SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
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_____, 2005, by and among CHARYS HOLDING COMPANY INC., a Delaware corporation
(the "Company"), ▇▇▇▇▇ ▇. ▇▇▇, ▇▇. ("▇▇▇"), and ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, or
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their designees (collectively, the "Buyer").
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WITNESSETH:
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WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
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the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
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of 1933, as amended (the "Securities Act"); and
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WHEREAS, Ray is the Chairman, Chief Executive Officer, and controlling
stockholder of the Company; and
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer, as
provided herein, and the Buyer shall purchase at the Closing (as defined below)
(i) a $1,000,000 Secured Convertible Debenture (the "Convertible Debenture"),
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which shall be convertible, unless redeemed by the Company before the expiration
of 120 days from the Closing Date (as defined below) (the "Exclusive Redemption
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Date"), into shares of the Company's common stock, par value $0.001 (the "Common
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Stock") (as converted, the "Conversion Shares"), and (ii) warrants (the
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"Warrants") to purchase an aggregate of 250,000 shares of the Common Stock (the
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"Warrant Shares"). The total purchase price for the Convertible Debenture and
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the Warrants shall be $1,000,000 (the "Purchase Price"); and
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WHEREAS, the Company shall issue to the Buyer the Warrants to purchase
shares of the Common Stock for a period of three years with an exercise price
equal to the lower of: (i) $0.80 per share of the Common Stock, or (ii) 120
percent of the average closing bid price for the five trading days immediately
preceding the Closing Date (the "Fixed Price"), or (iii) 80 percent of the
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lowest closing bid price for the five trading days immediately preceding the
date of exercise (the "Future Price"). The shares underlying the Warrants shall
be included on the registration statement to be filed by the Company; and
WHEREAS, the Buyer at its sole option may convert any or all of the face
amount of the Convertible Debenture at any time after 120 days from the Closing
Date, plus a premium on that amount accruing at a rate of 12 percent per annum,
compounded monthly, from the date of closing to the date of conversion (the
"Conversion Amount"). The number of shares of the Common Stock to be received
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upon conversion will be determined by dividing the Conversion Amount by the
Conversion Price; and
WHEREAS, at the Buyer's sole option, the Convertible Debenture is
convertible into shares of the Common Stock at a conversion price equal to the
lower of: (i) $0.80 per share of the Common Stock, or (ii) 120 percent of the
average closing bid price for the five trading days immediately preceding the
Closing Date (the "Fixed Price"), or (iii) 80 percent of the lowest closing bid
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price for the five trading days immediately preceding the date of conversion
(the "Future Price"); and
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WHEREAS, at the Closing, the parties hereto shall execute and deliver a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit A (the "Investor Registration Rights Agreement") pursuant to which the
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Company has agreed to provide certain registration rights under the Securities
Act and the rules and regulations promulgated there under, and applicable state
securities laws; and
WHEREAS, at the Closing, the parties hereto shall execute and deliver a
Security Agreement substantially in the form attached hereto as Exhibit B (the
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"Security Agreement") pursuant to which the Company has agreed to provide the
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Buyer a security interest in Pledged Collateral (as this term is defined in the
Security Agreement) to secure the Company's obligations as reflected therein;
and
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WHEREAS, at the Closing, the parties hereto shall execute and deliver an
Escrow Shares Escrow Agreement substantially in the form attached hereto as
Exhibit C (the "Escrow Shares Escrow Agreement") pursuant to which the Company
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shall issue and deliver to the Escrow Agent 1,500,000 shares of the Common Stock
or "security stock" (the "Escrow Shares") and the Escrow Agent shall distribute
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some or all of the Escrow Shares to the Buyer upon conversion, if applicable, of
the Convertible Debenture pursuant to a Conversion Notice (as defined herein)
and/or exercise of the Warrants; provided, however, that the Escrow Agent shall
distribute all of such Escrow Shares (less 250,000 of such shares which shall be
retained by the Escrow Agent for purposes of distributing the Warrant Shares
upon exercise by the Buyer of the Warrants to the Company upon receipt of a
Redemption Notice (as defined in the Escrow Shares Agreement); and
WHEREAS, at the Closing, Ray and the Buyer shall execute and deliver a
Stock Pledge and Escrow Agreement substantially in the form attached hereto as
Exhibit D (the "Stock Pledge Escrow Agreement") pursuant to which Ray shall
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pledge certain shares of the Company owned by him (the "Pledged Shares"); and
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WHEREAS, at the Closing, the parties hereto shall execute and deliver
Irrevocable Transfer Agent Instructions substantially in the form attached
hereto as Exhibit E (the "Irrevocable Transfer Agent Instructions"); and
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WHEREAS, the Registration Rights Agreement, the Security Agreement, the
Escrow Shares Agreement, the Stock Pledge Escrow Agreement, and the Irrevocable
Transfer Agent Instructions are sometimes referred to herein as the "Other
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Transaction Documents";
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NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company, Ray, and the Buyer hereby
agree as follows:
1. Purchase and Sale of Convertible Debenture; Closing.
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(a) Purchase of Convertible Debenture. Subject to the
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satisfaction (or waiver) of the terms and conditions of this Agreement, the
Buyer agrees to purchase at the Closing (as defined herein below) and the
Company agrees to sell and issue to the Buyer at the Closing, the Convertible
Debenture and the Warrants. Upon execution hereof by the Buyer, the Buyer shall
wire transfer the Purchase Price in same-day funds.
(b) Closing. The closing (the "Closing") of the purchase and
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sale of the Convertible Debenture and Warrants shall take place at 10:00 a.m.
Eastern Time within five business days following the date hereof, subject to
notification of satisfaction of the conditions to the Closing set forth herein
and in Sections 7 and 8 below (or such later date as is mutually agreed to by
the Company and the Buyer) (the "Closing Date"). The Closing shall occur on the
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Closing Date at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (or such other place as is mutually agreed to
by the Company and the Buyer).
(c) Deliveries at the Closing. Subject to the satisfaction
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of the terms and conditions of this Agreement, on the Closing Date, (i) the
Buyer shall deliver to the Company the Purchase Price for the Convertible
Debenture and Warrants to be issued and sold to the Buyer, and (ii) the Company
shall deliver to the Buyer, the Convertible Debenture, the Warrants, the Escrow
Shares Escrow Agreement, and the Irrevocable Transfer Agent Instructions, all
duly executed on behalf of the Company. In addition, Ray shall deliver to the
Buyer the Stock Pledge Escrow Agreement.
2. Buyer's Representations and Warranties.
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The Buyer represents and warrants to the Company that:
(a) Investment Purpose. The Buyer is acquiring the
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Convertible Debenture and the Warrants, and, upon conversion of the Convertible
Debenture, if applicable and/or the exercise of the Warrants, the Buyer will
acquire the Conversion Shares and/or Warrant Shares, as defined below, then
issuable, for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the Securities Act;
provided, however,
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that by making the representations herein, the Buyer reserves the right to
dispose of the Conversion Shares, if applicable, and the Warrants and Warrant
Shares at any time in accordance with or pursuant to an effective registration
statement covering such Conversion Shares, Warrants and Warrant Shares or an
available exemption under the Securities Act.
(b) Accredited Investor Status. The Buyer is an "Accredited
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Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
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(c) Reliance on Exemptions. The Buyer understands that the
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Convertible Debenture and the Warrants are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire such securities.
(d) Information. The Buyer and his advisors and counsel, if
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any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding its purchase of the Convertible Debenture
and the Warrants, and the Warrant Shares and the Conversion Shares into which
the Convertible Debenture and Warrants are convertible or exercisable, as the
case may be, which have been requested by the Buyer. The Buyer and his
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by the Buyer or his advisors, if any, or his
representatives shall modify, amend or affect the Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Convertible Debenture and the
Warrants, and the Warrant Shares and Conversion Shares into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case
may be, involves a high degree of risk. THE BUYER IS IN A POSITION REGARDING
THE COMPANY, WHICH, BASED UPON EMPLOYMENT, FAMILY RELATIONSHIP OR ECONOMIC
BARGAINING POWER, ENABLED AND ENABLES THE BUYER TO OBTAIN INFORMATION FROM THE
COMPANY IN ORDER TO EVALUATE THE MERITS AND RISKS OF THIS INVESTMENT. The Buyer
has sought such accounting, legal and tax advice, as it has considered necessary
to make an informed investment decision with respect to its acquisition of the
Convertible Debenture and the Warrants, and the Warrant Shares and Conversion
Shares into which the Convertible Debenture and Warrants are convertible or
exercisable, as the case may be.
(e) No Governmental Review. The Buyer understands that no
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United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Convertible Debenture, the Warrants, the Warrant Shares or the Conversion
Shares, or the fairness or suitability of the investment in the Convertible
Debenture and the Warrants, and the Warrant Shares and Conversion Shares into
which the Convertible Debenture and Warrants are convertible or exercisable, as
the case may be, nor have such authorities passed upon or endorsed the merits of
the offering of the Convertible Debenture and the Warrants, and the Warrant
Shares and Conversion Shares into which the Convertible Debenture and Warrants
are convertible or exercisable, as the case may be.
(f) Transfer or Resale. The Buyer understands that, except
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as provided in the Investor Registration Rights Agreement: (i) the Convertible
Debenture, the Conversion Shares, the Warrants, and the Warrant Shares have not
been and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, or (B) the Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration
requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) ("Rule 144") may be made
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only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission ("SEC") thereunder, and
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(iii) neither the Company nor any other person is under any obligation to
register such securities under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
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(g) Legends. The Buyer understands that the certificates or
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other instruments representing the Convertible Debenture, the Warrants, the
Warrant Shares, the Escrow Shares and/or the Conversion Shares shall bear a
restrictive legend in substantially the following form (and a stop transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (i)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR (ii) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.
The legend set forth above shall be removed and the Company within five
business days shall cause its transfer agent to issue a certificate without such
legend to the holder of the Convertible Debenture, Warrants, the Warrant Shares,
and/or Conversion Shares upon which it is stamped, if, unless otherwise required
by state securities laws, (i) in connection with a public sale transaction,
provided the applicable securities subject to such public sale transaction are
registered under the Securities Act, or (ii) in connection with a private sale
transaction, after such holder provides the Company with an opinion of counsel,
which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a sale, assignment or
transfer of the securities subject to such private sale transaction may be made
without registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly
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and validly authorized, executed and delivered on behalf of the Buyer and is a
valid and binding agreement of the Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents. The Buyer and its counsel has
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received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Stock Pledge Escrow
Agreement, and the Irrevocable Transfer Agent Agreement; (ii) all due diligence
and other information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the fiscal year ended April 30, 2005; (iv) the Company's Form 10-QSB for the
fiscal quarter ended July 31, 2005; (v) the Company's Form 8-K related to the
restatement of the Company's Financial Statements, and (vi) it has received
answers to all questions the Buyer submitted to the Company regarding an
investment in the Company, and the Buyer has relied on the information contained
therein and has not been furnished any other documents, literature, memorandum
or prospectus.
(j) No Legal Advice from the Company. The Buyer acknowledges
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that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and investment and tax
advisors. The Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
(k) No Group Participation. The Buyer and its affiliates is
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not a member of any group, nor is the Buyer acting in concert with any other
person with respect to its acquisition of the Convertible Debenture and the
Warrants, and the Warrant Shares and Conversion Shares into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case
may be.
(l) Company Registration Statement. The Buyer makes no
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representation or warranty regarding the Company's ability to have any
registration statement filed pursuant to the Investor
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Registration Rights Agreement or otherwise declared effective by the SEC. The
Company has the sole obligation to make any and all such filings as may be
necessary and to have any registration statement declared effective by the SEC
to the extent required by the Investor Registration Rights Agreement.
3. Representations and Warranties of the Company.
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The Company represents and warrants to the Buyer that, except as set forth
in the SEC Documents (as defined herein) or otherwise on the schedule of
exceptions delivered to the Buyer in connection with the execution of this
Agreement (the "Schedules"):
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(a) Organization and Qualification. The Company and its
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subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other
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Instruments. (i) The Company has the requisite corporate power and authority to
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enter into and perform this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Shares Escrow Agreement, and the
Irrevocable Transfer Agent Instructions (collectively the "Transaction
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Documents") and to issue the Convertible Debenture and the Warrants, and the
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Warrant Shares and Conversion Shares into which the Convertible Debenture and
Warrants are convertible or exercisable, as the case may be (including those
comprising the Escrow Shares), in accordance with the terms hereof and thereof;
(ii) the execution and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debenture and the
Warrants, and the reservation for issuance and the issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof, as the
case may be (including those comprising the Escrow Shares), have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders; (iii) the Transaction Documents have been duly executed and
delivered by the Company, and (iv) the Transaction Documents constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
(c) Capitalization. The Company's authorized capital stock
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is comprised of: (i) 300,000,000 shares of Common Stock, $0.001 par value per
share, of which 8,930,951 shares are issued and outstanding, 11,361,682 shares
are reserved for issuance pursuant to outstanding options and 862,069 shares are
reserved for issuance pursuant to outstanding warrants, and (ii) 5,000,000
shares of Preferred Stock, $0.001 par value per share. There are currently
three series of Preferred Stock designated as follows: (i) 1,000,000 shares have
been designated as Series A Preferred Stock, $0.001 par value per share, all of
which have been issued and are outstanding; (ii) 400,000 shares have been
designated as Series B Preferred Stock, $0.001 par value per share, all of which
have been issued and are outstanding, and (iii) 500,000 shares of Series C
Preferred Stock, $0.001 par value per share, all of which have been issued and
are outstanding. All of such outstanding shares have been validly issued and
are fully paid and nonassessable. Except as disclosed in the SEC Documents (as
defined in Section 3(f)) or in the Schedules, no shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in the
SEC Documents or in the Schedules, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings 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 or
options, warrants, scrip, rights to subscribe to, calls or
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commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries; (ii) there are no outstanding debt securities; (iii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the Securities
Act (except pursuant to the Investor Registration Rights Agreement), and (iv)
there are no outstanding registration statements and there are no outstanding
comment letters from the SEC or any other regulatory agency. There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Convertible Debenture and Warrants as
described in this Agreement. The Convertible Debenture, Warrants, Warrant
Shares, and Conversion Shares when issued, if applicable, will be free and clear
of all pledges, liens, encumbrances and other restrictions (other than those
arising under federal or state securities laws as a result of the private
placement of the Convertible Debenture and Warrants). No co-sale right, right
of first refusal or other similar right exists with respect to the Convertible
Debenture, Warrants, Warrant Shares, and/or the Conversion Shares or the
issuance and sale thereof. The issue and sale of the Convertible Debenture and
the Warrants, and the Warrant Shares and Conversion Shares into which the
Convertible Debenture and Warrants are convertible or exercisable, as the case
may be, will not result in a right of any holder of Company securities to adjust
the exercise, conversion, exchange or reset price under such securities. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
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the date hereof (the "By-laws"), and the terms of all securities convertible
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into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto other than stock options issued to employees and
consultants.
(d) Issuance of Securities. The Convertible Debenture and
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Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be duly issued, fully paid and nonassessable, are and free from
all taxes, liens and charges with respect to the issue thereof. The Conversion
Shares and the Warrant Shares issuable upon conversion of the Convertible
Debenture and Warrants, as the case may be (including those comprising the
Escrow Shares), have been duly authorized and reserved for issuance. Upon
conversion or exercise in accordance with the Transaction Documents, the
Conversion Shares, and the Warrant Shares, as the case may be (including those
comprising the Escrow Shares), will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. Except as disclosed in the SEC Documents
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or in the Schedules, the execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or the By-laws, or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of The National Association of Securities Dealers Inc.'s OTC
Bulletin Board on which the Common Stock is quoted) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected. Except as disclosed in the SEC
Documents or in the Schedules, neither the Company nor its subsidiaries is in
violation of any term of or in default under its Certificate of Incorporation or
By-laws or their organizational charter or by-laws, respectively, or any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries. The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted in violation of any material
law, ordinance, or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Investor Registration Rights Agreement in accordance with the
terms hereof or thereof. Except as disclosed in the SEC Documents or in the
Schedules, all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
subsidiaries are unaware of any facts or circumstance, which might give rise to
any of the foregoing.
(f) SEC Documents: Financial Statements. Since February 4,
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2004, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under
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the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
------------
foregoing filed prior to the date hereof or amended after the date hereof and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Buyer or its
--------------
representatives, or made available through the SEC's website at
▇▇▇▇://▇▇▇.▇▇▇.▇▇▇., true and complete copies of the SEC Documents. Except as
otherwise set forth in the Schedules, as of their respective dates, the
financial statements of the Company disclosed in the SEC Documents (the
"Financial Statements") complied as to form in all material respects with
---------------------
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
Financial Statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and, fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in this Agreement, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(g) 10(b)-5. Except as otherwise set forth in the Schedules,
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the SEC Documents do not include any untrue statements of material fact, nor do
they omit to state any material fact required to be stated therein necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading.
(h) Absence of Litigation. Except as disclosed in the SEC
-----------------------
Documents or in the Schedules, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby, (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents or in the Schedules,
have a material adverse effect on the business, operations, properties,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the
-----------------------------------------------------
Convertible Debenture. The Company acknowledges and agrees that the Buyer is
----------------------
acting solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by the Buyer or any of his
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Buyer's purchase
of the Convertible Debenture and the Warrants, and the Warrant Shares and
Conversion Shares into which the Convertible Debenture and Warrants are
convertible or exercisable, as the case may be. The Company further represents
to the Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
(j) No General Solicitation. Neither the Company, nor any of
-----------------------
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Convertible Debenture and the Warrants, and the Warrant Shares and
Conversion Shares into which the Convertible Debenture and Warrants are
convertible or exercisable, as the case may be.
(k) No Integrated Offering. Neither the Company, nor any of
-----------------------
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debenture and the Warrants, and the Warrant Shares and Conversion
Shares into which the Convertible Debenture and Warrants are convertible or
exercisable, as the case may be, under the Securities Act or cause this offering
of the Convertible Debenture and the Warrants, and the Warrant Shares and
Conversion Shares into which the Convertible Debenture
- 7 -
and Warrants are convertible or exercisable, as the case may be, to be
integrated with prior offerings by the Company for purposes of the Securities
Act.
(l) Employee Relations. Neither the Company nor any of its
-------------------
subsidiaries is involved neither in any labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
(m) Intellectual Property Rights. The Company and its
------------------------------
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service ▇▇▇▇ registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service ▇▇▇▇ registrations, trade secret or other
infringement, and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(n) Environmental Laws.
-------------------
(i) To the knowledge of the Company, each of the Company
and its subsidiaries has complied with all applicable Environmental Laws (as
defined below), except for violations of Environmental Laws that, individually
or in the aggregate, have not had and would not reasonably be expected to have a
material adverse effect on the assets, business, condition (financial or
otherwise), results of operations or future prospects of the Company (a
"Material Adverse Effect"). There is no pending or, to the knowledge of the
-------------------------
Company, threatened civil or criminal litigation, written notice of violation,
formal administrative proceeding, or investigation, inquiry or information
request, relating to any Environmental Law involving the Company or any
subsidiary, except for litigation, notices of violations, formal administrative
proceedings or investigations, inquiries or information requests that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation or the common law relating to the environment or occupational health
and safety, including without limitation any statute, regulation, administrative
decision or order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles; (vii)
health and safety of employees and other persons, and (viii) manufacturing,
processing, using, distributing, treating, storing, disposing, transporting or
handling of materials regulated under any law as pollutants, contaminants, toxic
or hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall
have the meaning set forth in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA").
