[EXHIBIT 10.21]
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is
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dated as of May 6, 2004, by and among Pacific CMA, Inc., a
Delaware corporation (the "Company"), and the purchasers
identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the
"Purchasers").
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WHEREAS, subject to the terms and conditions set forth in
this Agreement and pursuant to Section 4(2) of the Securities Act
(as defined below), and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from
the Company securities of the Company as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants
contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby
acknowledged, the Company and each Purchaser agrees as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined
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elsewhere in this Agreement: (a) capitalized terms that are not
otherwise defined herein have the meanings given to such terms in
the Certificate of Designation (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term
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in Section 3.1(j).
"Actual Minimum" means, as of any date, the maximum
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aggregate number of shares of Common Stock then issued or
potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares
issuable upon exercise or conversion in full of all Warrants
and shares of Preferred Stock, ignoring any conversion or
exercise limits set forth therein, and assuming that any
previously unconverted shares of Preferred Stock are held
until the third anniversary of the Closing Date and all
dividends are paid in shares of Common Stock until such
third anniversary, subject to the limitation on the number
of shares of Common Stock issuable hereunder set forth in
Section 5(a)(iii) of the Certificate of Designation.
"Affiliate" means any Person that, directly or
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indirectly through one or more intermediaries, controls or
is controlled by or is under common control with a Person,
as such terms are used in and construed under Rule 144 under
the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such
Purchaser.
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"Amendment Certificate" means the Certificate of
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Amendment to the Certificate of Designation to be filed
prior to the Closing by the Company with the Secretary of
State of the State of Delaware in the form attached hereto
as Exhibit A.
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"Certificate of Designation" means the Certificate of
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Designation (annexed hereto as Exhibit B) previously filed
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by the Company with the Secretary of State of the State of
Delaware, pursuant to which the Company sold $3 million
Stated Value of Preferred Stock in the Prior Offering.
"Closing" means the closing of the purchase and sale of
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the Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
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Transaction Documents have been executed and delivered by
the applicable parties thereto, and all conditions precedent
to (i) each Purchaser's obligations to pay the Subscription
Amount have been satisfied or waived (ii) and the Company's
obligations to deliver the Securities have been satisfied or
waived.
"Commission" means the Securities and Exchange
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Commission.
"Common Stock" means the common stock of the Company,
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par value no per share, and any securities into which such
common stock shall hereinafter been reclassified into.
"Common Stock Equivalents" means any securities of the
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Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including
without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Gusrae, ▇▇▇▇▇▇ & ▇▇▇▇▇, PLLC,
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▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇▇ ▇▇▇▇▇), ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
"Disclosure Schedules" means the Disclosure Schedules
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of the Company delivered concurrently herewith.
"Effective Date" means the date that the Registration
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Statement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of
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1934, as amended.
"Exempt Issuance" the issuance of (a) shares of Common
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Stock or options to employees, officers or directors of the
Company pursuant to any existing stock or option or any
stock or option plan duly adopted by a majority of the non-
employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon
the exercise of or conversion of any securities issued
hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since
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the date of this Agreement to increase the number of such
securities, and (c) securities issued in and/or in
connection with any joint venture, merger, acquisition of
stock or assets and/or any similar transaction, the primary
purpose of which is not to raise funds.
"FW" means ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP with offices located
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at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
"GAAP" shall have the meaning ascribed to such term in
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Section 3.1(h).
"Liens" means a lien, charge, security interest,
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encumbrance, right of first refusal, preemptive right or
other restriction.
"Losses" means any and all losses, claims, damages,
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liabilities, settlement costs and expenses, including
without limitation costs of preparation and reasonable
attorneys' fees.
"Material Adverse Effect" shall have the meaning
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assigned to such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to
such term in Section 3.1(m).
"Person" means an individual or corporation,
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partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the up to 10,000 shares of the
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Company's 6% Series A Convertible Preferred Stock issued
hereunder and in the Prior Offering having the rights,
preferences and privileges set forth in the Certificate of
Designation as amended by the Amendment Certificate.
"Principal Market" initially means the American Stock
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Exchange and shall also include the New York Stock Exchange,
the NASDAQ Small-Cap Market or the NASDAQ National Market,
whichever is at the time the principal trading exchange or
market for the Common Stock, based upon share volume.
"Prior Offering" means the sale of an aggregate of $3
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million Stated Value of Preferred Stock and accompanying
Warrants sold to two (2) investors on April 13, 2004
pursuant to a Securities Purchase Agreement dated as of
April 8, 2004 by and among such two (2) investors and the
Company.
