Without in any way limiting Purchaser's right to pursue other remedies,
including actual damages and/or equitable relief, the Company agrees that if
delivery of the Conversion Shares is more than one (1) Business Day after the
Deadline the Company shall pay to Purchaser, as liquidated damages and not as a
penalty, $500 for each $100,000 of the principal amount of the Preferred Shares
then outstanding per day in cash, for each of the first ten (10) days beyond the
Deadline, and $1,000 for each $100,000 of the principal amount of the Preferred
Shares then outstanding per day in cash for each day thereafter that the Company
fails to deliver such Common Stock. Such cash amount shall be paid to Purchaser
by the last day of the calendar week following the week in which it has accrued
or, at the option of Purchaser (by written notice to the Company by the first
day of the week following the week in which it has accrued), shall be added to
the principal amount of the Preferred Share (if then outstanding) payable to
Purchaser, in which event dividends shall accrue thereon in accordance with the
terms of the Preferred Shares and such additional principal amount shall be
convertible into Common Stock in accordance with the terms of the Preferred
Shares.
10.2 Conversion Notice. The Company agrees that, in addition to any other
remedies which may be available to Purchaser, including, but not limited to, the
remedies available under Section 10.1, in the event the Company fails for any
reason (other than as a result of actions taken by a Purchaser in breach of this
Agreement) to effect delivery to a Purchaser of certificates with or without
restrictive legends as contemplated by Section 9 representing the shares of
Common Stock on or prior to the Deadline after conversion of any Preferred
Shares, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion.
10.3 Conversion Limit. Notwithstanding the conversion rights under the
Preferred Shares, unless Purchaser delivers a waiver in accordance with the
immediately following sentence, in no event shall Purchaser be entitled to
convert any portion of the Preferred Shares, in excess of that portion of the
Preferred Shares, as applicable, of which the sum of (i) the number of shares of
Common Stock beneficially owned by Purchaser and its Affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Preferred Shares or other Derivative
Securities convertible into or exchangeable for shares of Common Stock which
contain a limitation similar to that set forth in this Section 10.3), and (ii)
the number of shares of Common Stock issuable upon the conversion of the portion
of the Preferred Shares with respect to which this determination is being made,
would result in beneficial ownership by Purchaser and its Affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of Section
10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3
of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise
provided in this Section 10.3. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and upon the
occurrence of any voluntary or mandatory redemption or repayment transaction
described herein or in the Certificate of Designation, (ii) immediately
preceding and upon any Sale Event, or (iii) following the occurrence of any
Event of Default which is not cured for a period of ten (10) calendar days.
Furthermore, in no event shall Purchaser be entitled to convert any portion of
the Preferred Shares in excess of that portion of Preferred Shares of which the
number of shares of Common Stock to be issued is in excess of 19.9% of the
Common Stock outstanding immediately prior to the Closing Date without the
approval of the shareholders of the Company in accordance with AMEX rules.
10.4 Registration Rights. The Company shall grant Purchaser registration
rights covering the Conversion Shares (the "Registrable Securities") on the
terms set forth in the Registration Rights Agreement and herein.
(a) The Company shall prepare and file within 30 days of the Closing Date
(the "Filing Date"), a registration statement (the "Registration Statement")
covering the resale of the Registrable Securities with the Commission. The
Company shall use its best efforts to cause the Registration Statement to be
declared effective by the Commission or the earlier of (i) 90 days following the
Filing Date, (ii) ten days following the receipt of a "No Review" Letter from
the Commission or (iii) the first Business Day following the day the Commission
determines the Registration Statement eligible to be declared effective (the
"Required Effectiveness Date"). The Company shall pay all expenses of
registration (other than underwriting fees and discounts, if any, in respect of
Registrable Securities offered and sold under the registration statement by
Purchaser). The Company agrees to file an initial written response to the
Commission within ten calendar days of receipt of any comments by the Commission
relating to the Registration Statement. If the Company fails to file the
Registration Statement by the Filing Date, the Company will pay to the Fund
liquidated damages in the amount of 1% of the principal amount of the then
outstanding Preferred Shares for each 30-day period, prorated, until the
Registration Statement has been filed.