------
(ii) Set forth in the Schedules to this Agreement is a
list of all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company or a subsidiary (whether
conducted by or on behalf of the Company or a subsidiary or a third party, and
whether done at the initiative of the Company or a subsidiary or directed by a
third party) which were issued or conducted during the past five years and which
the Company has possession of or access to. A complete and accurate copy of
each such document has been provided to the Buyer.
- 8 -
(iii) To the knowledge of the Company there is no
material environmental liability with respect to any solid or hazardous waste
transporter or treatment, storage or disposal facility that has been used by the
Company or any subsidiary.
(iv) The Company and its subsidiaries (i) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (ii) are in
compliance with all terms and conditions of any such permit, license or
approval.
(o) Title. Any real property and facilities held under lease
-----
by the Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are
---------
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries
-------------------
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
(r) Internal Accounting Controls. Except as otherwise set
------------------------------
forth in the Schedules, the Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, and (iii)
the recorded amounts for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) No Material Adverse Breaches, etc. Except as set forth
-----------------------------------
in the SEC Documents or in the Schedules, neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Except as set forth in the SEC Documents or in the Schedules, neither
the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect.
(t) Tax Status. Except as set forth in the SEC Documents or
-----------
in the Schedules, the Company and each of its subsidiaries has made and filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and (unless and only to the
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.
(u) Certain Transactions. Except as set forth in the SEC
---------------------
Documents or in the Schedules, and except for arm's length transactions pursuant
to which the Company makes payments in the ordinary course of business upon
terms no less favorable than the Company could obtain from third parties and
other than the
- 9 -
grant of stock options disclosed in the SEC Documents, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) Fees and Rights of First Refusal. The Company is not
------------------------------------
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties, including, but not limited to, current
or former stockholders of the Company, underwriters, brokers, agents or other
third parties.
(w) Reliance. The Company acknowledges that the Buyer is
--------
relying on the representations and warranties made by the Company hereunder and
that such representations and warranties are a material inducement to the Buyer
purchasing the Convertible Debenture and Warrants. The Company further
acknowledges that without such representations and warranties of the Company
made hereunder, the Buyer would not enter into this Agreement.
(x) ▇▇▇▇▇▇▇▇-▇▇▇▇▇. The Company is in compliance with the
--------------
applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended, and the
rules and regulations thereunder, that are currently in effect and is actively
taking steps to ensure that it will be in compliance with other applicable
provisions of such Act not currently in effect at all times after the
effectiveness of such provisions except where such noncompliance would not have
or reasonably be expected to result in a Material Adverse Effect or which would
be reasonably likely to have a material adverse effect on the transactions
contemplated hereby or by the Investor Registration Rights Agreement.
(y) Registration Form. The Company meets the requirements
------------------
for the use of Form SB-2 for the registration of the resale of the Conversion
Shares, the Escrow Shares and Warrant Shares, as the case may be, by the Buyer
to the extent required by the Investor Registration Rights Agreement.
(z) Non-Public Information. The Company confirms that
------------------------
neither it nor any person acting on its behalf has provided the Buyer or its
agents or counsel with any information that the Company believes constitutes
material, non-public information. The Company understands and confirms that the
Buyer will rely on the foregoing representation in effecting transactions in
securities of the Company.
(aa) Anti-Takeover Provision. The Company and its Board of
------------------------
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its jurisdiction of incorporation that
is or could become applicable to the Buyer as a result of the Buyer and the
Company fulfilling their obligations or exercising their rights under this
Agreement, including without limitation the Company's issuance of the
Convertible Debenture, Warrants, Warrant Shares and Conversion Shares, as the
case may be, and the Buyer's ownership thereof.
4. Covenants.
---------
(a) Reasonable Best Efforts. Each party shall use its
-------------------------
commercially reasonable best efforts timely to satisfy each of the conditions to
be satisfied by it as provided in Sections 7 and 8 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect
------
to the Convertible Debenture, Warrants, Warrant Shares, and Conversion Shares as
required under Regulation D and to provide a copy thereof to the Buyer 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
Convertible Debenture, Warrants, the Warrant Shares, and Conversion Shares, or
obtain an exemption for the Convertible Debenture, Warrants, the Warrant Shares,
and Conversion Shares, as the case may be, for sale to the Buyer at the Closing
pursuant to this
- 10 -
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
(c) Reporting Status. Until the earlier of (i) the date as
-----------------
of which the Buyer may sell all of the Warrants, the Warrant Shares, and
Conversion Shares, as the case may be, without restriction pursuant to Rule
144(k) promulgated under the Securities Act (or successor thereto), or (ii) the
date on which (A) the Buyer shall have sold all the Warrants, the Warrant
Shares, and Conversion Shares, as the case may be, and (B) no amount of the
Convertible Debenture is outstanding (the "Registration Period"), the Company
-------------------
shall file in a timely manner all reports required to be filed with the SEC
pursuant to the Exchange Act and the regulations of the SEC thereunder, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company shall use the proceeds from
---------------
the sale of the Convertible Debenture and Warrants for the purpose of closing
the Method IQ transaction hereinafter described. To the extent that any of such
proceeds are not used to close the Method IQ transaction, any such proceeds
shall be used solely for the repayment of the Convertible Debenture.
(e) Reservation of Shares. The Company shall take all action
---------------------
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, that number of shares of Common Stock equal to a multiple
of five times the number of shares of Common Stock into which the Convertible
Debenture is from time to time convertible at the Default Conversion Price (as
defined in the Convertible Debenture) unless a change in such multiple is agreed
to in writing by the Buyer and the Company. If at any time the Company does not
have available such number of authorized and unissued shares of Common Stock as
shall from time to time be sufficient to effect the issuance of all of (i) the
Conversion Shares, (including those comprising the Escrow Shares), upon the
conversion of the entire principal amount of the Convertible Debenture, and (ii)
Warrant Shares upon exercise of the Warrants, the Company shall call and hold a
special meeting of the stockholders within 120 days of such occurrence, for the
sole purpose of increasing the number of shares authorized. The Company's
management shall recommend to the stockholders to vote in favor of increasing
the number of shares of Common Stock authorized. Subject to any restrictions
under the proxy rules under the Exchange Act, management shall also vote all of
its shares in favor of increasing the number of authorized shares of Common
Stock. Notwithstanding the foregoing, the Company's obligations under this
Section 4(e) (other than an obligation to keep reserved for issuance the Warrant
Shares upon exercise of the Warrants) shall terminate and be of no further force
and effect in the event the Convertible Debenture is redeemed by the Company.
(f) Listings or Quotation. The Company shall promptly after
----------------------
the Closing secure the listing or quotation of the Conversion Shares and the
Warrant Shares upon a national securities exchange, automated quotation system
or The National Association of Securities Dealers Inc.'s Over-The-Counter
Bulletin Board ("OTCBB") or other market, if any, upon which shares of the
-----
Common Stock are then listed or quoted (subject to official notice of issuance)
and shall use its commercially reasonable best efforts to maintain, so long as
any other shares of the Common Stock shall be so listed, such listing of the
Conversion Shares and Warrant Shares. The Company shall maintain the Common
Stock's authorization for quotation on the OTCBB. It shall be an event of
default hereunder if the Company fails to strictly comply with its obligation
under this Section 4(f).
(g) Fees and Expenses. The Company shall bear all of its own
-----------------
legal and professional fees and expenses, including, but not limited to, those
associated with the filing of any registration statement to the extent required
under the Investor Registration Rights Agreement. Each of the Company and the
Buyer shall pay all costs and expenses incurred by such party in connection with
the negotiation, investigation, preparation, execution and delivery of the
Transaction Documents. The Company shall also pay ▇▇▇▇ ▇▇▇▇▇ a fee equal to ten
percent of the Gross Proceeds of the Convertible Debenture which shall be
deducted from the monies delivered by the Buyer at the Closing.
(h) Warrants. The Company shall issue the Warrants to the
--------
Buyer at the Closing. The Warrant Shares shall have such registration rights as
set forth in the Investor Registration Rights Agreement.
(i) Registration Statement. The Company shall be solely
-----------------------
responsible for the contents of any registration statement, prospectus or other
filing made with the SEC or otherwise used in the
- 11 -
offering of the Company's securities (except as such disclosure relates solely
to the Buyer and then only to the extent that such disclosure conforms with
information furnished in writing by the Buyer to the Company), even if the Buyer
or its agents as an accommodation to the Company participate or assist in the
preparation of such registration statement, prospectus or other SEC filing. The
Company shall retain its own legal counsel to review, edit, confirm and do all
things such counsel deems necessary or desirable to such registration statement,
prospectus or other SEC filing to ensure that it does not contain an untrue
statement or alleged untrue statement of material fact or omit or alleged to
omit a material fact necessary to make the statements made therein, in light of
the circumstances under which the statements were made, not misleading.
(j) Corporate Existence. So long as any of the Convertible
--------------------
Debenture remains outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"Organizational Change") unless, prior to the consummation of an Organizational
----------------------
Change, the Company obtains the written consent of each Buyer. In any such
case, the Company will make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of this Section 4(j) will
thereafter be applicable to the Convertible Debenture.
(k) Transactions with Affiliates. So long as any of the
------------------------------
Convertible Debenture remains outstanding, the Company shall not, and shall
cause each of its subsidiaries not to, enter into, amend, modify or supplement,
or permit any subsidiary to enter into, amend, modify or supplement any
agreement, transaction, commitment, or arrangement with any of its or any
subsidiary's officers, directors, person who were officers or directors at any
time during the previous two years, stockholders who beneficially own five
percent or more of the Common Stock, or Affiliates (as defined below) or with
any individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent or
more beneficial interest (each a "Related Party"), except for (a) customary
-------------
employment arrangements and benefit programs on reasonable terms; (b) any
investment in an Affiliate of the Company; (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, or (d) any agreement transaction, commitment, or arrangement
which is approved by a majority of the disinterested directors of the Company
and for purposes hereof, any director who is also an officer of the Company or
any subsidiary of the Company shall not be a disinterested director with respect
to any such agreement, transaction, commitment, or arrangement. "Affiliate" for
---------
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent or more equity
interest in that person or entity; (ii) has ten percent or more common ownership
with that person or entity; (iii) controls that person or entity, or (iv) shares
common control with that person or entity. "Control" or "controls" for purposes
------- --------
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
(l) Transfer Agent. The Company covenants and agrees that,
---------------
in the event that the Company's agency relationship with the transfer agent
should be terminated for any reason prior to a date which is two years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(m) Restriction on Issuance of the Capital Stock. So long as
---------------------------------------------
any of the Convertible Debenture remains outstanding, the Company shall not,
without the prior written consent of the Buyer, (i) except for proposed
issuances disclosed in Schedule 3(c), issue or sell shares of the Common Stock
or the Preferred Stock without consideration or for a consideration per share
less than the Closing Bid Price of the Common Stock determined immediately prior
to its issuance, (ii) except for proposed issuances disclosed in Schedule 3(c),
issue any warrant, option, right, contract, call, or other security instrument
granting the holder thereof, the right to acquire Common Stock without
consideration or for a consideration less than such Common Stock's Bid Price
value determined immediately prior to its issuance, or (iii) file any
registration statement on Form S-8. "Closing Bid Price" on any day shall be the
closing bid price for a share of Common Stock on such date on the OTCBB (or such
other exchange, market, or other system that the Common Stock is then traded
on), as reported on Bloomberg, L.P. (or similar organization or agency
succeeding to its functions of reporting prices).
- 12 -
(n) Resales Absent Effective Registration Statement. The
---------------------------------------------------
Buyer understands and acknowledges that (i) this Agreement and the agreements
contemplated hereby may require the Company to issue and deliver Conversion
Shares (including those comprising the Escrow Shares) or Warrant Shares to the
Buyer with legend restricting their transferability under the Securities Act,
and (ii) it is aware that resales of such Conversion Shares (including those
comprising the Escrow Shares) or Warrant Shares may not be made unless, at the
time of resale, there is an effective registration statement under the
Securities Act covering such Buyer's resale(s) or an applicable exemption from
registration.
(o) Legend. Certificates evidencing the Warrant Shares and
------
Conversion Shares shall not contain any legend (including the legend set forth
above), (A) while a registration statement covering the resale of such security
is effective under the Securities Act (provided, however, that the Buyer's
prospectus delivery requirements under the Securities Act will remain
applicable); (B) following any sale of such Warrant Shares and/or Conversion
Shares pursuant to Rule 144; (C) if such Warrant Shares and/or Conversion Shares
are eligible for sale under Rule 144(k), or (D) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC). Subject to
the foregoing, upon written request of the Buyer to have such legend removed,
the Company shall cause its counsel to issue a legal opinion to the Company's
transfer agent promptly after the effective date of any registration statement
(the "Effective Date") if required by the Company's transfer agent to effect the
removal of the legend hereunder. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this Section
4(o), it will, no later than three trading days following the delivery by the
Buyer to the Company or the Company's transfer agent of a certificate
representing Warrant Shares and/or Conversion Shares issued with a restrictive
legend, deliver or cause to be delivered to such Buyer a certificate
representing such Warrant Shares and/or Conversion Shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that
enlarge(s) the restrictions on transfer set forth herein.
(p) Pledge. The Company acknowledges and agrees that the
------
Buyer may from time to time pledge pursuant to a bona fide margin agreement with
a registered broker-dealer or grant a security interest in some or all of the
Convertible Debenture, Warrants, Warrant Shares and/or Conversion Shares to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and, if required under the terms of such arrangement,
the Buyer may transfer pledged or secured Convertible Debenture, Warrants,
Warrant Shares, and/or Conversion Shares to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
provided that the Company may require a legal opinion of legal counsel to the
Buyer in connection therewith. Further, no notice shall be required of such
pledge. At the Buyer's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Convertible Debenture,
Warrants, Warrant Shares, Escrow Shares and/or Conversion Shares may reasonably
request in connection with a pledge or transfer of the Convertible Debenture,
Warrants, Warrant Shares, and/or Conversion Shares, including the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.
(q) Removal of Legend. In addition to the Buyer's other
-------------------
available remedies and provided that the conditions permitting the removal of
legend specified in Section 4(o) are met, the Company shall pay to the Buyer, in
cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Warrant Shares and/or Conversion Shares (based on the closing price of the
Common Stock on the date such Warrant Shares and/or Conversion Shares are
submitted to the Company's transfer agent), $5 per trading day (increasing to
$10 per trading day five trading days after such damages have begun to accrue)
for each trading day after the seventh trading day following delivery by the
Buyer to the Company or the Company's transfer agent of a certificate
representing Warrant Shares and/or Conversion Shares issued with a restrictive
legend, until such certificate is delivered to the Buyer with such legend
removed. Nothing herein shall limit the Buyer's right to pursue actual damages
for the failure of the Company and its transfer agent to deliver certificates
representing any securities as required hereby or by the Irrevocable Transfer
Agent Instructions, and the Buyer shall have the right to pursue all remedies
available to it at law or in equity, including, without limitation, a decree of
specific performance and/or injunctive relief.
(r) Press Release. In addition to any and all other public
--------------
statements or disclosures made by the Company in its sole discretion (subject to
the last sentence of this Section 4(r), the Company will issue
- 13 -
a press release and file a Current Report on Form 8-K with the SEC regarding the
Closing of the purchase and sale of the Convertible Debenture and Warrants on or
before four business days after the date of the Closing. Notwithstanding the
foregoing, the Company shall not publicly disclose the names of the Buyer, or
include the names of the Buyer in any filing with the SEC, without the prior
written consent of the Buyer, except (i) as required by federal securities law,
and (ii) to the extent such disclosure is required by law or regulations, in
which case the Company shall provide the Buyer with prior notice of such
disclosure permitted under subclause (i) or (ii). Furthermore, the Company
covenants and agrees that neither it nor any other person acting on its behalf
will provide the Buyer or his agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto the Buyer shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that the Buyer shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
(s) Stock Splits, etc. The provisions of this Agreement shall
-----------------
be appropriately adjusted to reflect any stock split, stock divided, reverse
stock split, reorganization or other similar event effected after the date
hereof.
(t) No Short Position. Each of the Buyer and any of its
-------------------
Affiliates do not have an open short position in the Common Stock, and the Buyer
agrees that it will not, and that it will cause its Affiliates not to, engage in
any short sales of, or hedging transactions with respect to the Common Stock
until the earlier to occur of (i) the fifth anniversary of the Closing Date, or
(ii) the Buyer no longer owns a principal balance of the Convertible Debenture.
(u) Stock Pledge Escrow Agreement. At the Closing, Ray and
------------------------------
the Buyer shall execute and deliver a Stock Pledge and Escrow Agreement.
5. Transfer Agent Instructions.
-----------------------------
The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. as its agent for
purpose of having certificates issued, registered in the name of the Buyer or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debenture as specified from time to time by the Buyer to the
Company upon conversion of the Convertible Debenture, for interest owed pursuant
to the Convertible Debenture, and for any and all Liquidated Damages (as this
term is defined in the Investor Registration Rights Agreement). For so long as
any of the Conversion Debenture remains outstanding, the Company shall not
change its transfer agent without the express written consent of the Buyer,
which may be withheld by the Buyer in its sole discretion, and any successor
transfer agent shall be required to execute the Irrevocable Transfer Agent
Instructions. Prior to registration of the Conversion Shares, if applicable,
under the Securities Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5 and stop transfer instructions to give effect to Section
2(g) hereof (in the case of the Conversion Shares prior to registration of such
shares under the Securities Act) will be given by the Company to its transfer
agent and that the Conversion Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Investor Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares. If
the Buyer provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyer of any of the Conversion
Shares is not required under the Securities Act, and absent manifest error in
such opinion, the Company shall within five business days instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by the Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyer shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
- 14 -
6. The Escrow Shares; Limitation on Conversion.
------------------------------------------------
(a) Share Denominations. The Escrow Agent shall retain and
--------------------
hold the Escrow Shares which shall be held in accordance with the terms of this
Agreement and the Escrow Shares Escrow Agreement. The Escrow Shares shall be in
the share denominations specified in Schedule II hereto, registered in the name
of the Buyer.
(b) Conversion Notice. Exhibit F attached hereto and made a
------------------- ---------
part hereof sets forth the procedures with respect to the conversion of the
Convertible Debenture, including the forms of Conversion Notice to be provided
upon conversion, instructions as to the procedures for conversion and such other
information and instructions as may be reasonably necessary to enable the Buyer
or its permitted transferee(s) to exercise the right of conversion smoothly and
expeditiously. Said Exhibit F also sets forth the procedures with respect to
the exercise of the Warrants, the Company's redemption of the Convertible
Debenture and the release of the Escrow Shares by the Escrow Agent to the
Company in connection therewith.
(c) From and after the Closing Date, the Company agrees that,
at any time the conversion price of the Convertible Debenture is such that the
number of Escrow Shares for the Convertible Debenture is less than two times the
number of shares of Common Stock that would be needed to satisfy full conversion
of such Convertible Debenture then outstanding, given the then current
conversion price (the "Full Conversion Shares"), upon five business days written
----------------------
notice of such circumstance to the Company by the Buyer and the Escrow Agent,
the Company shall issue additional share certificates in the name of the Buyer
and/or its assigns in denominations specified by the Buyer, and deliver same to
the Escrow Agent, such that the new number of Escrow Shares with respect to the
Convertible Debenture is equal to two times the Full Conversion Shares.