"Proceeding" means an action, claim, suit,
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investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration
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Rights Agreement, dated the date hereof, among the Company
and each Purchaser, in the form of Exhibit C.
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"Registration Statement" means a registration statement
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meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers
of the Underlying Shares.
"Required Approvals" shall have the meaning ascribed to
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such term in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission
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pursuant to the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such
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term in Section 3.1(h).
"Securities" means the Preferred Stock, the Warrants
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and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as
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amended.
"Set Price" shall have the meaning ascribed to such
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term in the Certificate of Designations.
"Shareholder Approval" means such approval as the
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applicable rules and regulations of the Principal Market (or
any successor entity) from the shareholders of the Company
with respect to the transactions contemplated by the
Transaction Documents, including, but not limited to, the
issuance of all of the Underlying Shares and shares of
Common Stock upon exercise of the common stock purchase
warrants issued to Pacific Summit Securities and The Oberon
Group, LLC in connection with the terms and conditions
contemplated by this Agreement and in the Prior Offering, in
excess of 19.9% of the Company's issued and outstanding
Common Stock on the Closing Date.
"Stated Value" means $1,000 per share of Preferred
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Stock.
"Subscription Amount" shall mean, as to each Purchaser,
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the amount to be paid for the Preferred Stock purchased
hereunder as specified below such Purchaser's name on the
signature page of this Agreement, in United States Dollars.
"Subsidiary" means any subsidiary of the Company that
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is required to be listed in Schedule 3.1(a).
"Trading Day" means any day during which the Principal
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Market shall be open for business.
"Transaction Documents" means this Agreement, the
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Certificate of Designation, the Amendment Certificate, the
Warrants, the Registration Rights Agreement and any other
documents or agreements executed in connection with the
transactions contemplated hereunder.
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"Underlying Shares" means the shares of Common Stock
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issuable upon conversion of the Preferred Stock, upon
exercise of the Warrants and issued and issuable in lieu of
the cash payment of dividends on the Preferred Stock.
"VWAP" means, for any date, the price determined by the
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first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Principal Market,
the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the
Principal Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a
trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern
Time); (b) if the Common Stock is not then listed or quoted
on a Principal Market and if prices for the Common Stock are
then quoted on the OTC Bulletin Board, the volume weighted
average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if
the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then
reported in the "Pink Sheets" published by the Pink Sheets
LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price
per share of the Common Stock so reported; or (d) in all
other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in
good faith by the Purchasers and reasonably acceptable to
the Company.
"Warrants" means the Common Stock Purchase Warrants, in
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the form of Exhibit D, delivered to the Purchasers at the
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Closing in accordance with Section 2.2 hereof, which
warrants shall be exercisable immediately upon issuance for
a term of 7 years.
"Warrant Shares" means the shares of Common Stock
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issuable upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall
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purchase from the Company, severally and not jointly with the
other Purchasers, and the Company shall issue and sell to each
Purchaser, (a) shares of Preferred Stock with an aggregate Stated
Value equal to such Purchaser's Subscription Amount; and (b) the
Warrants as determined pursuant to Section 2.2(a). The aggregate
number of shares of Preferred Stock issued hereunder shall be up
to 4,000. Upon satisfaction of the conditions set forth in
Section 2.2, the Closing shall occur at the offices of FW or such
other location as the parties shall mutually agree.
2.2 Conditions to Closing
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The Closing is subject to the satisfaction or waiver by the
party to be benefited thereby of the following conditions:
(a) The Company shall have delivered or caused to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
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(ii) a certificate evidencing a number of shares of Preferred
Stock equal to such Purchaser's Subscription Amount divided by
the Stated Value, registered in the name of such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 25% of
such Purchaser's Subscription Amount divided by the Market Price
on the date hereof, with an exercise price equal to $1.76,
subject to adjustment therein;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 25% of
such Purchaser's Subscription Amount divided by the Market Price
on the date hereof, with an exercise price equal to $2.00,
subject to adjustment therein;
(v) a legal opinion of Company Counsel, in the form of
Exhibit E attached hereto, addressed to each Purchaser;
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(vi) the written voting agreement, in the form of Exhibit F
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attached hereto, of all of the officers, directors and
shareholders holding more than 10% of the issued and outstanding
shares of Common Stock on the date hereof, including, but not
limited to, ▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇▇ Services Corp., to vote all
Common Stock owned by each of such shareholders as of the record
date for the annual meeting of shareholders of the Company in
favor of Shareholder Approval amounting to, in the aggregate, at
least 51% of the issued and outstanding Common Stock; and
(vii) the Registration Rights Agreement duly executed by the
Company.