If the Registration Statement is not declared effective by the Commission
by the Required Effectiveness Date, the Company shall pay to Purchaser, as
liquidated damages and not as a penalty, an amount equal to 1% of the
outstanding principal amount of the Preferred Shares, prorated, for each 30 day
period the Registration Statement is not declared effective by the Commission.
In the event the Company fails to obtain an effective registration statement by
the 360th day following the Closing Date, the Company will redeem the Preferred
Shares as set forth in Section 6.2 of the Certificate of Designation.
Additionally, the Company will grant to Purchaser certain piggyback registration
rights in the event the Company proposes to effect a registered offering of
Common Stock or warrants or both prior to the filing of the Registration
Statement referenced above.
Any such liquidated damages shall be paid in cash by the Company to
Purchaser by wire transfer in immediately available funds on the last day of
each calendar week following the event requiring its payment.
If, following the declaration of effectiveness of the Registration
Statement, such registration statement (or any prospectus or supplemental
prospectus contained therein) shall cease to be effective for any reason
(including but not limited to the occurrence of any event that results in any
prospectus or supplemental prospectus containing an untrue statement of a
material fact or omitting a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading), the Company fails to file required
amendments to the Registration Statement in order to allow the Purchaser to
resell the Conversion Shares pursuant to the Registration Statement as
unrestricted, unlegended, freely tradeable shares of Common Stock, or if for any
reason there are insufficient shares of such shares of Common Stock registered
under the then current Registration Statement to effect full conversion of the
Preferred Shares or exercise of the Warrants (a "Registration Default"), the
Company shall immediately take all necessary steps to cause the Registration
Statement to be amended or supplemented so as to cure such Registration Default.
Failure to cure a Registration Default within ten (10) Business Days shall
result in the Company paying to Purchaser liquidated damages at the rate of one
percent (1%) of the principal amount of the Preferred Shares then outstanding
for each 30 day period (prorated), the Registration Default remains uncured.
10.5 Restriction on Issuance of Securities. Beginning on the Closing Date
and continuing for a period of 180 days following the Effective Date or until
the Preferred Shares have been fully converted into shares of Common Stock,
whichever is later to occur, the Company will not sell, or offer to sell, any
securities (including credit facilities which are convertible into securities
which may be issued at a discount to the then current Market Price) other than
borrowings that provide for the payment of the Preferred Shares, borrowings
under conventional credit facilities existing as of the date hereof, stock
issued or credit facilities to be established in connection with acquisitions,
employee and director stock options of the Company, existing rights and warrants
of the Company and securities issued under the Preferred Shares and Qualified
Future Financing as defined and set forth in the Certificate of Designation in
an amount not to exceed in the aggregate, Six Million Five Hundred Thousand
Dollars ($6,500,000.00) in the following tranches: (1) an amount not to exceed
Three Million Five Hundred Thousand Dollars ($3,500,000) no sooner than October
1, 2004; and (3) an amount not to exceed Three Million Dollars ($3,000,000) no
sooner than December 31, 2004. In addition, the Company shall not issue any
securities in connection with a strategic alliance entered into by the Company
unless such securities are the subject of a one year statutory or contractual
hold period or, if not subject to such a hold period, unless the Purchaser has
fully converted all outstanding Preferred Shares. Notwithstanding the foregoing,
the Company may enter into the following types of transactions (collectively
referred to as "Permitted Financings"): (1) "permanent financing" transactions,
which would include any form of debt or equity financing (other than an
underwritten offering), which is followed by a reduction of the said financing
commitment to zero and payment of all related fees and expenses; (2) "project
financing" which provide for the issuance of recourse debt instruments in
connection with the operation of the Company's business as presently conducted
or as proposed to be conducted; (3) an underwritten offering of Common Stock,
provided that such offering provides for the registration of the Common Stock to
be received by Purchaser as a result of the conversion of the Preferred Shares
held by the Purchaser to the extent there is not an effective Registration
Statement for the sale of the Conversion Shares in place at the time of such
offering; and (4) other financing transactions specifically consented to in
writing by the Purchaser. Until such time as all of the Preferred Shares have
been either redeemed or converted into Conversion Shares in full, the Company
will not issue any of its equity securities (or Derivative Securities), unless
any shares of Common stock issued or issuable in connection therewith are
"restricted securities" provided, however, this sentence shall not apply to the
above mentioned Qualified Future Financing. "Restricted Securities" shall mean
securities which may not be sold prior to twelve (12) months following the date
of issuance of such securities by virtue of contractual restrictions imposed by
the Company or otherwise.