(d) Buyer's Ownership of Common Stock. In addition to and
------------------------------------
not in lieu of the limitations on conversion set forth in the Convertible
Debenture, the conversion rights of the Buyer set forth in the Convertible
Debenture shall be limited, solely to the extent required, from time to time,
such that, unless the Buyer gives written notice 65 days in advance to the
Company of the Buyer's intention to exceed the Limitation on Conversion as
defined herein, with respect to all or a specified amount of the Convertible
Debenture and the corresponding number of the Conversion Shares in no instance
shall the Buyer (singularly, together with any Persons who in the determination
of the Buyer, together with the Buyer, constitute a group as defined in Rule
13d-5 of the Exchange Act) be entitled to convert the Convertible Debenture to
the extent such conversion would result in the Buyer beneficially owning more
than 4.99 percent of the outstanding shares of Common Stock of the Company. For
these purposes, beneficial ownership shall be defined and calculated in
accordance with Rule 13d-3, promulgated under the Exchange Act (the foregoing
being herein referred to as the "Limitation on Conversion"); provided, however,
------------------------ -------- -------
that the Limitation on Conversion shall not apply to any forced or automatic
conversion pursuant to this Agreement or the Convertible Debenture; and
provided, further that if the Company shall have breached any of the Transaction
-------- -------
Documents, the provisions of this Section 6(d) shall be null and void from and
after such date. The Company shall, promptly upon its receipt of a Conversion
Notice tendered by the Buyer (or its sole designee) for the Convertible
Debenture, as applicable, notify the Buyer by telephone and by facsimile (the
"Limitation Notice") of the number of shares of Common Stock outstanding on such
-----------------
date and the number of Conversion Shares, which would be issuable to the Buyer
(or its sole designee, as the case may be) if the conversion requested in such
Conversion Notice were effected in full and the number of shares of Common Stock
outstanding giving full effect to such conversion whereupon, in accordance with
the Convertible Debenture, notwithstanding anything to the contrary set forth in
the Convertible Debenture, the Buyer may, by notice to the Company within one
business day of its receipt of the Limitation Notice by facsimile, revoke such
conversion to the extent (in whole or in part) that the Buyer determines that
such conversion would result in the ownership by the Buyer of shares of Common
Stock in excess of the Limitation on Conversion. The Limitation Notice shall
begin the 65 day advance notice required in this Section 6(d).
(e) Attorney's fees. The Company shall pay all reasonable
----------------
attorney's fees of the Buyer and Escrow Agent related to the redemption of the
Convertible Debenture but in no event shall such fees exceed $2,000.
- 15 -
7. Conditions to the Company's Obligation to Sell.
----------------------------------------------------
(a) Closing. The obligation of the Company hereunder to
-------
issue and sell the Convertible Debenture and the Warrants to the Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
(i) The Buyer shall have executed the Transaction
Documents and delivered them to the Company.
(ii) The Buyer shall have delivered to the Company the
Purchase Price for the Convertible Debenture and the Warrants by wire transfer
of immediately available U.S. funds pursuant to the wire instructions provided
by the Company.
(iii) The representations and warranties of the Buyer
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 that time (except for representations
and warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date. If requested by
the Company, the Company shall have received a certificate, executed by an
executive officer of the Buyer, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the
Company.
(iv) The Company shall have filed a form UCC-1 with
regard to the Pledged Property and Pledged Collateral as detailed in the
Security Agreement dated the date hereof and provided proof of such filing to
the Buyer.
(v) The Company shall have executed a definitive stock
purchase agreement with Method IQ.
8. Conditions to the Buyer's Obligation to Purchase.
------------------------------------------------------
(a) Closing. The obligation of the Buyer hereunder to
-------
purchase the Convertible Debenture and the Warrants at the Closing is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Buyer's sole benefit and
may be waived by the Buyer at any time in its sole discretion:
(i) The Company shall have executed the Transaction
Documents and delivered the same to the Buyer.
(ii) The Common Stock shall be authorized for quotation
on the OTCBB, trading in the Common Stock shall not have been suspended for any
reason, and all the Conversion Shares issuable upon the conversion of the
Convertible Debenture shall have been approved by the OTCBB.
(iii) The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date), and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. If requested by the Buyer, the Buyer shall have received a certificate,
executed by the President 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
the Buyer, including, without limitation, an update as of the Closing Date
regarding the representation contained in Section 3(c) above.
- 16 -
(iv) The Company shall have executed and delivered to
the Buyer the Convertible Debenture and the Warrants.
(v) The Buyer shall have received an opinion of counsel
in a form satisfactory to the Buyer.
(vi) The Company shall have provided to the Buyer a
certificate of good standing from the Secretary of State from the state in which
the Company is incorporated.
(vii) The Company shall have delivered to the Escrow
Agent the Escrow Shares.
(viii) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.
(ix) The Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Convertible Debenture, shares of Common Stock sufficient to
effect the conversion of all of such Convertible Debenture.
(x) The Irrevocable Transfer Agent Instructions shall
have been delivered to and acknowledged in writing by the Company's transfer
agent.
(xi) Ray shall have executed and delivered to the Buyer
the Stock Pledge Escrow Agreement.
9. Indemnification.
---------------
(a) In consideration of the Buyer's execution and delivery of
this Agreement and acquiring the Convertible Debenture and the Warrants
hereunder, and the Conversion Shares and Warrants into which the Convertible
Debenture and Warrants are convertible or exercisable, as the case may be, and
in addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Buyer, and his
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Buyer Indemnitees") from and against any and all actions, causes of action,
-----------------
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Buyer
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Buyer Indemnitees or any of them as
------------------------
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement,
or any other certificate, instrument or document contemplated hereby executed by
the Company; (b) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, the Convertible Debenture or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby executed by the Company, or (c) any cause of action, suit or
claim brought or made against such Buyer Indemnitee based on material
misrepresentations or due to a material breach by the Company and arising out of
or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Buyer Indemnities, any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Convertible Debenture. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.
(b) In consideration of the Company's execution and delivery
of this Agreement, and issuance of the Convertible Debenture and the Warrants
hereunder, and the Conversion Shares and Warrants into which the Convertible
Debenture and Warrants are convertible or exercisable, as the case may be, and
in addition to all of the Buyer's other obligations under this Agreement, the
Buyer shall defend, protect, indemnify and
- 17 -
hold harmless the Company and all of its officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
-------
Indemnitees") from and against any and all Indemnified Liabilities incurred by
-----------
the Company Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Buyer in this Agreement, or any other certificate,
instrument or document contemplated hereby executed by the Buyer; (b) any breach
of any covenant, agreement or obligation of the Buyer contained in this
Agreement, the Convertible Debenture or the Investor Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
executed by the Buyer, or (c) any cause of action, suit or claim brought or made
against such Company Indemnitee based on material misrepresentations or due to a
material breach by the Buyer and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement, the Convertible
Debenture or the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by the Buyer may be
unenforceable for any reason, the Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
10. Governing Law: Miscellaneous.
------------------------------
(a) Governing Law. The parties hereto acknowledge that the
--------------
transactions contemplated by this Agreement and the exhibits hereto bear a
reasonable relation to the State of Florida. The parties hereto agree that the
internal laws of the State of Florida shall govern this Agreement and the
exhibits hereto, including, but not limited to, all issues related to usury.
Any action to enforce the terms of this Agreement or any of its exhibits shall
be brought exclusively in the state and/or federal courts situated in the County
and State of Florida. Service of process in any action by the Buyer to enforce
the terms of this Agreement may be made by serving a copy of the summons and
complaint, in addition to any other relevant documents, by commercial overnight
courier to the Company at its principal address set forth in this Agreement.
(b) Counterparts. This Agreement may be executed in two or
------------
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional original executed signature pages to be physically
delivered to the other party within five days of the execution and delivery
hereof.
(c) Headings. The headings of this Agreement are for
--------
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall
------------
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes
-----------------------------
all other prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other
-------
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon confirmation of receipt, when sent
by facsimile; (iii) seven days after being sent by U.S. certified mail, return
receipt requested, or (iv) one day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
- 18 -
If to the Company, to: Charys Holding Company Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attorney at Law
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Glast, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇-▇▇▇.▇▇▇
If to the Buyers, to: Preferred Employers Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
attention ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.,
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇,
Attention:
Telephone:
Facsimile:
If to the Buyer, to his address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding
-----------------------
upon and inure to the benefit of the parties and their respective successors and
assigns. Neither the Company nor the Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
party hereto.
(h) No Third Party Beneficiaries. This Agreement is intended
----------------------------
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under
--------
Section 10(l), the representations and warranties of the Company and the Buyer
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 10, and the indemnification provisions set forth in Section 9,
shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debenture is redeemed or converted in full.
(j) Publicity. The Company and the Buyer shall have the
---------
right to approve, before issuance any press release or any other public
statement with respect to the transactions contemplated hereby made by any
party; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to issue any press release or other public disclosure
with respect to such transactions required under applicable securities or other
laws or regulations provided, that the Company shall use its commercially
reasonable best efforts
- 19 -
to consult the Buyer in connection with any such press release or other public
disclosure prior to its release and Buyer shall be provided with a copy thereof
upon release thereof.
(k) Further Assurances. Each party shall do and perform, or
-------------------
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) No Strict Construction. The language used in this
------------------------
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
(m) Remedies. In addition to being entitled to exercise all
--------
rights provided herein or granted by law, including recovery of damages, the
Buyer and the Company will be entitled to specific performance under the
Agreement. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
CHARYS HOLDING COMPANY, INC.
By
------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇. Chairman and Chief Executive Officer
--------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇.
--------------------------------------------------------
▇▇▇ ▇▇▇▇▇▇
--------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
- 20 -
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
----------------------------------------------
INVESTOR REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
---------
___, 2005, by and among CHARYS HOLDING COMPANY INC., a Delaware corporation (the
"Company"), ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, or their designees (collectively, the
-------
"Investor").
--------
WHEREAS:
A. The Company and the Investor have entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement"), pursuant to which the Company
-----------------------------
proposes to sell a $1,000,000 secured convertible debenture (the "Convertible
-----------
Debenture") which shall be convertible into the Company's Common Stock, par
---------
value $0.001 per share (the "Common Stock") and in connection therewith the
------------
Company has agreed to issue certain of its warrants (the "Warrants");
--------
B. To induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations there under, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws; and
---------------
C. Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor
hereby agrees as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Person" means a corporation, a limited liability company,
------
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("Rule 415"), and the
--------
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
---
(c) "Registrable Securities" means (i) the Escrow Shares issued
-----------------------
or issuable as "security stock" for conversion of the Convertible Debenture, and
(ii) the Warrant Shares; provided, however, that if the Company has redeemed in
full all amounts owing under the Convertible Debenture on or before the
Exclusive Redemption Date, Registrable Securities shall mean only the Warrant
Shares; and provided further that Registrable Securities shall not include any
shares of Common Stock convertible from interest accrued under the Convertible
Debenture subsequent to the date of the filing of the Initial Registration
Statement (as defined below).
(d) "Registration Statement" means a registration statement
-----------------------
under the Securities Act which covers the Registrable Securities.
- 1 -
2. REGISTRATION.
------------
(a) Subject to the terms and conditions of this Agreement, the
Company shall prepare and file, no later than ninety (90) days from the date
hereof (the "Scheduled Filing Deadline"), with the SEC a registration statement
-------------------------
on Form SB-2 (or similar form) under the Securities Act (the "Initial
-------
Registration Statement") for the resale by the Investor of all Registrable
-----------------------
Securities. The Company shall keep the Registration Statement "Evergreen" for
the life of the Convertible Debentures or until Rule 144(k) of the Securities
Act of 1933, as amended, is available to the Investor with respect to all of the
Conversion Shares and Warrant Shares whichever is later. The Company shall
retain, and pay at its sole expense, a law firm to file the Registration
Statement subject to the reasonable approval of the Investor. Prior to the
filing of the Registration Statement with the SEC, the Company shall furnish a
copy of the Initial Registration Statement to the Investor for its review and
comment. The Investor shall furnish comments on the Initial Registration
Statement to the Company within twenty-four (24) hours of the receipt thereof
from the Company.
(b) Effectiveness of the Initial Registration Statement. The
------------------------------------------------------
Company shall use its commercially reasonable best efforts (i) to have the
Initial Registration Statement declared effective by the SEC no later than
ninety (90) days after the date filed, provided that if the Convertible
Debenture is redeemed before the Exclusive Redemption Date, no later than one
hundred twenty (120) days after the date filed (the "Scheduled Effective
-------------------
Deadline") and (ii) to insure that the Initial Registration Statement and any
--------
subsequent Registration Statement remains in effect until all of the Registrable
Securities have been sold, subject to the terms and conditions of this
Agreement. It shall be an event of default hereunder if the Initial
Registration Statement is not declared effective by the SEC within one hundred
and twenty (120) days after filing thereof.
(c) Failure to File or Obtain Effectiveness of the Registration
------------------------------------------------------------
Statement. In the event the Registration Statement is not filed by the
---------
Scheduled Filing Deadline or is not declared effective by the SEC on or before
the Scheduled Effective Deadline, or if after the Registration Statement has
been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, failure to disclose such information as is necessary for
sales to be made pursuant to the Registration Statement, failure to register
sufficient shares of Common Stock or otherwise then as partial relief for the
damages to any holder of Registrable Securities by reason of any such delay in
or reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies at law or in equity), the
Company will pay as liquidated damages (the "Liquidated Damages") and not as a
------------------
penalty, to the holder, a cash amount equal to two percent (2%) per month of the
outstanding principal amount of the Convertible Debenture outstanding. The
initial payment of Liquidated Damages shall be made within three (3) business
days from the end of the month in which the Scheduled Filing Deadline or
Scheduled Effective Deadline occurred, as the case may be, and shall continue
thereafter until the Registration Statement is filed or declared effective, as
the case may be.
(d) Liquidated Damages. The Company and the Investor hereto
-------------------
acknowledge and agree that the sums payable under subsection 2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the Investor, including the right to call a default. The parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate; (ii) the amounts specified
in such subsection bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to file a Registration Statement or
to obtain or maintain the effectiveness of a Registration Statement; (iii) one
of the reasons for the Company and the Investor reaching an agreement as to such
amounts was the uncertainty and cost of litigation regarding the question of
actual damages, and (iv) the Company and the Investor are sophisticated business
parties and have been represented by sophisticated and able legal counsel and
negotiated this Agreement at arm's length.
3. RELATED OBLIGATIONS.
--------------------
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
--------------------
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or
- 2 -
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company's filing a
report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
------------
shall incorporate such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement the Registration Statement.
(c) The Company shall furnish to the Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i) at
least one (1) copy of such Registration Statement as declared effective by the
SEC and any amendment(s) thereto, including financial statements and schedules,
all documents incorporated therein by reference, all exhibits and each
preliminary prospectus; (ii) ten (10) copies of the final prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request), and (iii) such
other documents as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.
(d) The Company shall use its commercially reasonable best
efforts to (i) register and qualify the Registrable Securities covered by a
Registration Statement under such other securities or "blue sky" laws of such
jurisdictions in the United States as the Investor reasonably requests; (ii)
prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period; (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (1) make any change to its articles of
incorporation or by-laws; (2) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(d); (3)
subject itself to general taxation in any such jurisdiction, or (4) file a
general consent to service of process in any such jurisdiction. The Company
shall promptly notify the Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
(e) As promptly as practicable after becoming aware of such
event or development, the Company shall notify the Investor in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to the Investor. Notwithstanding any provision of this Agreement to
the contrary, if the Company makes such a notification, the Company may suspend
the use of any prospectus contained in any Registration Statement for periods
not to exceed forty five (45) business days in any three month period or two
periods not to exceed an aggregate of ninety (90) business days in any twelve
(12) month period in the event that the Company determines, in the exercise of
its reasonable discretion, confirmed by a legal opinion from outside counsel,
that sales of Registrable Securities thereunder could constitute violations of
the Securities Act due to the Registration Statement containing
- 3 -
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. In each
case, the Company shall use commercially reasonable best efforts to remedy the
deficiency in the Registration Statement within thirty (30) business days. The
Company shall also promptly notify the Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to each
Investor by facsimile on the same day of such effectiveness); (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
(f) The Company shall use its commercially reasonable best
efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
within the United States of America and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify the Investor who holds Registrable Securities
being sold of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.
(g) At the reasonable request of the Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investor.
(h) The Company shall make available for inspection by (i) the
Investor and (ii) one (1) firm of accountants or other agents retained by the
Investor (collectively, the "Inspectors") all pertinent financial and other
----------
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
-------
Inspector, and cause the Company's officers, directors and employees to supply
all information which the Inspector may reasonably request; provided, however,
that each Inspector shall agree, and the Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act; (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
The Investor agrees that it shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
(i) The Company shall hold in confidence and not make any
disclosure of information concerning the Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws; (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement; (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning the Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow the Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(j) The Company shall use its commercially reasonable best
efforts either to cause all the Registrable Securities covered by a Registration
Statement (i) to be listed on each securities exchange on which
- 4 -
securities of the same class or series issued by the Company are then listed, if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) the inclusion for quotation on the National
Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(j).
(k) The Company shall cooperate with the Investor who holds
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates to a transferee
of the Investor (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investor may reasonably request and registered in such names as the
Investor may request.
(l) The Company shall use its commercially reasonable best
efforts to cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
(m) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve (12)
month period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement.
(n) The Company shall otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.
(o) Within two (2) business days after a Registration Statement
which covers Registrable Securities is declared effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investor whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
----------
(p) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investor of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTOR.
------------------------------
The Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of Section 3(e), such Investor will immediately discontinue disposition
of Registrable Securities pursuant to any Registration Statement(s) covering
such Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice from the Company that no supplement or amendment is required.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended certificates for shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(f) or the first sentence of 3(e) and for which
the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
--------------------------
All expenses incurred in connection with registrations, filings or
qualifications pursuant to the Agreement, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
- 5 -
6. INDEMNIFICATION.
---------------
With respect to Registrable Securities which are included in a Registration
Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend the Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls the Investor within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Person"), against any losses,
------------------
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys' fees, amounts paid in settlement or expenses, joint or
several (collectively, the "Claims") incurred in investigating, preparing or
------
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto (the
"Indemnified Damages"), to which any of them may become subject insofar as such
--------------------
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue sky" laws of
any jurisdiction in which Registrable Securities are offered (the "Blue Sky
--------
Filing"), or the omission or alleged omission to state a material fact required
------
to be stated therein or necessary to make the statements therein not misleading;
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC) or the omission
or alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation there under relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) (collectively, the "Violations"). The Company shall
----------
reimburse the Investor and each such controlling person promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (1) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (2) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(c), and (3) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investor pursuant to Section 9 hereof.
(b) In connection with a Registration Statement, the Investor
agrees to indemnify, hold harmless and defend, to the same extent and in the
same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers, employees, representatives, or agents and each Person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (each an "Indemnified Party"), against any Claim or Indemnified
-----------------
Damages to which any of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or is based upon any Violation, in each case to the extent, and only to
the extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration
- 6 -
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investor pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the prospectus was corrected
and such new prospectus was delivered to each Investor prior to such Investor's
use of the prospectus to which the Claim relates.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
(e) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation, and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
- 7 -
8. REPORTS UNDER THE EXHANGE ACT.
---------------------------------
With a view to making available to the Investor the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Investor to sell securities of the Company
to the public without registration ("Rule 144") the Company agrees to:
---------
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144, and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act; (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investor to sell such securities pursuant to Rule 144 without
registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
-----------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investor.