(b) At the Closing, each Purchaser shall have
delivered or caused to be delivered to the Company the
following:
(i) this Agreement duly executed by such
Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in writing by the
Company; and
(iii) the Registration Rights Agreement duly
executed by such Purchaser.
(c) All representations and warranties of the other party
contained herein shall remain true and correct as of the Closing
Date and all covenants of the other party shall have been
performed if due prior to such date.
(d) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to
the Closing), and, at any time prior to the Closing Date, trading
in securities generally as reported by Bloomberg Financial
Markets shall not have been suspended or limited, or minimum
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prices shall not have been established on securities whose trades
are reported by such service, or on any Principal Market, nor
shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its
effect on, or any material adverse change in, any financial
market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the
shares of Preferred Stock at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except
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as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part
hereof, the Company hereby makes the representations and
warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries
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of the Company are set forth on Schedule 3.1(a). The Company
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owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens,
and all the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid, non-
assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries,
then references in the Transaction Documents to the Subsidiaries
will be disregarded.
(b) Organization and Qualification. Each of the Company and
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the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company
and the Subsidiaries is duly qualified to conduct business and is
in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business,
prospects or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material
respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect")
and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
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corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents
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and otherwise to carry out its obligations hereunder or
thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby or thereby have been duly
authorized by all necessary action on the part of the Company and
no further consent or action is required by the Company other
than Required Approvals. Each of the Transaction Documents has
been (or upon delivery will be) duly executed by the Company and,
when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles of
incorporation, by-laws or other organizational or charter
documents except where such violation could not, individually or
in the aggregate, constitute a Material Adverse Effect.
(d) No Conflicts. Other than the Required Approvals, the
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execution, delivery and performance of the Transaction Documents
by the Company, the issuance and sale of the Securities and the
consummation by the Company of the other transactions
contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's
certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound or affected, or
(iii) conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected, or
(iv) conflict with or violate the terms of any agreement by which
the Company or any Subsidiary is bound or to which any property
or asset of the Company or any Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material
Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor
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any Subsidiary is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing
or registration with, any court or other federal, state, local or
other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required under
Section 4.4, (ii) the filing with the Commission of the
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Registration Statement, (iii) the application(s) to each
applicable Principal Market for the listing of the Underlying
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Shares for trading thereon in the time and manner required
thereby, (iv) the filing with the Commission of a Form D pursuant
to Commission Regulation D, (v) applicable Blue Sky filings, and
(vi) waiver by the two (2) investors in the Prior Offering of
Section 4.13 and Section 4.14 of the Securities Purchase
Agreement dated as of April 8, 2004 by and among such two (2)
investors and the Company (collectively, the "Required
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Approvals").
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(f) Issuance of the Securities. The Securities are duly
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authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all
Liens. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Actual Minimum on the
date hereof.
(g) Capitalization. Other than securities of the Company issued
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in and in connection with the Prior Financing, the capitalization
of the Company is as described in the Company's most recent
periodic report filed with the Commission. Other than as
described in the SEC Reports and/or issued in or in connection
with the Prior Financing, the Company has not issued any capital
stock since such filing other than pursuant to the exercise of
employee stock options under the Company's stock option plans,
the issuance of shares of Common Stock to employees pursuant to
the Company's employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents
outstanding. Other than granted in and/or in connection with the
Prior Financing, no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Other than securities disclosed in Schedule 3.1(g)
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attached hereto, securities issued in and/or in connection with
the Prior Financing, options issued pursuant to the Company's
stock option plans as described in the SEC Reports and as a
result of the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. The issue and sale of
the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange
or reset price under such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. Except
the Required Approvals and in connection with the filing and
approval of the Amendment Certificate by the Board of Directors
and holders of all issued and outstanding Preferred Stock as of
the date hereof, no further approval or authorization of any
stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the shares of Preferred
Stock. Except as disclosed in the SEC Reports and entered into
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in connection with the Prior Financing, there are no stockholders
agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any
of the Company's stockholders. The Preferred Stock shall rank
and be pari passu with the shares of Preferred Stock issued
pursuant to that certain Securities Purchase Agreement, dated
April 8, 2004 as to dividends, redemption, distribution of assets
upon a Liquidation (as defined in the Certificate of
Designations) and any other rights, preferences and privileges
thereunder.
(h) SEC Reports; Financial Statements. The Company has filed
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all reports required to be filed by it under the Securities Act
and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file
such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC
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Reports") on a timely basis or has received a valid extension of
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such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder,
and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have
been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the
periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
(i) Material Changes. Since the date of the latest audited
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financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no
event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or
other property to its stockholders or purchased, redeemed or made
any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending
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before the Commission any request for confidential treatment of
information.