11. ADJUSTMENT OF FIXED PRICE
11.1 Reorganization. The Conversion Price and the exercise price of the
Warrants (collectively, the "Fixed Prices") shall be adjusted, as applicable, as
hereafter provided.
11.2 Share Reorganization. If and whenever the Company shall:
(1) subdivide the outstanding shares of Common Stock into a greater number
of shares;
(2) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(3) issue Common Stock or securities convertible into or exchangeable for
shares of Common Stock as a stock dividend to all or substantially all the
holders of Common Stock; or
(4) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(i) the numerator shall be the number of shares of Common Stock outstanding
on such record or effective date (without giving effect to the Share
Reorganization); and
(ii) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in the
case of a distribution of securities convertible into or exchangeable for shares
of Common Stock, the number of shares of Common Stock that would have been
outstanding if such securities had been converted into or exchanged for Common
Stock on such record or effective date.
11.3 Rights Offering. If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than 45 days
after the record date of such issue, to subscribe for or purchase Common Stock
(or Derivative Securities), at a price per share (or, in the case of securities
convertible into or exchangeable for Common Stock, at an exchange or conversion
price per share at the date of issue of such securities) of less than 95% of the
Market Price of the Common Stock on such record date (any such event being
herein called a "Rights Offering"), then in each such case the applicable Fixed
Price shall be adjusted, effective immediately after the record date at which
holders of Common Stock are determined for the purposes of the Rights Offering,
by multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(1) the numerator shall be the sum of:
(a) the number of shares of Common Stock outstanding on such record
date; and
(b) a number obtained by dividing:
(i) either,
(x) the product of the total number of shares of Common Stock so
offered for subscription or purchase and the price at which such
shares are so offered, or
(y) the product of the maximum number of shares of Common Stock into
or for which the convertible or exchangeable securities so offered for
subscription or purchase may be converted or exchanged and the
conversion or exchange price of such securities, or, as the case may
be, by
(ii) the Market Price of the Common Stock on such record date; and
(2) the denominator shall be the sum of:
(a) the number of shares of Common Stock outstanding on such record
date; and
(b) the number of shares of Common Stock so offered for subscription
or purchase (or, in the case of Derivative Securities, the maximum
number of shares of Common Stock for or into which the securities so
offered for subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
11.4 Special Distribution. If and whenever the Company shall issue or
distribute to all or substantially all the holders of Common Stock:
(1) shares of the Company of any class, other than Common Stock;
(2) rights, options or warrants; or
(3) any other assets (excluding cash dividends and equivalent dividends in
shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
the numerator shall be the difference between:
(i) the product of the number of shares of Common Stock outstanding on such
record date and the Market Price of the Common Stock on such date; and
(ii) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other assets
issued or distributed in the Special Distribution (net of any consideration paid
therefore by the holders of Common Stock), and
(iii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the Common
Stock on such date.