Any amendment or waiver effected in accordance with this Section 9 shall be
binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to fewer than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
10. MISCELLANEOUS.
-------------
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party), or (iii) one (1) business day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
- 8 -
If to the Company, to: Charys Holding Company Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attorney at Law
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Escrow Agent Glast, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
and with all copies to: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇-▇▇▇.▇▇▇
If to the Investor, to: Preferred Employers Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
attention ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.,
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇,
Attention:
Telephone:
Facsimile:
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication; (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission, or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) The parties hereto acknowledge that the transactions
contemplated by this Agreement and the exhibits hereto bear a reasonable
relation to the State of Florida. The parties hereto agree that the internal
laws of the State of Florida shall govern this Agreement and the exhibits
hereto, including, but not limited to, all issues related to usury. Any action
to enforce the terms of this Agreement or any of its exhibits shall be brought
exclusively in the state and/or federal courts situated in the County and State
of Florida. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained
- 9 -
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Irrevocable Transfer Agent Instructions,
the Securities Purchase Agreement and related documents including the
Convertible Debenture, the Stock Pledge Agreement, the Warrants, the Escrow
Shares Escrow Agreement, and the Security Agreement, all dated the date hereof,
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Irrevocable Transfer Agent Instructions, the
Securities Purchase Agreement and related documents including the Convertible
Debenture, the Warrants, the Escrow Shares Escrow Agreement, the Stock Pledge
Agreement, and the Security Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent and no rules of strict construction
will be applied against any party.
(j) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 10 -
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
CHARYS HOLDING COMPANY INC.
By
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇., Chief Executive Officer
---------------------------------------------
SECURED PARTY:
---------------------------------------------
▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
- 11 -
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
-------------------------
Attention:
Re: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We are counsel to Charys Holding Company Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
-------
Securities Purchase Agreement (the "Securities Purchase Agreement"), entered
-----------------------------
into by and among the Company and the Investor named therein (the "Investor"),
--------
pursuant to which the Company issued to the Investor shares of its Common Stock,
par value $0.001 per share (the "Common Stock"). Pursuant to the Purchase
------------
Agreement, the Company also has entered into a Registration Rights Agreement
with the Investor (the "Investor Registration Rights Agreement") pursuant to
--------------------------------------
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement) under the
Securities Act of 1933, as amended (the "Securities Act"). In connection with
--------------
the Company's obligations under the Registration Rights Agreement, on
____________ ____, the Company filed a Registration Statement on Form ________
(File No. 333-_____________) (the "Registration Statement") with the Securities
----------------------
and Exchange SEC (the "SEC") relating to the Registrable Securities which names
---
each of the Investor as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act pursuant to the
Registration Statement.
Very truly yours,
[LAW FIRM]
By:
---------------------------------
cc: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇, ▇▇.
Mr. ▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
EXHIBIT B
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made
---------
effective as of December ___, 2005, by and between CHARYS HOLDING COMPANY INC.,
a Delaware corporation (the "Company"), METHOD IQ, INC. a Georgia corporation
-------
(the "Subsidiary," and, together with the Company, the "Debtors") and ▇▇▇ ▇▇▇▇▇▇
---------- -------
AND ▇▇▇▇▇▇ ▇▇▇▇▇▇, OR THEIR DESIGNEES (collectively, the "Secured Party").
-------------
WHEREAS, the Company shall issue and sell to the Secured Party, as provided
in the Securities Purchase Agreement, dated the date hereof (the "Securities
----------
Purchase Agreement"), and the Secured Party shall purchase a $1,000,000 secured
-------------------
convertible debenture (the "Convertible Debenture"), all of which shall be
----------------------
convertible into shares of the Company's common stock, par value $0.001 (the
"Common Stock") (as converted, the "Conversion Shares"); and
------------- ------------------
WHEREAS, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Subsidiary has agreed to execute this
Agreement; and
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Convertible Debenture,
the Warrants, the Registration Rights Agreement, the Stock Pledge Agreement, the
Escrow Shares Agreement, and the Irrevocable Transfer Agent Instructions (all
dated the date hereof and collectively referred to as the "Transaction
-----------
Documents"), the Debtors hereby grant to the Secured Party a security interest
---------
in and to the pledged property identified on Exhibit "A" hereto (collectively,
-----------
the "Pledged Property") until the satisfaction of the Obligations, as defined
-----------------
herein below;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
-------------------------------
Section 1.1. Recitals.
--------
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
---------------
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Definitions.
-----------
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Securities Purchase Agreement.
Section 1.4. Obligations Secured.
-------------------
The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party, under the Securities
Purchase Agreement, the Convertible Debenture, the Warrants, the Registration
Rights Agreement, the Stock Pledge Agreement, the Escrow Shares Agreement, and
the Irrevocable Transfer Agent Instructions (as to the obligation to deliver
Escrow Shares underlying Conversion Shares upon delivery of a Conversion Notice
only) (collectively, the "Obligations").
-----------
- 1 -
ARTICLE 2.
PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL
------------------------------------------------
AND TERMINATION OF SECURITY INTEREST
------------------------------------
Section 2.1. Pledged Property.
----------------
(a) The Debtors hereby pledge to the Secured Party, and create in
the Secured Party for its benefit, a security interest in and to all of the
Pledged Property for such time until the Obligations are paid in full subject
only to the existing security interests held by other parties in such Pledged
Property as set forth in Exhibit "A" attached hereto. Notwithstanding the
------------
foregoing, the security interest granted pursuant to this Agreement shall
terminate immediately in the event the Company redeems, or the Secured Party
shall have converted, all amounts due under the Convertible Debenture.
The Pledged Property, as set forth in Exhibit "A" attached hereto, and the
-----------
products thereof and the proceeds of all such items are hereinafter collectively
referred to as the "Pledged Collateral."
-------------------
(b) Simultaneously with the execution and delivery of this
Agreement, the Debtors shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the Secured
Party to perfect its security interest in the Pledged Property. Simultaneously
with the execution and delivery of this Agreement, the Debtors shall make,
execute, acknowledge and deliver to the Secured Party such documents and
instruments, including, without limitation, financing statements, certificates,
affidavits and forms as may, in the Secured Party's reasonable judgment, be
necessary to effectuate, complete or perfect, or to continue and preserve, the
security interest of the Secured Party in the Pledged Property, and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.
Section 2.2. Rights; Interests; Etc.
-----------------------
(a) So long as no Event of Default (as hereinafter defined) shall
have occurred and be continuing:
(i) each of the Debtors shall be entitled to exercise any and
all rights pertaining to the Pledged Property or any part thereof for any
purpose not inconsistent with the terms hereof, and
(ii) each of the Debtors shall be entitled to receive and
retain any and all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of each of the Debtors to exercise the rights
which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i)
hereof and to receive payments which it would otherwise be authorized to receive
and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all
such rights shall thereupon become vested in the Secured Party who shall
thereupon have the sole right to exercise such rights and to receive and hold as
Pledged Collateral such payments; provided, however, that if the Secured Party
shall become entitled and shall elect to exercise its right to realize on the
Pledged Collateral pursuant to Article 5 hereof, then all cash sums received by
the Secured Party, or held by the Debtors for the benefit of the Secured Party
and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against
any outstanding Obligations;
(ii) All interest, dividends, income and other payments and
distributions which are received by the Debtors contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Debtors and shall
be forthwith paid over to the Secured Party, and
(iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Convertible Debenture as described herein.
2
(c) Each of the following events shall constitute a default under
this Agreement (an "Event of Default"):
------------------
(i) any default, whether in whole or in part, shall occur in
the payment to the Secured Party of principal or interest under the Convertible
Debenture or other item comprising the Obligations as and when due or with
respect to any other debt or obligation of the Company to a party other than the
Secured Party;
(ii) any default, whether in whole or in part, shall occur in
the due observance or performance of any obligations or other covenants, terms
or provisions to be performed under this Agreement, the Securities Purchase
Agreement or the Convertible Debenture;
(iii) each of the Debtors shall: (1) make a general
assignment for the benefit of its creditors; (2) apply for or consent to the
appointment of a receiver, trustee, assignee, custodian, sequestrator,
liquidator or similar official for itself or any of its assets and properties;
(3) commence a voluntary case for relief as a debtor under the United States
Bankruptcy Code; (4) file with or otherwise submit to any governmental authority
any petition, answer or other document seeking: (A) reorganization; (B) an
arrangement with creditors, or (C) to take advantage of any other present or
future applicable law respecting bankruptcy, reorganization, insolvency,
readjustment of debts, relief of debtors, dissolution or liquidation; (5) file
or otherwise submit any answer or other document admitting or failing to contest
the material allegations of a petition or other document filed or otherwise
submitted against it in any proceeding under any such applicable law, or (6) be
adjudicated a bankrupt or insolvent by a court of competent jurisdiction;
(iv) any case, proceeding or other action shall be commenced
against the Debtors for the purpose of effecting, or an order, judgment or
decree shall be entered by any court of competent jurisdiction approving (in
whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any
receiver, trustee, assignee, custodian, sequestrator, liquidator or other
official shall be appointed with respect to the Debtors, or shall be appointed
to take or shall otherwise acquire possession or control of all or a substantial
part of the assets and properties of the Debtors, and any of the foregoing shall
continue unstayed and in effect for any period of one hundred twenty (120) days;
(v) any material obligation of Debtors (other than its
Obligations under this Agreement) for the payment of borrowed money is not paid
when due or within any applicable grace period, or such obligation becomes or is
declared to be due and payable before the expressed maturity of the obligation,
or there shall have occurred an event that, with the giving of notice or lapse
of time, or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable before the expressed maturity
date of the obligation (other than the default disclosed in Section 6.11
hereof), or
(vi) a breach by the Debtors of any material contract that
would have a Material Adverse Effect (as defined in Section 6.1 below) (other
than the default disclosed in Section 6.11 hereof).
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
-----------------------------
Section 3.1. Secured Party Appointed Attorney-In-Fact.
----------------------------------------
Upon the occurrence of an Event of Default, the Debtors hereby appoint the
Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Debtors and in the name of the Debtors or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, ▇▇▇ for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.
3
Section 3.2. Secured Party May Perform.
-------------------------
If any of the Debtors fail to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1. Authorization; Enforceability.
-----------------------------
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
-----------------------------
Each of the Debtors warrants and represents that it is the legal and
beneficial owner of the Pledged Property free and clear of any lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement or otherwise set forth on Exhibit "A".
------------
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
----------------------------------------
Section 5.1. Default and Remedies.
--------------------
(a) If an Event of Default described in Section 2.2(c)(i) and (ii)
occurs, then in each such case the Secured Party may declare the Obligations to
be due and payable immediately, by a notice in writing to the Debtors, and upon
any such declaration, the Obligations shall become immediately due and payable.
If an Event of Default described in Sections 2.2(c)(iii) through (vi) occurs and
is continuing for the period set forth therein, then the Obligations shall
automatically become immediately due and payable without declaration or other
act on the part of the Secured Party.
(b) Upon the occurrence of an Event of Default, the Secured Party
shall be entitled: (i) to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.
Section 5.2. Method of Realizing Upon the Pledged Property: Other
----------------------------------------------------
Remedies.
--------
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the related Debtor ten (10) days' prior written notice of the
time and place or of the time after which a private sale may be made (the "Sale
----
Notice")), which notice period is hereby agreed to be commercially reasonable.
------
At any sale or sales of the Pledged Property, the relevant Debtor may bid for
and purchase the whole or any part of the Pledged Property and, upon compliance
with the terms of such sale, may hold, exploit and dispose of the same without
further accountability to the Secured Party. The Debtors will execute and
deliver, or cause to be executed and delivered, such instruments, documents,
assignments, waivers, certificates, and
4
affidavits and supply or cause to be supplied such further information and take
such further action as the Secured Party reasonably shall require in connection
with any such sale.
(b) Any cash being held by the Secured Party as Pledged Collateral
and all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for
the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled
thereto, including, without limitation, the Debtors.
(c) In addition to all of the rights and remedies which the
Secured Party may have pursuant to this Agreement, the Secured Party shall have
all of the rights and remedies provided by law, including, without limitation,
those under the Uniform Commercial Code.
(i) If the relevant Debtor fails to pay such amounts due upon
the occurrence of an Event of Default which is continuing, then the Secured
Party may institute a judicial proceeding for the collection of the sums so due
and unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against such Debtor and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of the Debtor,
wherever situated.
(ii) The Debtors agree that they shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the obligations, including,
without limitation, reasonable legal fees and expenses, and such amounts shall
be deemed included as Obligations secured hereby and payable as set forth in
Section 8.3 hereof.
Section 5.3. Proofs of Claim.
---------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Debtors or the property of the Debtors or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Debtors for the payment of the Obligations), shall
be entitled and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding), and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event that
the Secured Party shall consent to the making of such payments directed to the
Secured Party, to pay to the Secured Party any amounts for expenses due it
hereunder.
Section 5.4. Duties Regarding Pledged Collateral.
-----------------------------------
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
5
ARTICLE 6.
AFFIRMATIVE COVENANTS
---------------------
The Debtors covenant and agree that, from the date hereof and until the
Obligations have been fully paid and satisfied or this Agreement shall otherwise
terminate, unless the Secured Party shall consent otherwise in writing (as
provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
---------------------------
(a) Each of the Debtors shall do, or cause to be done, all things,
or proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain each of the Debtor's due organization,
valid existence and good standing under the laws of its state of incorporation,
and (ii) to preserve and keep in full force and effect all qualifications,
licenses and registrations in those jurisdictions in which the failure to do so
could have a Material Adverse Effect (as defined below), and (b) the Debtors
shall not do, or cause to be done, any act impairing the Debtor's corporate
power or authority (i) to carry on the Debtor's business as now conducted, and
(ii) to execute or deliver this Agreement or any other document delivered in
connection herewith, including, without limitation, any UCC-1 Financing
Statements required by the Secured Party (which other loan instruments
collectively shall be referred as "Loan Instruments") to which it is or will be
----------------
a party, or perform any of its obligations hereunder or thereunder. For purpose
of this Agreement, the term "Material Adverse Effect" shall mean any material
-----------------------
and adverse effect as determined by Secured Party in its sole discretion,
whether individually or in the aggregate, upon (a) the Debtor's assets,
business, operations, properties or condition, financial or otherwise; (b) the
Debtor's to make payment as and when due of all or any part of the Obligations,
or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
--------------------------------
The Company shall furnish to the Secured Party within a reasonable time
such financial data as the Secured Party may reasonably request, including,
without limitation, the following:
(a) The balance sheet of the Company as of the close of each
fiscal year, the statement of earnings and retained earnings of the Company as
of the close of such fiscal year, and statement of cash flows for the Company
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied, certified by the
chief executive and chief financial officers of the Company as being true and
correct and accompanied by a certificate of the chief executive and chief
financial officers of the Company, stating that the Company has kept, observed,
performed and fulfilled each covenant, term and condition of this Agreement
during such fiscal year and that no Event of Default hereunder has occurred and
is continuing, or if an Event of Default has occurred and is continuing,
specifying the nature of same, the period of existence of same and the action
the Company proposes to take in connection therewith;
(b) A balance sheet of the Company as of the close of each month,
and statement of earnings and retained earnings of the Company as of the close
of such month, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied,
certified by the chief executive and chief financial officers of the Company as
being true and correct, and
(c) Copies of all accountants' reports and accompanying financial
reports submitted to the Company by independent accountants in connection with
each annual examination of the Company.
Section 6.3. Accounts and Reports.
--------------------
The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other
communication received by any of the Debtors alleging any nonpayment or other
material breach or default, or any foreclosure or other action respecting any
material portion of its assets and properties, respecting any of the
indebtedness of the Debtors in excess of
6
$50,000 (other than the Obligations), or any demand or other request for payment
under any guaranty, assumption, purchase agreement or similar agreement or
arrangement respecting the indebtedness or obligations of others in excess of
$50,000, including any received from any person acting on behalf of the Secured
Party or beneficiary thereof, and
(b) within fifteen (15) days after the making of each submission
or filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the stockholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Debtors that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral, or (iv) any of the
transactions contemplated in Transaction Documents.
Section 6.4. Maintenance of Books and Records; Inspection.
--------------------------------------------
The Debtors shall maintain their books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the Pledged Property and Collateral
described in the Transaction Documents), corporate books and financial records,
and to discuss its accounts, affairs and finances with any employee, officer or
director thereof.
Section 6.5. Maintenance and Insurance.
-------------------------
(a) The Debtors shall maintain or cause to be maintained, at their
own expense, all of their assets and properties in good working order and
condition, making all necessary repairs thereto and renewals and replacements
thereof.
(b) The Debtors shall maintain or cause to be maintained, at their
own expense, insurance in form, substance and amounts (including deductibles),
which the Debtors deem reasonably necessary to the Company's business, (i)
adequate to insure all assets and properties of the Debtors, which assets and
properties are of a character usually insured by persons engaged in the same or
similar business against loss or damage resulting from fire or other risks
included in an extended coverage policy; (ii) against public liability and other
tort claims that may be incurred by the Debtors; (iii) as may be required by the
Transaction Documents and/or the applicable law, and (iv) as may be reasonably
requested by Secured Party, all with adequate, financially sound and reputable
insurers.
Section 6.6. Contracts and Other Collateral.
------------------------------
The Debtors shall perform all of their obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Debtors are now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
Section 6.7. Defense of Collateral, Etc.
---------------------------
The Debtors shall defend and enforce their right, title and interest in and
to any part of: (a) the Pledged Property, and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Debtors shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
-----------------------------
The Debtors shall pay, or cause to be paid, all of their indebtedness and
other liabilities and perform, or cause to be performed, all of their
obligations in accordance with the respective terms thereof, and pay and
discharge, or cause to be paid or discharged, all taxes, assessments and other
governmental charges and levies imposed upon them, upon any of their assets and
properties on or before the last day on which the same may be paid
7
without penalty, as well as pay all other lawful claims (whether for services,
labor, materials, supplies or otherwise) as and when due
Section 6.9. Taxes and Assessments; Tax Indemnity.
------------------------------------
The Debtors shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency; (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Debtors, upon their income and profits or
upon any properties belonging to them, prior to the date on which penalties
attach thereto, and (c) pay all taxes, assessments and governmental charges or
levies that, if unpaid, might become a lien or charge upon any of its
properties; provided, however, that the Debtors in good faith may contest any
such tax, assessment, governmental charge or levy described in the foregoing
clauses (b) and (c) so long as appropriate reserves are maintained with respect
thereto.
Section 6.10. Compliance with Law and Other Agreements.
----------------------------------------
The Debtors shall maintain their business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Debtors are a party
or by which the Debtors or any of their properties are bound. Without limiting
the foregoing, the Debtors shall pay all of their indebtedness promptly in
accordance with the terms thereof.
Section 6.11. Notice of Default.
-----------------
The Debtors shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the other
Transaction Documents or any other agreement of the Debtors for the payment of
money, promptly upon the occurrence thereof.
Section 6.12. Notice of Litigation.
--------------------
The Debtors shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Debtors, or affecting any of the
assets of the Debtors, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Debtors on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
------------------
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied or this Agreement shall otherwise
terminate, the Company shall not, unless the Secured Party shall consent
otherwise in writing:
8
Section 7.1. Liens and Encumbrances.
------------------------
The Debtors shall not directly or indirectly make, create, incur, assume or
permit to exist any assignment, transfer, pledge, mortgage, security interest or
other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Debtors' capital stock, or offer or agree to do so,
or own or acquire or agree to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber their right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Debtors' capital stock; or
enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
Section 7.2. Certificate of Incorporation, By-Laws, Mergers,
---------------------------------------------------
Consolidations, Acquisitions and Sales.
-----------------------------------------
Without the prior express written consent of the Secured Party, the Debtors
shall not: (a) Amend their Certificate of Incorporations or By-Laws; (b) be a
party to any merger, consolidation or corporate reorganization; or (c) convey
any of their assets to any subsidiary; provided, however, that this Section 7.2
shall not prohibit the Company (whether through an existing or newly formed
subsidiary) from acquiring the stock or assets of another entity.
Section 7.3. Management, Ownership.
----------------------
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Debtors.
Section 7.4. Dividends, Etc.
---------------
The Debtors shall not declare or pay any dividend of any kind, in cash or
in property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock (other than the redemption
rights under the Convertible Debenture and any other securities of the Company
in existence as of the date hereof), nor make any distribution of any kind in
respect thereof, nor make any return of capital to shareholders, nor make any
payments in respect of any pension, profit sharing, retirement, stock option,
stock bonus, incentive compensation or similar plan (except as required or
permitted hereunder), without the prior written consent of the Secured Party.
Section 7.5. Guaranties; Loans.
------------------
The Debtors shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
persons, except for (i) the indebtedness currently secured by the liens
identified on the Pledged Property identified on Exhibit A hereto, and (ii) the
endorsement of negotiable instruments payable to the Debtors for deposit or
collection in the ordinary course of business. The Debtors shall not make any
loan, advance or extension of credit to any person other than in the normal
course of its business. NOTHING CONTAINED HEREIN SHALL PROHIBIT THE COMPANY
FROM COMPLYING WITH ITS OBLIGATIONS TO REPLACE A STANDBY LETTER OF CREDIT IN THE
APPROXIMATE AMOUNT OF $1.35M WITH CITY NATIONAL BANK, DELIVERING THE PROMISSORY
NOTES IN FAVOR OF NVH OR OTHERWISE PERFORMING ALL OBLIGATIONS TO BE PERFORMED BY
IT UNDER THAT CERTAIN STOCK PURCHASE AGREEMENT DATED NOVEMBER 1, 2005 BETWEEN
THE COMPANY AND NVH. IN ADDITION, NOTHING CONTAINED HEREIN SHALL PROHIBIT THE
COMPANY, VIASYS NETWORK SERVICES, INC. AND VIASYS SERVICES, INC. FROM ENTERING
INTO THOSE AMENDMENTS TO CERTAIN REVOLVING CREDIT AGREEMENTS WITH ▇▇▇▇▇▇▇ ▇▇▇▇▇
BUSINESS FINANCIAL SERVICES, INC. ("▇▇▇▇▇▇▇"), SPECIFICALLY, WCMA LOAN AND
SECURITY AGREEMENT NOS. 2BN-07936, 2BN-07937 AND 2BN-07938 (THE "▇▇▇▇▇▇▇
AMENDMENTS"), NOR SHALL THE COMPANY BE PROHIBITED FROM EXECUTING AND DELIVERING
AN UNCONDITIONAL GUARANTEE IN FAVOR OF ▇▇▇▇▇▇▇ WITH RESPECT THERETO (THE
"▇▇▇▇▇▇▇ GUARANTEE").
9
Section 7.6. Debt.
----
The Debtors shall not create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever in an aggregate amount in
excess of $50,000 (excluding any indebtedness of the Debtors to the Secured
Party, trade accounts payable and accrued expenses incurred in the ordinary
course of business and the endorsement of negotiable instruments payable to the
Debtors, respectively for deposit or collection in the ordinary course of
business). NOTHING CONTAINED HEREIN SHALL PROHIBIT THE COMPANY FROM COMPLYING
WITH ITS OBLIGATIONS TO REPLACE A STANDBY LETTER OF CREDIT IN THE APPROXIMATE
AMOUNT OF $1.35M WITH CITY NATIONAL BANK, DELIVERING THE PROMISSORY NOTES IN
FAVOR OF NVH OR OTHERWISE PERFORMING ALL OBLIGATIONS TO BE PERFORMED BY IT UNDER
THAT CERTAIN STOCK PURCHASE AGREEMENT DATED NOVEMBER 1, 2005 BETWEEN THE COMPANY
AND NVH. IN ADDITION, NOTHING CONTAINED HEREIN SHALL PROHIBIT THE COMPANY,
VIASYS NETWORK SERVICES, INC. AND VIASYS SERVICES, INC. FROM ENTERING INTO THE
▇▇▇▇▇▇▇ AMENDMENTS, NOR SHALL THE COMPANY BE PROHIBITED FROM EXECUTING AND
DELIVERING THE ▇▇▇▇▇▇▇ GUARANTEE.
Section 7.7. Conduct of Business.
---------------------
The Debtors will continue to engage, in an efficient and economical manner,
in a business of the same general type as conducted by it on the date of this
Agreement.
Section 7.8. Places of Business.
--------------------
The location of the Company's chief place of business is Atlanta, Georgia.
The Company shall not change the location of its chief place of business, chief
executive office or any place of business disclosed to the Secured Party or move
any of the Pledged Property from its current location without thirty (30) days'
prior written notice to the Secured Party in each instance.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
ARTICLE 8.
MISCELLANEOUS
-------------
Section 8.1. Notices.
-------
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service, or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Debtors, to: Charys Holding Company Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇, ▇▇.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attorney at Law
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Glast, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇-▇▇▇.▇▇▇
If to the Secured Party, to: Preferred Employers Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
attention ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.,
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇,
Attention:
Telephone:
Facsimile:
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2. Severability.
------------
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
11
Section 8.3. Expenses.
--------
In the event of an Event of Default, the Debtors will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder, or (iii) the
failure by the Debtors to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
-------------------------
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by the Debtors of any undertakings, agreements or
covenants shall not waive, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Debtors contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
Section 8.5. Continuing Security Interest.
----------------------------
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until the Obligations
are paid in full at which time this Agreement shall terminate; (ii) be binding
upon the Debtor and their successors and heirs, and (iii) inure to the benefit
of the Secured Party and its successors and assigns. Notwithstanding the
foregoing, this Agreement shall terminate immediately in the event the Company
redeems, or the Secured Party shall have converted, all amounts due under the
Convertible Debentures. Upon the termination of this Agreement, the Debtors
shall be entitled to the return, at the Secured Party's expense, of such of the
Pledged Property as shall not have been sold in accordance with Section 5.2
hereof or otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
--------------------------
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
-----------------------------
The parties hereto acknowledge that the transactions contemplated by this
Agreement and the exhibits hereto bear a reasonable relation to the State of
Florida. The parties hereto agree that the internal laws of the State of
Florida shall govern this Agreement and the exhibits hereto, including, but not
limited to, all issues related to usury. Any action to enforce the terms of
this Agreement or any of its exhibits shall be brought exclusively in the state
and/or federal courts situated in the County and State of Florida. Service of
process in any action by the Secured Party to enforce the terms of this
Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Debtors at their principal addresses set forth in this Agreement.
Section 8.8. Waiver of Jury Trial.
--------------------
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE DEBTORS, THE DEBTORS HEREBY
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
12
Section 8.9. Entire Agreement.
----------------
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
CHARYS HOLDING COMPANY INC.
By
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇., Chief Executive Officer
SECURED PARTY:
▇▇▇ ▇▇▇▇▇▇
By
------------------------------------------
▇▇▇ ▇▇▇▇▇▇
By
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
SUBSIDIARY:
METHOD IQ, INC.
By
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇., President
13
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by
the Debtors of all of the Obligations, the Debtors unconditionally and
irrevocably hereby grant to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Debtors:
(a) all goods of Method IQ, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by Method IQ or in which Method IQ may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
(b) all inventory of Method IQ, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Method IQ's
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;
(c) all contract rights and general intangibles of Method IQ,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
(d) all documents, warehouse receipts, instruments and chattel
paper of Method IQ whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms
of obligations and rights to payment of Method IQ (herein collectively referred
to as "Accounts"), together with the proceeds thereof, all goods represented by
--------
such Accounts and all such goods that may be returned by Method IQ's customers,
and all proceeds of any insurance thereon, and all guarantees, securities and
liens which Method IQ may hold for the payment of any such Accounts including,
without limitation, all rights of stoppage in transit, replevin and reclamation
and as an unpaid vendor and/or lienor, all of which Method IQ represents and
warrants will be bona fide and existing obligations of its respective customers,
arising out of the sale of goods by Method IQ in the ordinary course of
business;
(f) to the extent assignable, all of Method IQ's rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities, and
(g) all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.
Notwithstanding the foregoing, the security interest granted by the Debtors
herein shall expressly exclude any and all security interests held by Carolina
First Bank; provided however, that the total indebtedness held by Carolina First
Bank shall not exceed the sum of One Million Dollars ($1,000,000) unless
approved in advance by the Secured Party.
EXHIBIT C
ESCROW SHARES ESCROW AGREEMENT
------------------------------
THIS ESCROW SHARES ESCROW AGREEMENT (the "Agreement") is made and entered
---------
into as of December __, 2005 (the "Effective Date"), by and among ▇▇▇ ▇▇▇▇▇▇ and
--------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, or their designees (collectively, the "Buyer"), CHARYS HOLDING
COMPANY, INC., a Delaware corporation (the "Company"), and GLAST, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, P.C., as escrow agent (the "Escrow Agent").
-------------
RECITALS:
--------
WHEREAS, the Buyer, pursuant to that certain Securities Purchase Agreement
of even date herewith (the "Securities Purchase Agreement") has purchased (i) a
$1,000,000 Secured Convertible Debenture (the "Convertible Debenture"), which
shall be convertible, unless redeemed by the Company before the expiration of
120 days from the Closing Date (as defined in the Securities Purchase Agreement)
(the "Exclusive Redemption Date"), into shares of the common stock, par value
$0.001 (the "Common Stock") (as converted, the "Conversion Shares") of the
Company, and (ii) warrants (the "Warrants") to purchase an aggregate of 250,000
shares of the Common Stock (the "Warrant Shares") for a total purchase price of
$1,000,000 (the "Purchase Price"); and
WHEREAS, all capitalized terms not otherwise defined herein shall have the
same meaning as defined in the Securities Purchase Agreement and all Attachments
thereto; and
WHEREAS, the Securities Purchase Agreement provides for an escrow as
therein provided; and
WHEREAS, the Securities Purchase Agreement provides that the Company shall
deposit an aggregate of 1,500,000 shares of the Common Stock (the "Escrow
Shares") in a segregated account to be held by the Escrow Agent in order to
effectuate the conversions of the Convertible Debenture and the Warrants; and
WHEREAS, The Escrow Agent is willing to act as escrow agent pursuant to the
terms of this Agreement with respect to the Escrow Shares;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
warranties, and representations herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
TERMS AND CONDITIONS
--------------------
1. PROCEDURE FOR ESCROW. The procedures to be followed in order for
----------------------
the Buyer to convert the Convertible Debenture are set forth in the Securities
Purchase Agreement (which shall also govern any exercise of the Warrants), all
of which are incorporated herein by reference as if set forth fully herein.
2. TERMS OF ESCROW. Except as otherwise provided for in this
-----------------
Agreement, the terms of the escrow shall be governed by the Securities Purchase
Agreement and the Convertible Debenture, all of which are incorporated herein by
reference as if set forth fully herein. This Agreement shall terminate at such
time as all of the Escrow Shares have been released from the escrow.
3. CONCERNING THE ESCROW AGENT.
------------------------------
3.1. The Escrow Agent undertakes to perform only such duties as
are expressly set forth herein and no implied duties or obligations shall be
read into this Agreement against the Escrow Agent.
3.2. The Escrow Agent may act in reliance upon any writing or
instrument or signature which it, in good faith, believes to be genuine, may
assume the validity and accuracy of any statement or assertion contained in such
a writing or instrument, and may assume that any person purporting to give any
writing, notice, advice or instructions in connection with the provisions hereof
has been duly authorized to do so. The Escrow Agent shall not be liable in any
manner for the sufficiency or correctness as to form, manner, and execution, or
validity of any instrument deposited in this escrow, nor as to the identity,
authority, or right of any person executing the same; and its duties hereunder
shall be limited to the safekeeping of such certificates, monies, instruments,
or other document received by it as such escrow holder, and for the disposition
of the same in accordance with the written instruments accepted by it in the
escrow.
3.3. The Buyer and the Company hereby agree, to defend and
indemnify the Escrow Agent and hold it harmless from any and all claims,
liabilities, losses, actions, suits, or proceedings at law or in equity, or any
other expenses, fees, or charges of any character or nature which it may incur
or with which it may be threatened by reason of its acting as Escrow Agent under
this Agreement; and in connection therewith, to indemnify the Escrow Agent
against any and all expenses, including attorneys' fees and costs of defending
any action, suit, or proceeding or resisting any claim (and any costs incurred
by the Escrow Agent pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent
shall be vested with a lien on all property deposited hereunder, for
indemnification of attorneys' fees and court costs regarding any suit,
proceeding or otherwise, or any other expenses, fees, or charges of any
character or nature, which may be incurred by the Escrow Agent by reason of
disputes arising between the makers of this escrow as to the correct
interpretation of this Agreement and instructions given to the Escrow Agent
hereunder, or otherwise, with the right of the Escrow Agent, regardless of the
instructions aforesaid, to hold said property until and unless said additional
expenses, fees, and charges shall be fully paid; provided, however, that the
Escrow Agent shall not have a lien on any property deposited hereunder that
would otherwise be required to be distributed or returned to the Company except
to the extent such fees and expenses incurred by the Escrow Agent arise from an
obligation owed to the Escrow Agent by the Company. Any fees and costs charged
by the Escrow Agent for serving hereunder shall be paid by the Buyer.
3.4. If any of the parties shall be in disagreement about the
interpretation of this Agreement, or about the rights and obligations, or the
propriety of any action contemplated by the Escrow Agent hereunder, the Escrow
Agent may, at its sole discretion deposit the Escrow Shares with the Clerk of
the United States District Court of Texas, sitting in Houston, Texas, and, upon
notifying all parties concerned of such action, all liability on the part of the
Escrow Agent shall fully cease and terminate. The Escrow Agent shall be
indemnified by the Company and the Buyer for all costs, including reasonable
attorneys' fees in connection with the aforesaid proceeding, and shall be fully
protected in suspending all or a part of its activities under this Agreement
until a final decision or other settlement in the proceeding is received.
3.5. The Escrow Agent may consult with counsel of its own choice
(and the costs of such counsel shall be paid by the Company and the Buyer) and
shall have full and complete authorization and protection for any action taken
or suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. The Escrow Agent shall not be liable for any mistakes of fact or
error of judgment, or for any actions or omissions of any kind, unless caused by
its willful misconduct or gross negligence.
3.6. The Escrow Agent may resign upon ten days' written notice to
the parties in this Agreement. If a successor Escrow Agent is not appointed
within this ten day period, the Escrow Agent may petition a court of competent
jurisdiction to name a successor.
3.7. Conflict Waiver. The Buyer hereby acknowledges that the
----------------
Escrow Agent is general counsel to the Company in connection with the
transactions contemplated and referred herein. The Buyer agrees that in the
event of any dispute arising in connection with this Agreement or otherwise in
connection with any transaction or agreement contemplated and referred herein,
the Escrow Agent shall be permitted to continue to represent the Company, and
the Buyer will not seek to disqualify such counsel and waives any objection the
Buyer might have with respect to the Escrow Agent acting as the Escrow Agent
pursuant to this Agreement.
3.8. Notices. Unless otherwise provided herein, all demands,
--------
notices, consents, service of process, requests and other communications
hereunder shall be in writing and shall be delivered in person or by overnight
courier service, or mailed by certified mail, return receipt requested,
addressed:
2
If to the Company, to: Charys Holding Company Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇, ▇▇.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attorney at Law
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Escrow Agent and with all copies Glast, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
to:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇-▇▇▇.▇▇▇
If to the Buyer, to: Preferred Employers Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
attention ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇,
Any such notice shall be effective (a) when delivered, if delivered by hand
delivery or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
4. BINDING EFFECT. All of the covenants and obligations contained
---------------
herein shall be binding upon and shall inure to the benefit of the respective
parties, their successors and assigns.
5. GOVERNING LAW; VENUE; SERVICE OF PROCESS. The parties hereto
---------------------------------------------
acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of Texas. The parties
hereto agree that the internal laws of the State of Texas shall govern this
Agreement and the exhibits hereto, including, but not limited to, all issues
related to usury. Any action to enforce the terms of this Agreement or any of
its exhibits shall be brought exclusively in the state and/or federal courts
situated in the County and State of Texas. Service of process in any action by
the Buyer to enforce the terms of this Agreement against the Company may be made
by serving a copy of the summons and complaint, in addition to any other
relevant documents, by commercial overnight courier to the Company at its
principal address set forth in this Agreement.
6. ENFORCEMENT COSTS. If any legal action or other proceeding is
------------------
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees, court costs and all expenses even if not
taxable as court costs (including, without limitation, all such fees, costs and
expenses incident to appeals), incurred in that action or proceeding, in
addition to any other relief to which such party or parties may be entitled.
3
7. REMEDIES CUMULATIVE. No remedy herein conferred upon any party is
--------------------
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in equity, by statute, or
otherwise. No single or partial exercise by any party of any right, power or
remedy hereunder shall preclude any other or further exercise thereof.
8. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.
9. NO PENALTIES. No provision of this Agreement is to be interpreted
-------------
as a penalty upon any party to this Agreement.
10. JURY TRIAL. EACH OF THE BUYER AND THE COMPANY HEREBY KNOWINGLY,
-----------
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING
OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN THE BUYER AND
THE COMPANY AND THIS ESCROW SHARES ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY
OR OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Shares Escrow Agreement as of the date first above written.
COMPANY:
CHARYS HOLDING COMPANY INC.
By
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇., Chief Executive Officer
BUYER:
------------------------------------------
▇▇▇ ▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
ESCROW AGENT:
GLAST, PHILLIPS, & ▇▇▇▇▇▇, P.C.
By
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
4
EXHIBIT D
STOCK PLEDGE ESCROW AGREEMENT
-----------------------------
STOCK PLEDGE AGREEMENT
THIS AGREEMENT is made this ___ day of December, 2005, by and between ▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, or their designees (collectively, the "Secured Party")
and ▇▇▇▇▇ ▇. ▇▇▇, ▇▇. (the "Debtor").
WHEREAS, the Secured Party, pursuant to that certain Securities Purchase
Agreement of even date herewith (the "Securities Purchase Agreement") has
purchased (i) a $1,000,000 Secured Convertible Debenture (the "Convertible
Debenture"), which shall be convertible, unless redeemed by the Company before
the expiration of 120 days from the Closing Date (as defined in the Securities
Purchase Agreement) (the "Exclusive Redemption Date"), into shares of the common
stock, par value $0.001 (the "Common Stock") (as converted, the "Conversion
Shares") of CHARYS HOLDING COMPANY, INC., a Delaware corporation (the
"Company"), and (ii) warrants (the "Warrants") to purchase an aggregate of
250,000 shares of the Common Stock (the "Warrant Shares") for a total purchase
price of $1,000,000 (the "Purchase Price"); and
WHEREAS, all capitalized terms not otherwise defined herein shall have the
same meaning as defined in the Securities Purchase Agreement; and
WHEREAS, the Debtor owns 2,185,150 shares of the Common Stock and 1,000,000
shares of the Series A preferred stock of the Company, par value $0.001 per
share (the "Preferred Stock"); and
WHEREAS, pursuant to this Agreement, the Debtor has executed that certain
Escrow Agreement (the "Escrow Agreement") attached hereto as Attachment A;
------------
NOW, THEREFORE, in consideration of the foregoing and the following mutual
covenants and agreements, the parties hereto do hereby agree as follows:
1. Security Interest. For good and valuable consideration and in
------------------
further consideration of the execution of the Securities Purchase Agreement and
the purchase of the Convertible Debenture and the Warrants, the Debtor hereby
grants to the Secured Party a security interest and agrees and acknowledges that
the Secured Party has and shall continue to have a security interest in the
Common Stock and the Preferred Stock and in any other shares of the capital
stock of the Company now owned or hereafter acquired by the Debtor, all present
and future issued and outstanding shares of capital stock or other equity and/or
investment securities issued by the Company to the Debtor, SAVE AND EXCEPT
50,000 shares of the Preferred Stock owned by the Debtor and previously pledged
to a third party and which are not included in this Agreement, together with all
monies, income, proceeds, increases, substitutions, replacements, additions,
accessions and benefits attributable or accruing to said property, including,
but not limited to, all stock rights, rights to subscribe, liquidating
dividends, stock dividends, dividends paid in stock, new securities or other
properties or benefits for which the Debtor is or may hereafter become entitled
to receive on account of said property, and in the event that the Debtor shall
receive any of such, the Debtor shall hold same as trustee for the Secured Party
and will immediately deliver same to the Secured Party to be held hereunder in
the same manner as the properties specifically described above are held
hereunder. All property of all kinds in which the Secured Party is herein
granted a security interest, including, but not limited to, the Common Stock and
the Preferred Stock, shall hereinafter be referred to as the "Collateral."