11.5 Capital Reorganization. If and whenever there shall occur:
a) a reclassification or redesignation of the shares of Common Stock or any
change of the shares of Common Stock into other shares, other than in a Share
Reorganization;
b) a consolidation, merger or amalgamation of the Company with, or into
another body corporate; or
c) the transfer of all or substantially all of the assets of the Company to
another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes after
the effective date of such Capital Reorganization shall be entitled to receive
and shall accept, upon the exercise of such right, in lieu of the number of
shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
11.6 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Section 11:
1. no adjustment in the applicable Fixed Price shall be required unless
such adjustment would result in a change of at least 1% in the applicable Fixed
Price then in effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made, shall
be carried forward and taken into account in any subsequent adjustment;
2. if any event occurs of the type contemplated by the adjustment
provisions of this Section 11 but not expressly provided for by such provisions,
the Company will give notice of such event as provided herein, and the Directors
will make an appropriate adjustment in the Fixed Price so that the rights of the
holders of the applicable Security shall not be diminished by such event; and
3. if a dispute shall at any time arise with respect to any adjustment of
the applicable Fixed Price, such dispute shall be conclusively determined by the
auditors of the Company or, if they are unable or unwilling to act, by a firm of
independent chartered accountants selected by the Directors and any such
determination shall be binding upon the Company and Purchaser.
11.7 Certificate as to Adjustment. The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
applicable Fixed Price deliver to Purchaser a certificate specifying the nature
of the event requiring the adjustment, the amount of the adjustment necessitated
thereby, the applicable Fixed Price after giving effect to such adjustment and
setting forth, in reasonable detail, the method of calculation and the facts
upon which such calculation is based.
11.8 Notice to Holders. If the Company shall fix a record date for:
1. any Share Reorganization (other than the subdivision of outstanding
Common Stock into a greater number of shares or the consolidation of outstanding
Common Stock into a smaller number of shares),
2. any Rights Offering,
3. any Special Distribution,
4. any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
5. Sale Event; or
6. any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
12. OTHER AGREEMENTS
12.1 Registration Rights. The Preferred Shares and any Common Stock into
which they may be converted or exercised, as applicable, shall have the
registration rights set forth in the Registration Rights Agreement, attached as
Exhibit D hereto.
12.2 Use of Proceeds. The Company shall use the proceeds received from the
issuance of the Preferred Shares for (a) the purposes set forth in Schedule 7.8,
and (b) working capital and other general corporate purposes as determined in
the discretion of the Board of Directors of the Company, including, without
limitation, transaction costs and expenses, accounts payable of the Company, and
future potential acquisitions and related transactions.
13. EVENTS OF DEFAULT
13.1 Events of Default. If one or more of the following events (each an
"Event of Default") shall have occurred and be continuing: () failure by the
Company to pay within five (5) Business Days following the delivery of notice to
the Company of any fees or any other amount payable by the Company under any
Transaction Agreement; () failure by the Company to timely comply with the
requirements of Section 7.11 or 10.1 hereof, which failure is not cured within
five (5) Business Days of such failure; () failure on the part of the Company to
observe or perform any covenant contained in Section 8 of this Agreement, which
failure is not cured within five (5) Business Days of such failure; () failure
on the part of the Company to observe or perform any covenant or agreement
contained in any Transaction Agreement for 30 days from the date of such
occurrence; () the trading in the Common Stock shall have been suspended by the
Commission, AMEX or any National Market (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension on any
National Market, the Common Stock is then listed and approved for trading on
another National Market within ten (10) Trading Days thereof); () the Company
shall have its Common Stock delisted from the AMEX or a National Market for at
least ten (10) consecutive Trading Days and is unable to obtain a listing on the
AMEX or a National Market within such ten (10) Trading Days; () the
effectiveness of any registration statement required to be made and maintained
effective pursuant to the terms of the Registration Rights Agreement shall not
be maintained effective for the applicable period of time, and such failure
results in the Company incurring the applicable liquidated damages or default
fees for a continuous period in excess of 30 days; () the Company or any
Subsidiary has commenced a voluntary case or other proceeding seeking
liquidation, winding-up, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency, moratorium or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or has made a general assignment for the
benefit of creditors, or has failed generally to pay its debts as they become
due, or has taken any corporate action to authorize any of the foregoing; () an
involuntary case or other proceeding has been commenced against the Company or
any Subsidiary seeking liquidation, winding-up, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency, moratorium or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days, or an order for
relief has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect; () default in any provision
(including payment) or any agreement governing the terms of any indebtedness of