The Debtor agrees to execute such stock powers, endorse such instruments,
or execute such additional pledge agreements or other documents as may be
required by the Secured Party in order to effectively grant to the Secured Party
the security interest in the Collateral. The security interest granted hereby
is to secure the payment of any and all indebtedness, liabilities, obligations,
and duties whatsoever of the Company and/or the Debtor to the Secured Party
whether direct or whether now existing or hereafter arising, and howsoever
evidenced or acquired, and whether joint or several, including, but not limited
to, the Securities Purchase Agreement, the Convertible Debenture, the Warrants,
the Registration Rights Agreement, the Security Agreement, the Escrow Shares
Agreement, and the Irrevocable Transfer Agent Instructions, and all costs
incurred by the Secured Party to enforce this Agreement or any of the above
described agreements and instruments, including but not limited to attorney's
fees and expenses (all of such obligations, indebtedness and liabilities being
hereinafter collectively referred to as the "Obligations").
2. Warranties and Covenants of the Debtor. The Debtor, for so long as
---------------------------------------
he has any duty with respect to the Obligations, hereby warrants and covenants
as follows:
1
(a) The security interest granted hereby will attach to the
Collateral on the date hereof.
(b) Except for the security interest granted hereby and for taxes
not yet due, the Debtor will defend the Collateral against all claims and
demands of all persons at any time claiming the same or any interest therein.
(c) The Debtor authorizes the Secured Party to file a financing
statement, if desired by the Secured Party in any applicable jurisdiction,
signed only by the Secured Party covering the Collateral, and at the request of
the Secured Party, the Debtor will join the Secured Party in executing one or
more financing statements pursuant to the Uniform Commercial Code in effect in
any such jurisdiction on the date hereof in a form satisfactory to the Secured
Party, and the Secured Party will pay the cost of filing the same, or filing or
recording the financing statements in all public offices wherever filing or
recording is deemed by the Secured Party to be necessary or desirable. It being
further stipulated in this regard that the Secured Party may also at any time or
times sign a counterpart of this Agreement signed by the Debtor and file same as
a financing statement if the Secured Party shall elect to do so.
(d) The Debtor will not sell or offer to sell or otherwise
transfer or encumber the Collateral or any interest therein.
(e) Subject to the Securities Purchase Agreement, the Debtor will
keep the Collateral free from any adverse lien, security interest, or
encumbrance, except the security interest granted hereby and for taxes not yet
due.
(f) The Debtor will pay to the Secured Party all costs and
expenses, including reasonable attorney's fees, incurred or paid by the Secured
Party in exercising or protecting its interests, rights and remedies under this
Agreement in the event of default by the Debtor hereunder or under the
Securities Purchase Agreement, the Note, the Escrow Agreement, and the
Consulting Agreements or any of the Attachments referred to therein.
(g) The Debtor will pay all expenses incurred by the Secured Party
in preserving, defending, and enforcing this security interest in the Collateral
and in collecting or enforcing the Obligations. Expenses for which the Debtor
is liable include, but are not limited to, taxes, assessments, reasonable
attorney's fees, and other legal expenses. These expenses will bear interest
from the dates of payment at the highest rate stated in the Obligations, and the
Debtor will pay the Secured Party this interest on demand at a time and place
reasonably specified by the Secured Party. These expenses and interest will be
part of the Obligations and will be recoverable as such in all respects.
(h) The Debtor will immediately notify the Secured Party of any
change in the Debtor's name, address, or location, change in any matter
warranted or represented in this Agreement, change that may affect this security
interest, and any Event of Default.
(i) The Debtor appoints the Secured Party as the Debtor's
attorney-in-fact, effective if an Event of Default as hereinafter defined is not
cured within 30 days after receipt by the Debtor from the Secured Party of
notice thereof, to do any act that the Debtor is obligated to do by this
Agreement, to exercise all rights of the Debtor in the Collateral, to make all
collections, to execute any papers and instruments, and to do all other things
necessary to preserve and protect the Collateral and to make collections and to
protect the Secured Party's security interest in the Collateral.
3. General Covenants. The security interest granted hereby shall in no
-----------------
way be affected by any indulgence or indulgences, extension or extensions,
change or changes in the form, evidence, maturity, rate of interest or otherwise
of the Obligations, or by want of presentment, notice, protest, suit, or
indulgence upon the Obligations, or shall any release of any security for any of
the parties liable for the payment of the Obligations in any manner affect or
impair this Agreement, and same shall continue in full force and effect in
accordance with their terms until the Obligations have been fully paid.
Any and all securities and other properties of the Debtor heretofore, now
or hereafter delivered to the Secured Party or in the Secured Party's
possession, shall also secure the Obligations and shall be held and construed to
be a part of the Collateral hereunder to the same extent as fully described
herein.
2
4. Events of Default. The Debtor shall be in default under this
-------------------
Agreement upon the happening of any of the following events or conditions
(hereinafter severally referred to as an "Event of Default" and collectively
referred to as the "Events of Default"):
(a) Default by the Debtor with respect to any of the Obligations.
(b) The levy of any attachment, execution or other process against
the Debtor, the Company, or any of the Collateral that is not stayed or
dismissed within 30 days.
(c) Dissolution, termination of existence, insolvency or business
failure of the Debtor, the Company, or any endorser, guarantor or surety of the
Obligations, or commission of the act of bankruptcy by, or the appointment of a
receiver or other legal representative for any part of the property of,
assignment for the benefit of creditors by, or commencement of any proceedings
under any bankruptcy or insolvency law by or against, the Debtor, the Company or
any endorser, guarantor, or surety for the Obligations that are not stayed or
dismissed within 30 days of filing.
(d) Default in the performance of any covenant or agreement of the
Debtor or the Company to the Secured Party, whether under this Agreement, the
Note, the Escrow Agreement, or any of the Consulting Agreements, or any other
instrument executed in connection with said agreements or otherwise.
(e) The occurrence of any event which under the terms of any
evidence of indebtedness, indenture, loan agreement, security agreement, or
similar instrument permits the acceleration of maturity of any indebtedness of
the Company or the Debtor to the Secured Party, or to persons other than the
Secured Party, or the Secured Party receives notification that another person
has or expects to acquire a security interest in the Collateral or any part
thereof.
(f) If any warranty, covenant, or representation made to the
Secured Party by or on behalf of the Debtor or the Company proves to have been
false in any material respect when made.
(g) If any lien attaches to any of the Collateral.
5. Remedies. Upon the failure of the Debtor or the Company to cure an
--------
Event of Default within 30 days after receipt of notice from the Secured Party
of such Event of Default and at any time thereafter, at the option of the holder
thereof, any or all of the Obligations shall become immediately due and payable
without presentment or demand or any further notice to the Debtor, the Company
or any other person obligated thereon and the Secured Party shall have and may
exercise with reference to the Collateral any and all of the rights and remedies
of a secured party under the Uniform Commercial Code as adopted in the State of
Florida, and as otherwise granted herein or under any other agreement executed
by the Debtor, including, without limitation, the right and power to sell at
public or private sale or sales, or otherwise dispose of or utilize the
Collateral and any part or parts thereof in any manner authorized or permitted
under this Agreement or under the Uniform Commercial Code as adopted in the
State of Florida after default by the Debtor or the Company and to apply the
proceeds thereof toward the payment of any costs and expenses and attorney's
fees thereby incurred by the Secured Party and toward payment of the
Obligations, in such order or manner as the Secured Party may elect, including,
without limiting the foregoing:
(a) The Secured Party is hereby granted the right, at its option,
upon the occurrence of an Event of Default hereunder, to transfer at any time to
itself or to its nominee securities or other property hereby pledged, or any
part thereof, and to thereafter exercise all voting rights with respect to such
security so transferred and to receive the proceeds, payments, monies, income or
benefits attributable or accruing thereto and to hold the same as security for
the Obligations hereby secured or at the Secured Party's election, to apply such
amounts to the Obligations, whether or not then due, in such order as the
Secured Party may elect, or, the Secured Party may, at its option, without
transferring such securities or properties to its nominee, exercise all voting
rights with respect to the securities pledged hereunder and vote all or any part
of such securities at any regular or special meeting of the stockholders of the
Company, and the Debtor does hereby name, constitute and appoint as a proxy of
the Debtor the Secured Party, in the Debtor's name, place and stead to vote any
and all such securities, as said proxy may elect for and in the name, place and
stead of the Debtor, such proxy to be irrevocable and deemed coupled with an
interest.
(b) Sell, lease, or otherwise dispose of any of the Collateral in
accordance with the rights, remedies, and duties of a secured party under the
Florida Uniform Commercial Code after giving notice as required
3
by those chapters; unless the Collateral threatens to decline speedily in value,
is perishable, or would typically be sold on a recognized market. The Secured
Party will give the Debtor reasonable notice of any public sale of the
Collateral or of a time after which it may be otherwise disposed of without
further notice of the Debtor. In such event, notice will be deemed reasonable
if it is mailed, postage prepaid, to the Debtor at the address specified in this
Agreement at least 30 days before any public sale or 30 days before the time
when the Collateral may be otherwise disposed of without further notice to the
Debtor.
(c) Apply any proceeds from disposition of the Collateral after
default in the manner specified in the Florida Uniform Commercial Code,
including payment of the Secured Party's reasonable attorney's fees and court
expenses.
(d) If, after disposition of the Collateral, the Obligations
remain unsatisfied, collect the deficiency from the Debtor.
6. Voting Rights. So long as no Event of Default has occurred and
--------------
remains uncured for the applicable grace period under the Securities Purchase
Agreement, the Obligations, or any of the Attachments referred to therein, or
hereunder, the Debtor shall have the right to vote all of the shares of the
Common Stock and the Preferred Stock or items of the Collateral subject to this
Agreement, and the Secured Party shall on demand execute and deliver an
effective proxy or proxies in favor of the Debtor, whenever demand is made upon
the Secured Party for such proxy or proxies by the Debtor.
7. Termination of Security Interest. Simultaneously with the payment
----------------------------------
in full or the conversion of the Convertible Debenture and the satisfaction of
all of the Obligations, the Secured Party shall execute and file at its own
expense any and all instruments necessary to terminate the security interest in
the shares of the Common Stock and the Preferred Stock created by this Agreement
and also execute any and all other instruments deemed reasonably necessary by
the Debtor to vest in the Debtor title in the shares of the Common Stock and the
Preferred Stock, free from any claim by the Secured Party.
8. No Usury. It is the intention of the parties hereto to comply with
---------
the usury laws of the State of Florida. Accordingly, it is agreed that
notwithstanding any provision to the contrary in this Agreement or in any of the
documents evidencing the Obligations or otherwise relating thereto, no such
provision shall require the payment or permit the collection of interest in
excess of the maximum permitted by law. If any excess of interest in such
respect is provided for, or shall be adjudicated to be so provided for, in this
Agreement, or any of the documents evidencing the Obligations or otherwise
relating thereto, then in such event:
(a) The provisions of this paragraph shall govern and control;
(b) Neither the Debtor, the Company nor their successors or
assigns, or any other party liable for the payment of the Obligations, shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum amount permitted by law;
(c) Any such excess interest which may have been collected shall
be, at the option of the holder of the instrument evidencing the Obligations,
either applied as a credit against the unpaid principal amount thereof or
refunded to the maker thereof; and
(d) The effective rate of interest shall be automatically subject
to reduction to the maximum lawful contract rate allowed under the usury laws of
the State of Florida as now or hereafter construed by any court of competent
jurisdiction.
9. Attorney's Fees. In the event that it should become necessary for
----------------
any party entitled hereunder to bring suit against the other party to this
Agreement for enforcement of the covenants herein contained, the parties hereby
covenant and agree that the party who is found to be in violation of said
covenants shall also be liable for all reasonable attorney's fees and costs of
court incurred by the other party hereto.
10. Benefit. All the terms and provisions of this Agreement shall be
-------
binding upon and inure to the benefit of and be enforceable by the parties
hereto, and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
4
11. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and delivered personally or sent by registered or
certified United States mail, return receipt requested with postage prepaid, by
facsimile, or by e-mail, if to the Secured Party, addressed c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Esq., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopier
(____) _______, and e-mail ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇; and if to the Debtor, addressed
to ▇▇. ▇▇▇▇▇ ▇. ▇▇▇, ▇▇. at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopier (▇▇▇) ▇▇▇-▇▇▇▇, and email ▇▇▇▇@▇▇▇▇▇▇.▇▇▇. Any party
hereto may change its address upon 10 days' written notice to any other party
hereto.
12. Construction. Words of any gender used in this Agreement shall be
------------
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise. In addition, the pronouns used in this Agreement shall be understood
and construed to apply whether the party referred to is an individual,
partnership, joint venture, corporation or an individual or individuals doing
business under a firm or trade name, and the masculine, feminine and neuter
pronouns shall each include the other and may be used interchangeably with the
same meaning.
13. Waiver. No course of dealing on the part of any party hereto or
------
its agents, or any failure or delay by any such party with respect to exercising
any right, power or privilege of such party under this Agreement or any
instrument referred to herein shall operate as a waiver thereof, and any single
or partial exercise of any such right, power or privilege shall not preclude any
later exercise thereof or any exercise of any other right, power or privilege
hereunder or thereunder.
14. Cumulative Rights. The rights and remedies of any party under this
-----------------
Agreement and the instruments executed or to be executed in connection herewith,
or any of them, shall be cumulative and the exercise or partial exercise of any
such right or remedy shall not preclude the exercise of any other right or
remedy.
15. Invalidity. In the event any one or more of the provisions
----------
contained in this Agreement or in any instrument referred to herein or executed
in connection herewith shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect the other provisions of this Agreement or any such other
instrument.
16. Time of the Essence. Time is of the essence of this Agreement.
----------------------
17. Headings. The headings used in this Agreement are for convenience
--------
and reference only and in no way define, limit, simplify or describe the scope
or intent of this Agreement, and in no way effect or constitute a part of this
Agreement.
18. Excusable Delay. None of the parties hereto shall be obligated to
----------------
perform and none shall be deemed to be in default hereunder, if the performance
of a non-monetary obligation is prevented by the occurrence of any of the
following, other than as the result of the financial inability of the party
obligated to perform: acts of God, strikes, lock-outs, other industrial
disturbances, acts of a public enemy, terrorists, wars or war-like action
(whether actual, impending or expected and whether de jure or de facto), arrest
or other restraint of governmental (civil or military) blockades, insurrections,
riots, epidemics, landslides, lightning, earthquakes, fires, hurricanes, storms,
floods, washouts, sink holes, civil disturbances, explosions, breakage or
accident to equipment or machinery, confiscation or seizure by any government of
public authority, nuclear reaction or radiation, radioactive contamination or
other causes, whether of the kind herein enumerated, or otherwise, that are not
reasonably within the control of the party claiming the right to delay
performance on account of such occurrence.
19. Incorporation by Reference. The Securities Purchase Agreement, the
--------------------------
Convertible Debenture, the Warrants, the Registration Rights Agreement, the
Security Agreement, the Escrow Shares Agreement, and the Irrevocable Transfer
Agent Instructions, the Escrow Agreement or any of the Attachments referred to
therein, constitute integral parts to this Agreement and are incorporated into
this Agreement by this reference.
20. Multiple Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A facsimile transmission
of an executed copy as well as a PDF copy of an executed copy of this Agreement
shall be deemed to be an original.
5
21. Controlling Agreement. In the event of any conflict between the
----------------------
terms of this Agreement, the Securities Purchase Agreement, the Convertible
Debenture, the Warrants, the Registration Rights Agreement, the Security
Agreement, the Escrow Shares Agreement, and the Irrevocable Transfer Agent
Instructions, the Escrow Agreement or any of the Attachments referred to
therein, the terms of the Securities Purchase Agreement shall control.
22. Law Governing. This Agreement shall be construed and governed by
--------------
the laws of the State of Florida, and all obligations hereunder shall be deemed
performable in Dade County, Florida.
23. Perfection of Title. The parties hereto shall do all other acts
---------------------
and things that may be reasonably necessary or proper, fully or more fully, to
evidence, complete or perfect this Agreement, and to carry out the intent of
this Agreement.
24. Entire Agreement. This instrument contains the entire Agreement of
----------------
the parties with respect to the subject matter hereof, and may not be changed
orally, but only by an instrument in writing signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is
sought.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
THE SECURED PARTY:
----------------------------------------
▇▇▇ ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
THE DEBTOR:
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇.
Attachment:
----------
Attachment A The Escrow Agreement
6
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into this ____ day of December,
2005 by and between ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, or their designees
(collectively, the "Secured Party") and ▇▇▇▇▇ ▇. ▇▇▇, ▇▇. (the "Debtor") and
GLAST, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. (the "Escrow Agent").
WHEREAS, the Secured Party, pursuant to that certain Securities Purchase
Agreement of even date herewith (the "Securities Purchase Agreement") has
purchased (i) a $1,000,000 Secured Convertible Debenture (the "Convertible
Debenture"), which shall be convertible, unless redeemed by the Company before
the expiration of 120 days from the Closing Date (as defined in the Securities
Purchase Agreement) (the "Exclusive Redemption Date"), into shares of the common
stock, par value $0.001 (the "Common Stock") (as converted, the "Conversion
Shares") of CHARYS HOLDING COMPANY, INC., a Delaware corporation (the
"Company"), and (ii) warrants (the "Warrants") to purchase an aggregate of
250,000 shares of the Common Stock (the "Warrant Shares") for a total purchase
price of $1,000,000 (the "Purchase Price"); and
WHEREAS, all capitalized terms not otherwise defined herein shall have the
same meaning as defined in the Securities Purchase Agreement and all Attachments
thereto; and
WHEREAS, the Debtor owns 2,185,150 shares of the Common Stock and 1,000,000
shares of the Series A preferred stock of the Company, par value $0.001 per
share (the "Preferred Stock"); and
WHEREAS, to secure the payment of the Convertible Debenture and all of the
Obligations described in the Securities Purchase Agreement and all Attachments
thereto, the Debtor has executed and delivered to the Secured Party that one
certain Stock Pledge Agreement of even date herewith (the "Stock Pledge
Agreement"); and
WHEREAS, the Securities Purchase Agreement provides for an escrow as
therein provided;
NOW, THEREFORE, in consideration of the foregoing and the following mutual
covenants and agreements, the parties hereto agree as follows:
1. Creation of Escrow. The Debtor has delivered into escrow with the
--------------------
Escrow Agent, the receipt of which is hereby acknowledged by the Escrow Agent,
2,185,150 shares of the Common Stock and 950,000 shares of the Preferred Stock
(the "Escrowed Shares"). The Escrowed Shares have been accompanied by stock
powers duly executed by the Debtor in favor of the Secured Party, which will be
utilized to transfer the Escrowed Shares to the Secured Party upon an Event of
Default as defined in the Stock Pledge Agreement.
2. Voting Rights. So long as no Event of Default has occurred and
--------------
remains uncured for the applicable grace period under the Securities Purchase
Agreement, the Convertible Debenture, the Warrants, the Registration Rights
Agreement, the Security Agreement, the Escrow Shares Agreement, and the
Irrevocable Transfer Agent Instructions, the Stock Pledge Agreement or any of
the Attachments referred to therein, or this Agreement, the Debtor shall have
the right to vote all of the Escrowed Shares, and the Secured Party shall on
demand execute and deliver an effective proxy or proxies in favor of the Debtor,
whenever demand is made upon the Secured Party for such proxy or proxies by the
Debtor. Upon any Event of Default, all voting rights with respect to the
Escrowed Shares shall be vested in the Secured Party.
3. Duty of the Escrow Agent. The sole duty of the Escrow Agent, other
-------------------------
than as hereinafter specified, shall be to receive the Escrowed Shares and hold
them subject to release, in accordance with this Agreement.
4. Release of the Escrowed Shares and Termination. The Escrow Agent
-------------------------------------------------
shall release the Escrowed Shares upon receipt of written notice of the
satisfaction of all of the terms of the Securities Purchase Agreement, the
Convertible Debenture, the Warrants, the Registration Rights Agreement, the
Security Agreement, the Escrow Shares Agreement, and the Irrevocable Transfer
Agent Instructions, the Stock Pledge Agreement or any of the Attachments
referred to therein, and this Agreement. Upon the complete delivery of the
Escrowed Shares by the
1
Escrow Agent to the Debtor in accordance with the distribution terms hereinabove
set forth, the Escrow Agent shall be relieved of all liabilities in connection
with the Escrow Account and this Agreement shall terminate.
5. Liability of the Escrow Agent. The duties of the Escrow Agent
---------------------------------
hereunder will be limited to observance of the express provisions of this
Agreement. Furthermore, the Escrow Agent is not expected or required to be
familiar with the provisions of any other writing, understanding or agreement,
and shall not be charged with any responsibility or liability in connection with
the observance or non-observance of the provisions of such other writing,
understanding or agreement, and no implied covenant of any type whatsoever shall
be read into this Agreement. The Escrow Agent may rely and act upon any
instrument received by it pursuant to this Agreement which it reasonably
believes to be in conformity with the requirements of this Agreement and the
Escrow Agent shall not be responsible for determining the genuineness,
authenticity of authority from any such instrument or the person signing same.
The Escrow Agent will not be liable for any action taken or not taken by it
under the terms of this Agreement in the absence of fraud or gross negligence on
its part.
The further provisions shall govern the Escrow Agent's liabilities
hereunder:
(a) In receiving the Escrowed Shares, the Escrow Agent acts only
as a depository and thereby assumes no responsibility, except pursuant to the
terms of this Agreement.
(b) The Escrow Agent may act or refrain from acting in respect of
any matter covered by this Agreement in full reliance upon and with the advice
of counsel which may be selected by it, and shall be fully protected in so
acting or in refraining from acting upon the advice of such counsel.
Furthermore, the Escrow Agent may rely and shall be protected in acting upon any
writing that may be submitted to it in connection with its duties hereunder
without determining the genuineness, authenticity or due authority from any such
writing or the person signing same and shall have no liability or responsibility
with respect to the form, content or validity thereof.
(c) The Escrow Agent shall have no responsibility or liability for
any act or omission on its part, notwithstanding any demand or notice to the
contrary by the Secured Party or any other person or entity, all subject to the
sole limitation that the Escrow Agent exercises its best judgment. Except as
herein expressly provided, none of the provisions of this Agreement shall
require the Escrow Agent to expend or risk its own funds or otherwise incur
financial liability or expense in the performance of any of its duties
hereunder.
(d) The Escrow Agent is hereby authorized to comply with and obey
all orders, judgments, decrees or writs entered or issued by any court, and in
the event the Escrow Agent obeys or complies with any such order, judgment,
decree or writ, in whole or in part, it shall not be liable to the Secured Party
and the Debtor or any other parties to this Agreement, or to any other person or
entity, by reason or such compliance, notwithstanding that it shall be
determined that any such order, judgment, decree or writ be entered without
jurisdiction or be invalid for any reason or be subsequently reversed, modified,
annulled, satisfied or vacated.
(e) The Escrow Agent shall not be required to institute or defend
any action or legal process involving any matter referred to herein which in any
manner affects its duties or liabilities hereunder to take any other action with
reference to the Escrowed Shares not specifically agreed to herein, and the
Escrow Agent shall not be responsible for any act or failure to act on its part
except in the case of its own fraud or gross negligence.
(f) Should any controversy arise between the Escrow Agent, the
Secured Party, or the Debtor or between any other person or entity with respect
to this Agreement, or with respect to the ownership of or the right to receive
the Escrowed Shares, the Escrow Agent shall have the right to institute a plea
of interpleader in any court of competent jurisdiction to determine the rights
of the parties. Should a plea of interpleader be instituted, or should the
Escrow Agent become involved in litigation in any manner whatsoever connected
with or pertaining to this Agreement or the Escrowed Shares, the Secured Party
and the Debtor hereby agree to pay the Escrow Agent, on demand, in addition to
any charge made hereunder for acting as escrow agent, reasonable attorneys' fees
incurred by the Escrow Agent, and any other disbursements, expenses, losses,
costs, and damages in connection with or resulting from such litigation.
2
6. Indemnification. The Secured Party and the Debtor hereby agree to
---------------
indemnify and hold the Escrow Agent harmless from and against any and all
claims, loses, liabilities, costs, damages, fees charges and expenses (including
attorneys' fees) which the Escrow Agent may incur or sustain by reason of its
acting as Escrow Agent under this Agreement, unless same shall result from the
fraud or gross negligence of the Escrow Agent.
7. Resignation. The Escrow Agent may resign as escrow agent at any
-----------
time by giving the Secured Party and the Debtor at least 10 days' prior written
notice of such resignation. If, on the effective date of such resignation, the
Escrow Agent has not received written instructions of appointment of a successor
escrow agent, the Escrow Agent may thereupon deposit the Escrowed Shares and
stock powers into the registry of a court of competent jurisdiction. The
parties hereto intend that a substitute escrow agent will be appointed to
fulfill the duties of the Escrow Agent hereunder for the remaining term of this
Agreement in the event of the Escrow Agent's resignation, and the Secured Party
and the Debtor will use their best efforts to promptly appoint a substitute
Escrow Agent who shall be bound by the terms and provisions of this Agreement.
8. Termination and Amendment. This Agreement shall remain in effect
---------------------------
until the Escrowed Shares are delivered in accordance herewith; provided that
any escrow agent hereunder who resigns in accordance with the terms hereof shall
no longer be bound by this Agreement, but this Agreement shall remain in effect,
notwithstanding such resignation, for purposes of determining the rights and
duties of the Secured Party and the Debtor and any successor escrow agent. No
amendment or modification to this Agreement shall be in force or effect unless
signed by the parties hereto.
9. No Trusteeship. The Secured Party and the Debtor agree that the
---------------
Escrow Agent is acting solely as an escrowee hereunder and not as a trustee and
that the Escrow Agent has no fiduciary duties, obligations or liabilities under
this Agreement.
10. Confidentiality. Except as required by applicable law, legal
---------------
process or other legal compulsion, the Escrow Agent shall hold all information
relating to the transactions contemplated by this Agreement in strict confidence
and under no circumstance shall any of the terms and conditions or the
participants involved be disclosed, unless such disclosure is mandated by
applicable law.
11. No Contracts, Arrangements, Understandings or Relationships with
-------------------------------------------------------------------
Respect to Securities. Other than as described herein, there are no contracts,
----------------------
arrangements, understandings or relationships (legal or otherwise) by any party
to this Agreement or the Securities Purchase Agreement, the Convertible
Debenture, the Warrants, the Registration Rights Agreement, the Security
Agreement, the Escrow Shares Agreement, and the Irrevocable Transfer Agent
Instructions, the Stock Pledge Agreement or any of the Attachments referred to
therein, or any other person with respect to the Escrowed Shares, or any other
securities of the Company, including but not limited to transfer or voting of
any of the Escrowed Shares, or any other securities of the Company, finder's
fees, joint ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss, or the giving or withholding of proxies.
12. Attorneys' Fees. In the event that it should become necessary for
----------------
any party entitled hereunder to bring suit against any other party for
enforcement of the covenants contained herein, the parties hereby covenant and
agree that the party who is found to be in violation of this Agreement shall
also be liable to the other parties for all reasonable attorneys' fees and costs
of court incurred by such other parties.
13. Benefit. The terms and provisions of this Agreement shall be
-------
binding upon, inure to the benefit of and be enforceable by, the parties hereto
and their respective successors and permitted assigns.
14. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and delivered personally or sent by registered or
certified United States mail, return receipt requested with postage prepaid, by
facsimile, or by e-mail, if to the Secured Party, addressed c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Esq., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopier
(____) _______, and e-mail ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇; and if to the Debtor, addressed
to ▇▇. ▇▇▇▇▇ ▇. ▇▇▇, ▇▇. at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopier (▇▇▇) ▇▇▇-▇▇▇▇, and email ▇▇▇▇@▇▇▇▇▇▇.▇▇▇.; and if to
the Escrow Agent, addressed to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq., Glast, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, P.C., at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, telecopier
3
(▇▇▇) ▇▇▇-▇▇▇▇, and e-mail ▇▇▇▇▇▇▇▇▇@▇▇▇-▇▇▇.▇▇▇. Any party may change its
address for purposes of receiving notices pursuant to this Agreement upon 10
days written notice.
15. Construction. Words of any gender used in this Agreement shall be
------------
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise. In addition, the pronouns used in this Agreement shall be understood
and construed to apply whether the party referred to is an individual,
partnership, joint venture, corporation or an individual or individuals doing
business under a firm or trade name, and the masculine, feminine and neuter
pronouns shall each include the other and may be used interchangeably with the
same meaning.
16. Waiver. No course of dealing on the part of any party hereto or
------
its agents, or any failure or delay by any such party with respect to exercising
any right, power or privilege of such party under this Agreement or any
instrument referred to herein shall operate as a waiver thereof, and any single
or partial exercise of any such right, power or privilege shall not preclude any
later exercise thereof or any exercise of any other right, power or privilege
hereunder or thereunder.
17. Representations, Warranties and Agreements to Survive. All
----------------------------------------------------------
indemnity agreements set forth in this Agreement, as well as all
representations, warranties, covenants and other agreements set forth in this
Agreement shall remain operative and in full force and effect at the termination
of this Agreement, and any successor of the parties shall be entitled to the
benefit of the respective representations, warranties and agreements made
herein.
18. Cumulative Rights. The rights and remedies contained in this
------------------
Agreement shall be cumulative and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any other right or remedy.
19. Invalidity. In the event any one or more of the provisions
----------
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement or any
such other instrument.
20. Headings. The headings used in this Agreement are for convenience
--------
and reference only and in no way define, limit, amplify or describe the scope or
intent of this Agreement, and do not effect or constitute a part of this
Agreement.
21. Excusable Delay. The parties shall not be obligated to perform and
---------------
shall not be deemed to be in default hereunder, if the performance of a
non-monetary obligation required hereunder is prevented by the occurrence of any
of the following, other than as the result of the financial inability of the
party obligated to perform: acts of God, strikes, lock-outs, other industrial
disturbances, acts of a public enemy, war or war-like action (whether actual,
impending or expected and whether de jure or de facto), acts of terrorists,
arrest or other restraint of governmental (civil or military), blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
hurricanes, storms, floods, washouts, sink holes, civil disturbances,
explosions, breakage or accident to equipment or machinery, confiscation or
seizure by any government of public authority, nuclear reaction or radiation,
radioactive contamination or other causes, whether of the kind herein enumerated
or otherwise, that are not reasonably within the control of the party claiming
the right to delay performance on account of such occurrence.
22. No Third-Party Beneficiary. Any agreement to pay an amount and any
--------------------------
assumption of liability contained in this Agreement, express or implied, shall
be only for the benefit of the undersigned parties and their respective
successors and assigns (as herein expressly permitted), and such agreements and
assumptions shall not inure to the benefit of the obligees or any other party,
whomsoever, it being the intention of the parties hereto that no one shall be or
be deemed to be a third-party beneficiary of this Agreement.
23. Governing law; Jurisdiction. This Agreement shall be governed by
-----------------------------
and construed in accordance with the laws of the State of Texas without regard
to any conflicts of laws provisions thereof. Each party hereby irrevocably
submits to the personal jurisdiction of the United States District Court located
in Houston, Texas, as well as of the District Courts of the State of Texas in
Houston, Texas over any suit, action or proceeding arising out of or
4
relating to this Agreement. Each party hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such mediation, arbitration, suit, action
or proceeding brought in any such county and any claim that any such mediation,
arbitration, suit, action or proceeding brought in such county has been brought
in an inconvenient forum.
24. Incorporation by Reference. The Securities Purchase Agreement, the
--------------------------
Convertible Debenture, the Warrants, the Registration Rights Agreement, the
Security Agreement, the Escrow Shares Agreement, and the Irrevocable Transfer
Agent Instructions, the Stock Pledge Agreement or any of the Attachments
referred to therein, constitute integral parts to this Agreement and are
incorporated into this Agreement by this reference.
25. Multiple Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A facsimile transmission
of an executed copy as well as a PDF copy of an executed copy of this Agreement
shall be deemed to be an original.
26. Controlling Agreement. In the event of any conflict between the
----------------------
terms of this Agreement, the Securities Purchase Agreement, the Convertible
Debenture, the Warrants, the Registration Rights Agreement, the Security
Agreement, the Escrow Shares Agreement, and the Irrevocable Transfer Agent
Instructions, the Stock Pledge Agreement or any of the Attachments referred to
therein, the terms of the Securities Purchase Agreement shall control.
27. Entire Agreement. This instrument contains the entire
-----------------
understanding of the parties with respect to the subject matter hereof, and may
not be changed orally, but only by an instrument in writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
----------------------------------------
▇▇▇ ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇.
GLAST, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
By
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
5
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
---------------------------------------
December ___, 2005
Fidelity Transfer Company
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
RE: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated December ___, 2005, by and between
-------------------------------
Charys Holding Company Inc., a Delaware corporation (the "Company"), and ▇▇▇
-------
▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, or their designees (collectively, the "Buyer") and
-----
that certain Escrow Shares Escrow Agreement (the "Escrow Agreement") of even
----------------
date herewith among the Company, the Buyer and Glast, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.,
as escrow agent (the "Escrow Agent"). Pursuant to the Securities Purchase
-------------
Agreement, the Company shall sell to the Buyer, and the Buyer shall purchase
from the Company, one or more convertible debentures (collectively referred to
herein as the "Debenture") in the aggregate principal amount of $1,000,000, plus
---------
accrued interest, which are convertible into shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), at the Buyer's
-------------
discretion unless earlier redeemed in full by the Company. These instructions
relate to the following stock or proposed stock issuances or transfers:
The Company has agreed to issue to the Buyer (i) up to 1,250,000 shares of
the Common Stock upon conversion of the Debenture ("Conversion Shares"),
-----------------
including the shares of the Common Stock to be issued to the Buyer upon
conversion of accrued interest into Common Stock and (ii) 250,000 shares of the
Common Stock upon exercise of the Warrant (as defined in the Securities Purchase
Agreement) (the "Warrant Shares") if and to the extent required under the
---------------
Securities Purchase Agreement.
The Company has issued 1,500,000 shares of Common Stock (the "Escrow
------
Shares") in the Buyer's name that have been or are being delivered to the Escrow
------
Agent pursuant to the Securities Purchase Agreement and the Escrow Agreement.
This letter shall serve as our irrevocable authorization and direction to
Fidelity Transfer Company (the "Transfer Agent") to do the following:
---------------
1. Conversion Shares.
------------------
(a) Instructions Applicable to Transfer Agent. With respect to
the Conversion Shares and the Warrant Shares, the Transfer Agent shall issue the
Conversion Shares or the Warrant Shares to the Buyer from time to time upon
delivery to the Transfer Agent of a properly completed and duly executed
Conversion Notice (the "Conversion Notice"), in the form attached hereto as
------------------
Exhibit I, delivered on behalf of the Company to the Transfer Agent by the
----------
Escrow Agent or a properly completed and duly executed notice of exercise
substantially in the form attached to the Warrant (the "Exercise Notice"),
---------------
respectively. Unless the Company shall have delivered in good faith its notice
of objection only to the calculation of the Conversion Shares to the Transfer
Agent and Escrow Agent within one (1) business day of its receipt of the
Conversion Notice, upon receipt of a Conversion Notice or Exercise Notice, the
Transfer Agent shall within three (3) Trading Days thereafter (i) issue and
surrender to a common carrier for overnight delivery to the address as specified
in the Conversion Notice or Exercise Notice, a certificate or certificates,
registered in the name of the Buyer or its designees, for the number of shares
of Common Stock to which the Buyer shall be entitled as set forth in the
Conversion Notice or Exercise Notice or (ii) provided that the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
---
Transfer Program, upon the request of the Buyer, credit such aggregate number of
shares of Common Stock to which the
1
Buyer shall be entitled to the Buyer's or its designees' balance account with
DTC through their Deposit Withdrawal At Custodian ("DWAC") system provided the
----
Buyer causes its bank or broker to initiate the DWAC transaction. For purposes
hereof, "Trading Day" shall mean any day on which the Nasdaq National Market is
-----------
open for customary trading.
(b) The Company hereby confirms to the Transfer Agent and the
Buyer that certificates representing the Conversion Shares and Warrant Shares
shall not bear any legend restricting transfer and should not be subject to any
stop-transfer restrictions and shall otherwise be freely transferable on the
books and records of the Company; provided that counsel to the Company delivers
(i) the Notice of Effectiveness set forth in Exhibit II attached hereto and (ii)
----------
an opinion of counsel in the form set forth in Exhibit III attached hereto, and
-----------
that if the Conversion Shares and the Warrant Shares are not registered for
resale under the Securities Act of 1933, as amended (the "Securities Act"), then
the provisions of paragraph 1(a)(ii), above, shall not be applicable until such
shares are registered, and the certificates for the Conversion Shares and
Warrant Shares shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT."
In the event such number of Conversion Shares or Warrant Shares are issued
to the Buyer such that the Buyer would be considered an "affiliate" of the
Company as defined under Rule 144 of the Securities Act or in the event the
Transfer Agent determines that the Buyer would otherwise be considered an
affiliate of the Company under Rule 144 of the Securities Act, then the
certificates for the Conversion Shares and/or Warrant Shares shall bear a legend
in substantially the following form:
THE REGISTERED HOLDER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE AN AFFILIATE (AS SUCH TERM IS DEFINED BY RULE 144 ("RULE 144")
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT")) OF THE COMPANY. IF SUCH HOLDER IS AN AFFILIATE OF
THE COMPANY, THESE SHARES MAY ONLY BE SOLD, TRANSFERRED OR ASSIGNED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR IN ACCORDANCE WITH THE TERMS OF RULE 144 OR ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
The Transfer Agent herby acknowledges that the Escrow Shares are not held
by an affiliate, as defined under Rule 144 of the Securities Act, and that, as
such, the foregoing legend will not be included on any certificate or
certificates representing the Escrow Shares so long as such Escrow Shares are
held in escrow by the Escrow Agent under the Escrow Agreement.