the Company or any Subsidiary in excess of $500,000, which has not been cured
within any applicable period of grace associated therewith; () judgments or
orders for the payment of money which in the aggregate at any one time exceed
$500,000 and are not covered by insurance have been rendered against the Company
or any Subsidiary by a court of competent jurisdiction and such judgments or
orders shall continue unsatisfied and unstayed for a period of 60 days; or ()
any representation, warranty, certification or statement made by the Company in
any Transaction Agreement or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
any Transaction Agreement shall prove to have been untrue in any material
respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and Purchaser may, with respect to
any other Event of Default, by notice to the Company, declare the Company to
redeem the outstanding Preferred Shares, and the Preferred Shares shall thereon
be redeemed immediately; provided that in the case of any of the Events of
Default specified in paragraph (h) or (i) above with respect to the Company or
any Subsidiary, then, without any notice to the Company or any other act by
Purchaser, the outstanding Preferred Shares shall be immediately redeemed,
provided, further, if any Event of Default has occurred and is continuing, and
irrespective of whether any Preferred Shares have been declared immediately due
and payable hereunder, Purchaser may proceed to protect and enforce the rights
of such Purchaser by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
13.2 Powers and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to any Purchaser is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Every power and remedy given by the Preferred Shares or by law may be exercised
from time to time, and as often as shall be deemed expedient, by each Preferred
Shares Purchaser (unless the provisions of this Agreement shall expressly
condition such right or remedy upon prior approval of the Majority Holders).
14. MISCELLANEOUS
14.1 Notices. All notices, demands and other communications to any party
hereunder shall be in writing (including telecopier or similar writing) and
shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, 4 days after such communication is deposited in the mail with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in or pursuant to this Section 14.1.
14.2 No Waivers; Amendments.
() No failure or delay on the part of any party in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
() Unless specifically noted to the contrary, any provision of this Agreement
may be amended, supplemented or waived after the Closing if, but only if, such
amendment, supplement or waiver is in writing and is signed by the Company and
the Purchaser or Majority Holders.
14.3 Indemnification. () The Company agrees to indemnify and hold harmless
each Purchaser, its respective Affiliates, and each Person, if any, who controls
such Purchaser, or any of its respective Affiliates, and the respective
partners, agents, employees, officers and Directors of such Purchaser, their
Affiliates and any such Controlling Person (each an "Indemnified Party") and
collectively, the "Indemnified Parties"), from and against any and all losses,
claims, damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any such
claim or action, whether or not such Indemnified Party is a party thereto,
provided that the Company shall not be obligated to advance such costs to any
Indemnified Party unless it has received from such Indemnified Party an
undertaking to repay to the Company the costs so advanced if it should be
determined by final judgment of a court of competent jurisdiction that such
Indemnified Party was not entitled to indemnification hereunder with respect to
such costs) which may be incurred by such Indemnified Party in connection with
any administrative or judicial proceeding brought or threatened that relates to
or arises out of, or is in connection with a breach of any of the Company's
representations and warranties or covenants contained herein; provided that the
Company will not be responsible for any claims, liabilities, losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party's gross negligence, willful
misconduct or bad faith.
() If any action shall be brought against an Indemnified Party with respect
to which indemnity may be sought against the Company under this Agreement, such
Indemnified Party shall promptly notify the Company in writing and the Company,
at its option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under this
Agreement or otherwise unless the Company is materially adversely affected by
such failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party,
unless (i) the Company has failed to assume the defense and employ counsel or
(ii) the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Company, in which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party; provided, however, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the reasonable fees and expenses of more than one such
firm of separate counsel, in addition to any local counsel, which counsel shall
be designated by the applicable Purchaser(s). The Company shall not be liable
for any settlement of any such action effected without the written consent of
the Company (which shall not be unreasonably withheld) and the Company agrees to
indemnify and hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written consent of
the applicable Purchaser(s), settle or compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened action,
claim, suit or proceeding in respect to which indemnification or contribution
may be sought hereunder (whether or not any Indemnified Party is a party
thereto) unless such settlement, compromise, consent or termination includes an
express unconditional release of the applicable Purchaser(s) and the other
Indemnified Parties, satisfactory in form and substance to the applicable
Purchaser(s), from all liability arising out of such action, claim, suit or
proceeding.