(c) In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Conversion Shares or Warrant Shares
in accordance with the preceding paragraph (either with or without restrictive
legends, as applicable), then the Company irrevocably and expressly authorizes
counsel to the Buyer to render such opinion. The Transfer Agent shall accept
and be entitled to rely on such opinion for the purposes of issuing the
Conversion Shares and Warrant Shares.
(d) Instructions Applicable to Escrow Agent. Upon the Escrow
Agent's receipt of a properly completed Conversion Notice and/or the Exercise
Notice, the Escrow Agent shall, within one (1) Trading Day
2
thereafter, send to the Transfer Agent a Conversion Notice and/or the Exercise
Notice in the form attached hereto as Exhibit I, which shall constitute an
---------
irrevocable instruction to the Transfer Agent to process such Conversion Notice
in accordance with the terms of these instructions. The Transfer Agent shall
not process such Conversion Notice to the extent the Company has delivered a
written objection delivered in good faith by the Company as to only the
calculation of the Conversion Shares to the Transfer Agent and the Escrow Agent.
2. Escrow Shares.
(a) If the Escrow Agent sends the Escrow Shares to the Transfer
Agent for removal of the restrictive legend, the Company hereby confirms that
the Transfer Agent shall reissue to the Escrow Agent the Escrow Shares which
shall not bear any legend restricting transfer and should not be subject to any
stop-transfer restrictions and shall otherwise be freely transferable on the
books and records of the Company; provided that counsel to the Company delivers
(i) the Notice of Effectiveness set forth in Exhibit II attached hereto and (ii)
----------
an opinion of counsel in the form set forth in Exhibit III attached hereto, or
-----------
counsel to the Company shall issue a legal opinion to the Company's Transfer
Agent that the legend shall be removed pursuant to Rule 144, Rule 144(k) or
applicable requirements of the Securities Act.
(b) In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Escrow Shares in accordance with the
preceding paragraph (either with or without restrictive legends, as applicable),
then the Company irrevocably and expressly authorizes counsel to the Buyer to
render such opinion. The Transfer Agent shall accept and be entitled to rely on
such opinion for the purposes of issuing the Escrow Shares without a legend.
3. All Shares.
(a) The Transfer Agent shall reserve for issuance to the Buyer the
Conversion Shares and Warrant Shares. All such shares shall remain in reserve
with the Transfer Agent until the Buyer provides the Transfer Agent instructions
that the shares or any part of them shall be taken out of reserve and shall no
longer be subject to the terms of these instructions. Notwithstanding the
foregoing, in the event the Company redeems the Convertible Debenture in full
prior to any conversion thereof by the Buyer, the Conversion Shares shall be
taken out of reserve upon receipt by the Transfer Agent of the Company's
Redemption Notice and evidence of payment of the Redemption Price, whereupon the
Conversion Shares shall no longer be subject to the terms of these instructions
and the Escrow Agent shall deliver the certificates therefor to the Company for
cancellation.
(b) Unless the Company has delivered its written objection in good
faith as only to the calculation of the Conversion Shares under Section 1(a)
above, the Transfer Agent shall rely exclusively on the Conversion Notice and
Exercise Notice and shall have no liability for relying on such instructions.
Any Conversion Notice delivered hereunder shall constitute an irrevocable
instruction to the Transfer Agent to process such notice or notices in
accordance with the terms thereof subject only to any written objection of the
Company delivered to the Transfer Agent and the Escrow Agent. Such notice or
notices may be transmitted to the Transfer Agent by facsimile or any
commercially reasonable method.
(c) The Company hereby confirms to the Transfer Agent and the
Buyer that no instructions other than as contemplated herein will be given to
Transfer Agent by the Company with respect to the matters referenced herein.
The Company hereby authorizes the Transfer Agent, and the Transfer Agent shall
be obligated, to disregard any contrary instructions received by or on behalf of
the Company; provided that the Transfer Agent shall not disregard any written
notice delivered by the Company within one (1) business day of its receipt of
the Conversion Notice objecting to only the calculation of the Conversion Shares
and such shares shall not be issued until any dispute regarding the calculation
of the Conversion Shares is resolved among the parties.
4. Certain Notice Regarding the Escrow Agent. THE COMPANY AND THE
TRANSFER AGENT HEREBY ACKNOWLEDGE THAT THE ESCROW AGENT IS GENERAL COUNSEL TO
THE BUYER, THE MANAGING PARTNER OF THE ESCROW AGENT IS A DIRECTOR OF THE BUYER
AND COUNSEL TO THE BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED AND
REFERRED HEREIN. The parties agree that in the event of any dispute arising in
connection with this Agreement or otherwise in connection with any transaction
or agreement contemplated and referred herein, the Escrow Agent shall not be
permitted to continue to represent the Buyer in any dispute between the Company
and the Buyer.
3
The Company hereby agrees that it shall not replace the Transfer Agent as
the Company's Transfer Agent without the prior written consent of the Buyer
unless otherwise permitted by the Securities Purchase Agreement.
Any attempt by Transfer Agent to resign as the Company's transfer agent
hereunder shall not be effective until such time as the Company provides to the
Transfer Agent written notice that a suitable replacement has agreed to serve as
transfer agent and to be bound by the terms and conditions of these Irrevocable
Transfer Agent Instructions; provided, however, that if no such suitable
replacement has so agreed within thirty (30) days following the date of the
Transfer Agent's resignation, such resignation will be considered effective at
midnight, Eastern Time, on such thirtieth (30th) day.
The Company and the Transfer Agent hereby acknowledge and confirm that
complying with the terms of this Agreement does not and shall not prohibit the
Transfer Agent from satisfying any and all fiduciary responsibilities and duties
it may owe to the Company.
The Company and the Transfer Agent acknowledge that the Buyer is relying on
the representations and covenants made by the Company and the Transfer Agent
hereunder and such representations and covenants are a material inducement to
the Buyer purchasing convertible debentures under the Securities Purchase
Agreement. The Company and the Transfer Agent further acknowledge that without
such representations and covenants of the Company and the Transfer Agent made
hereunder, the Buyer would not purchase the Debenture.
Each party hereto specifically acknowledges and agrees that in the event of
a breach or threatened breach by a party hereto of any provision hereof, the
Buyer will be irreparably damaged and that damages at law would be an inadequate
remedy if these Irrevocable Transfer Agent Instructions were not specifically
enforced. Therefore, in the event of a breach or threatened breach by a party
hereto, including, without limitation, the attempted termination of the agency
relationship created by this instrument, the Buyer shall be entitled, in
addition to all other rights or remedies, to an injunction restraining such
breach, without being required to show any actual damage or to post any bond or
other security, and/or to a decree for specific performance of the provisions of
these Irrevocable Transfer Agent Instructions.
IN WITNESS WHEREOF, the parties have caused this letter agreement regarding
Irrevocable Transfer Agent Instructions to be duly executed and delivered as of
the date first written above.
CHARYS HOLDING COMPANY INC.
By
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Financial Officer
----------------------------------------
▇▇▇ ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
4
EXHIBIT I
---------
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
------------------------------------------
FORM OF CONVERSION NOTICE
-------------------------
Reference is made to the Securities Purchase Agreement (the "Securities Purchase
-------------------
Agreement") between Charys Holding Company Inc., (the "Company"), and ▇▇▇ ▇▇▇▇▇▇
--------- -------
and ▇▇▇▇▇▇ ▇▇▇▇▇▇, dated December ___, 2005. In accordance with and pursuant to
the Securities Purchase Agreement, the undersigned hereby elects to convert
convertible debentures into shares of common stock, par value $0.001 per share
(the "Common Stock"), of the Company for the amount indicated below as of the
-------------
date specified below.
Conversion Date:
------------------------------------
Amount to be converted: $
----------------------------------
Conversion Price (indicate the basis therefor): $
----------------------------------
Shares of Common Stock Issuable:
------------------------------------
Amount of Debenture unconverted: $
----------------------------------
Amount of Interest Converted: $
----------------------------------
Conversion Price of Interest (using same basis as above): $
----------------------------------
Shares of Common Stock Issuable:
------------------------------------
Total Number of shares of Common Stock to be issued:
------------------------------------
Please issue the shares of Common Stock in the following name and to the
following address:
Issue to:
------------------------------------
Authorized Signature:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
Phone #:
------------------------------------
Broker DTC Participant Code:
------------------------------------
Account Number*:
------------------------------------
* NOTE THAT RECEIVING BROKER MUST INITIATE TRANSACTION ON DWAC SYSTEM.
EXHIBIT II
----------
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
------------------------------------------
FORM OF NOTICE OF EFFECTIVENESS
-------------------------------
OF REGISTRATION STATEMENT
-------------------------
__________, 2006
RE: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We are counsel to Charys Holding Company Inc., (the "Company"), and have
-------
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of December ___, 2005 (the "Securities Purchase Agreement"),
-----------------------------
entered into by and among the Company and ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
(collectively, the "Buyer") pursuant to which the Company has agreed to sell to
-----
the Buyer (i) $1,000,000 of secured convertible debentures (the "Convertible
-----------
Debenture"), which shall be convertible into shares (the "Conversion Shares") of
--------- -----------------
the Company's common stock, par value $0.001 per share (the "Common Stock"),
------------
(ii) 250,000 shares of Common Stock pursuant to a warrant (the "Warrant") in
-------
accordance with the terms of the Securities Purchase Agreement (the "Warrant
-------
Shares"). The Company has delivered to the Escrow Agent an aggregate of
------
1,500,000 shares of the Common Stock to be held in escrow (the "Escrow Shares")
for purposes of effectuating the delivery of the Conversation Shares and Warrant
Shares upon conversion and/or exercise of the Convertible Debenture and Warrant,
as the case may be. Pursuant to the Securities Purchase Agreement, the Company
also has entered into a Registration Rights Agreement, dated as of December ___,
2005, with the Buyer (the "Investor Registration Rights Agreement") pursuant to
--------------------------------------
which the Company agreed, among other things, to provide certain registration
rights with respect to the Conversion Shares, the Escrow Shares and the Warrant
Shares under the Securities Act of 1933, as amended (the "1933 Act"). In
--------
connection with the Company's obligations under the Securities Purchase
Agreement and the Registration Rights Agreement, on _______, 2006, the Company
filed a Registration Statement (File No. ___-_________) (the "Registration
------------
Statement") with the Securities and Exchange Commission (the "SEC") relating to
--------- ---
the sale of the Conversion Shares, the Escrow Shares and the Warrant Shares.
In connection with the foregoing, we advise the Transfer Agent that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
____ P.M. on __________, 2006 and we have no knowledge, after telephonic inquiry
of a member of the SEC's staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Conversion Shares and the Warrant Shares are
available for sale under the 1933 Act pursuant to the Registration Statement.
The Buyer has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Conversion Shares and the Warrant Shares.
Very truly yours,
By:
-------------------------------------
EXHIBIT III
-----------
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
------------------------------------------
FORM OF INSTRUCTIONS REGARDING REMOVAL OF LEGEND
------------------------------------------------
____________, 2006
VIA FACSIMILE AND REGULAR MAIL
------------------------------
Attention:
RE: CHARYS HOLDING COMPANY INC.
Ladies and Gentlemen:
We have acted as counsel to Charys Holding Company Inc. (the "Company"), in
-------
connection with the registration of ___________shares (the "Shares") of its
------
common stock with the Securities and Exchange Commission (the "SEC"). We have
---
not acted as your counsel. These instructions are given at the request and with
the consent of the Company.
In rendering these instructions we have relied on the accuracy of the Company's
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
----------------------
filed by the Company with the SEC on _________ ___, 2006. The Company filed the
Registration Statement on behalf of certain selling stockholders (the "Selling
-------
Stockholders"). These instructions relate solely to the Selling Shareholders
------------
listed on Exhibit "A" hereto and number of Shares set forth opposite such
------------
Selling Stockholders' names. The SEC declared the Registration Statement
effective on __________ ___, 2006.
We understand that the Selling Stockholders acquired the Shares in a private
offering exempt from registration under the Securities Act of 1933, as amended.
Information regarding the Shares to be resold by the Selling Shareholders is
contained under the heading "Selling Stockholders" in the Registration
Statement, which information is incorporated herein by reference. These
instructions do not relate to the issuance of the Shares to the Selling
Stockholders. The instructions set forth herein relate solely to the resale or
transfer by the Selling Stockholders pursuant to the Registration Statement
under the Federal laws of the United States of America. We do not express any
views concerning any law of any state or other jurisdiction.
In rendering these instructions we have relied upon the accuracy of the
foregoing statements.
Based on the foregoing, you are advised that the Shares have been registered
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and that the Transfer Agent may issue the Shares without restrictive
legends or the Transfer Agent may remove the restrictive legends contained on
the Shares. These instructions relate solely to the number of Shares set forth
opposite the Selling Stockholders listed on Exhibit "A" hereto.
-----------
These instructions are furnished to Transfer Agent specifically in connection
with the issuance of the Shares, and solely for your information and benefit.
This letter may not be relied upon by Transfer Agent in any other connection,
and it may not be relied upon by any other person or entity for any purpose
without our prior written consent. This letter may not be assigned, quoted or
used without our prior written consent. The instructions set forth herein are
rendered as of the date hereof, and we will not supplement these instructions
with respect to changes in the law or factual matters subsequent to the date
hereof.
Very truly yours,
EXHIBIT"A"
----------
(LIST OF SELLING STOCKHOLDERS)
------------------------------
NAME: NO. OF SHARES:
--------------------------------------------------- --------------------------
EXHIBIT F
CONVERSION PROCEDURES
1. At any time following 120 days from the Closing, and from time to
time thereafter during the term of the Convertible Debenture, the Holder may
deliver to the Escrow Agent written notice (a "Conversion Notice") that it has
-----------------
elected to convert the Convertible Debenture registered in the name of such
Holder in whole or in part in accordance with the terms of the Convertible
Debenture and the Conversion Notice shall be in the form annexed as Exhibit A to
---------
the Convertible Debenture.
2. The Holder shall send by fax or e-mail the executed Conversion
Notice to the Escrow Agent (with a copy to the Company) by 4:00 p.m. Eastern
Time at least one business day prior to the Conversion Date (as defined in the
Convertible Debenture). The Escrow Agent shall send the Conversion Notice by
facsimile or e-mail address to the Company by the end of the business day on the
day received, assuming received by 6:00 p.m. Eastern Time and if thereafter on
the next business day, at the facsimile telephone number or e-mail address, as
the case may be, of the principal place of business of the Company. Each
Company Conversion Notice price adjustment under Article V of the Convertible
Debenture shall be given by facsimile addressed to the Holder of the Convertible
Debenture at the facsimile telephone number of such Holder appearing on the
books of the Company as provided to the Company by such Holder for the purpose
of such Company Conversion Notice price adjustment, with a copy to the Escrow
Agent. Any such notice shall be deemed given and effective upon the
transmission of such facsimile or e-mail at the facsimile telephone number or
e-mail address, as the case may be, specified in this Paragraph 2 (with printed
confirmation of transmission). In the event that the Escrow Agent receives the
Conversion Notice after 4:00 p.m. Eastern Time, the Conversion Notice shall be
deemed to have been received on the next business day. In the event that the
Company receives the Conversion Notice after the end of the business day, notice
will be deemed to have been given the next business day.
3. The Company shall have one business day from transmission of the
Conversion Notice by the Escrow Agent to object only to the calculation of the
number of Conversion Shares to be released out of the Escrow Shares being held
for such purpose. If the Company fails to object to the calculation of the
number of Conversion Shares to be released out of the Escrow Shares within said
time, then the Company shall be deemed to have waived any objections to said
calculation. The Company's only basis for any objection hereunder shall be to
the calculation of the number of Conversion Shares to be released out of the
Escrow Shares. If the Escrow Agent does not receive said objection notice
within the time period set forth above from the Company, and provided that the
Purchaser does not revoke such conversion, the Escrow Agent shall release from
escrow and deliver to the Holder certificates or instruments representing the
number of Conversion Shares issuable to the Holder in accordance with such
conversion on the second business day from the receipt by the Company of the
Conversion Notice. In the event that the certificates evidencing the Conversion
Shares held by the Escrow Agent are not in denominations appropriate for such
delivery to the Holder, the Escrow Agent shall request the Company to cause its
transfer agent and registrar to reissue certificates in smaller denominations.
The Escrow Agent shall, however, immediately release to the requesting Holder
certificates representing such lesser number of shares as the denominations in
its possession will allow that is closest to but no more than the actual number
to be released to such Holder. Upon receipt of the reissued shares in lesser
denominations from the Company's transfer agent, the Escrow Agent shall release
to such Holder the balance of the shares due to such Holder.
4. The Holder shall send the original Convertible Debenture and
Conversion Notice to the Escrow Agent via FedEx or other commercial overnight
courier, along with instructions regarding names and amount of certificates for
the issuance of the Conversion Shares, and, if conversion is not in full,
instructions as to the re-issuance of the balance of the Convertible Debenture;
provided, however, that if the Escrow Agent is holding the Convertible
-------- -------
Debenture, then the Conversion Notice may be faxed or e-mailed and the fee may
be transmitted via wire transfer to the Escrow Agent. The Escrow Agent shall
deliver the foregoing to the Company within one business day of the Escrow
Agent's receipt thereof. In the event that the Escrow Agent has custody of the
Convertible Debenture, the Escrow Agent shall notify the Company and the Holder
in writing of the balance of the Convertible Debenture remaining and the Company
and the Holder shall acknowledge such notice in writing, in lieu of issuance of
a new Convertible Debenture for the balance.
5. If the Company will be issuing a new Convertible Debenture, it will
send such new Convertible Debenture to the Escrow Agent by overnight courier
within five business days of its receipt of the original Convertible Debenture
and Conversion Notice. The Escrow Agent shall send the Conversion Shares to the
Holder in accordance with Holder's instructions within one business day of
receipt of the Conversion Notice and will send the new Convertible Debenture, if
any, to the Holder upon receipt.
6. The Escrow Agent agrees to notify the Company in writing by
facsimile or e-mail each time the Escrow Agent releases Escrow Shares to the
Holder, such notice to be given at least one business day prior to such release.
7. Notwithstanding any of the foregoing provisions to the contrary, in
the event the Company shall have redeemed the Convertible Debenture in
accordance with Section 1.04 thereof, the Escrow Agent shall release back to the
Company all of the Escrow Shares otherwise held in the escrow account for the
purpose of effectuating the conversion of the Convertible Debenture. Said
Escrow Shares shall be distributed to the Company within one business day of the
Escrow Agent's receipt of a copy of the Redemption Notice delivered by the
Company to the Holder together with evidence of payment of the Redemption Price.
8. The procedures set forth in this Exhibit F shall be applicable to
any exercise by the Holder of the Warrants and, in that regard, references to
"Conversion Notice" shall mean "Notice of Exercise" in the form attached to the
certificate for such Warrants and references to "Convertible Debenture" shall
mean the Warrants.
EXHIBIT G
---------
WARRANT
SCHEDULE I
----------
SCHEDULE OF BUYER
-----------------
ADDRESS/FACSIMILE PRINCIPAL AMOUNT OF
NAME NUMBER OF BUYER DEBENTURE
--------------------- ------------------------- ---------------------------
▇▇▇ ▇▇▇▇▇▇ $500,000
▇▇▇▇▇▇ ▇▇▇▇▇▇ $500,000
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
With a copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ___________
Facsimile: ___________
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
SCHEDULE II
-----------
SHARE DENOMINATIONS
-------------------
NAME OF INVESTORS
▇▇▇ ▇▇▇▇▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇
Stock Certificate Denominations for the Escrow Shares in the name of ▇▇▇ ▇▇▇▇▇▇:
625,000.
Stock Certificate Denominations for the Escrow Shares in the name of ▇▇▇▇▇▇
▇▇▇▇▇▇: 625,000.