(c) If for any reason the foregoing indemnity is unavailable (otherwise
than pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and by the
Purchaser on the other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchaser on the other,
but also the relative fault of the Company and the Purchaser as well as any
other relevant equitable considerations. Notwithstanding the provisions of this
Section 13.3, the aggregate contribution of all Indemnified Parties shall not
exceed the amount of interest and fees actually received by the Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and the Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Purchaser and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(d) The indemnification, contribution and expense reimbursement obligations
set forth in this Section 14.3 (i) shall be in addition to any liability the
Company may have to any Indemnified Party at common law or otherwise; (ii) shall
survive the Closing Date for a period of four years, and (iii) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Purchaser or any other Indemnified Party.
14.4 Fees and Expenses. The Company has incurred an application fee of
$50,000.00 and a due diligence fee of $50,000.00 which shall be payable at
Closing to Global Capital Advisors, LLC. In addition, the Company agrees to pay
any and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any Transaction
Agreement or the issuance of the Securities to Purchaser, excluding their
assigns.
14.5 Successors and Assigns. This Agreement shall be binding upon the
Company and Purchaser and its respective successors and assigns upon execution
hereof by the Company and Purchaser. Neither the Company nor Purchaser may
transfer or assign this Agreement or any right, title or interest in, to or
under this Agreement without the prior written consent of the other applicable
party, and any attempted assignment without such consent shall be void and
without further force or effect.
14.6 Governing Law. This Agreement shall be governed by and controlled in
accordance with the laws substantive of the State of Delaware without regard to
conflict of law provisions.
14.7 Entire Agreement. This Agreement, the Exhibits or Schedules hereto,
which includes, but is not limited to the Registration Rights Agreement, set
forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supercedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Schedules to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
14.8 Survival; Severability. All representations, warranties, covenants,
acknowledgments and agreements contained herein shall survive (a) the acceptance
of this Agreement and the Closing and the delivery of the Securities, the
Conversion Shares, and the Warrant Shares, and (b) with respect to any
Purchaser, the death, disability, incompetency, termination, bankruptcy,
insolvency or dissolution of such Purchaser. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
14.9 Title and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
14.10 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P., or any successor thereto. The written mutual
consent of the Purchaser, and the Company shall be required to employ any other
reporting entity.
14.11 Confidentiality. Each Purchaser acknowledges that certain of the
information provided to such Purchaser is confidential and non-public and agrees
that all such information shall be kept in confidence by such Purchaser and
neither used by such Purchaser to such Purchaser's personal benefit (other than
in connection with this Agreement) nor disclosed to any Person not a party to
this Agreement for any reason; provided, that this obligation shall not apply to
any such information which (i) is or becomes part of the public knowledge or
literature and readily accessible (except as a result of violation of any
confidentiality agreements); or (ii) is received from third parties (except
third parties who disclose such information in violation of any confidentiality
agreements including, but not limited to, any Agreement they may have with the
Company).
14.12 Publicity. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
14.13 Powers and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to Purchaser is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Every power and remedy given by the Preferred Shares and/or Notes or by law may
be exercised from time to time, and as often as shall be deemed expedient, by
Purchaser.
14.14 Counterparts. This Agreement may be executed by telecopy signatures
and in any number of counterparts each of which shall be an original with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
(Signature page follows)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers, as of the date first above
written.
AVITAR, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
For Mail: For Delivery:
____________________________ __________________________________
____________________ __________________________
Attention: __________________ Attention: _________________________
Tel.: ____________ Tel.: ____________
Fax: ____________ Fax: ____________
PURCHASER:
GCA Strategic Investment Fund Limited
By:_______________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
its Authorized Representative