(j) Litigation. There is no action, suit, inquiry, notice of
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violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director
or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is
not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop
order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary
under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
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the knowledge of the Company, is imminent with respect to any of
the employees of the Company which could reasonably be expected
to result in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
----------
in default under or in violation of (and no event has occurred
that has not been waived that, with notice or lapse of time or
both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of
a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or
any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except
in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
------------------
possess all certificates, authorizations and permits issued by
the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as
described in the SEC Reports, except where the failure to possess
such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation
or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good
---------------
and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
11
Subsidiaries and good and marketable title in all personal
property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other
taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
----------------------
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary
or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure
to so have could have a Material Adverse Effect (collectively,
the "Intellectual Property Rights"). Neither the Company nor any
----------------------------
Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of
the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are
engaged. To the best of Company's knowledge, such insurance
contracts and policies are accurate and complete. Neither the
Company nor any 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 without a
significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
------------------------------------------
forth in the SEC Reports, none of the officers or directors of
the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (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 entity in which any officer, director, or any
such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on
behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of
the Company.
(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; Internal Accounting Controls. The Company
--------------------------------------------
is in material compliance with all provisions of the ▇▇▇▇▇▇▇▇-
▇▇▇▇▇ Act of 2002 which are applicable to it as of the Closing
12
Date. The Company and the 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 GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
subsidiaries, is made known to the certifying officers by others
within those entities, particularly during the period in which
the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The
Company's certifying officers have evaluated the effectiveness of
the Company's controls and procedures as of the date prior to the
filing date of the most recently filed periodic report under the
Exchange Act (such date, the "Evaluation Date"). The Company
presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the
Company's knowledge, in other factors that could significantly
affect the Company's internal controls.
(s) Certain Fees. Except as set forth in Schedule 3.1(s)
------------
attached hereto, no brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with
the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
-----------------
representations and warranties set forth in Section 3.2, and
compliance by Pacific Summit Securities with the requirements of
Regulation D of the Securities Act and Rule 506 promulgated
thereunder, no registration under the Securities Act is required
for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and
regulations of the Principal Market.
(u) Investment Company. The Company is not, and is not an
------------------
Affiliate of, and immediately after receipt of payment for the
shares of Preferred Stock, will not be or be an Affiliate of, an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended. The Company shall conduct its business
in a manner so that it will not become subject to the Investment
Company Act.
13
(v) Registration Rights. Other than as set forth on Schedule
-------------------
3.1(v) attached hereto, no Person has any right to cause the
Company to effect the registration under the Securities Act of
any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
------------------------------------
Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to
its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is
contemplating terminating such registration. The Company has
not, in the 12 months preceding the date hereof, received notice
from any Principal Market on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such
Principal Market. The Company is, and has no reason to believe
that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(x) Application of Takeover Protections. 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 state of
incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company
fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. Other than the terms of this Agreement, the
----------
Company confirms that, other than transactions contemplated by
this Agreement, neither the Company nor any other Person acting
on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might
constitute material, non-public information. The Company
understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions
in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company with respect
to the representations and warranties made herein are true and
correct with respect to such representations and warranties and
do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties
with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Neither the Company, nor, to the
----------------------
best of its knowledge, 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 cause this
offering of the Securities to be integrated with prior offerings
14
by the Company for purposes of the Securities Act or which could
violate any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of
the Principal Market.
(aa) Solvency/Indebtedness. Based on the financial condition of
---------------------
the Company as of the Closing Date: (i) the fair saleable market
value of the Company's assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business
for the current fiscal year as now conducted and as proposed to
be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are
required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in
respect of its debt). The Company has no knowledge of any facts
or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the dates thereof
all outstanding secured and unsecured Indebtedness of the Company
or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $50,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) Form S-3 Eligibility. The Company is eligible to register
--------------------
the resale of its Common Stock by the Purchasers under Form S-3
promulgated under the Securities Act and the Company hereby
covenants and agrees to use its best efforts to maintain its
eligibility to use Form S-3 until the Registration Statement
covering the resale of the shares of Preferred Stock shall have
been filed with, and declared effective by, the Commission.
(cc) Tax Status. The Company and each of its Subsidiaries has
----------
made or filed all federal, state and foreign income and all other
tax returns, reports and declarations required by any
jurisdiction to which it is subject (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) and 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
15
has set aside on its books provisions 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. The Company has not
executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal,
statue or local tax. None of the Company's tax returns is
presently being audited by any taxing authority.
(dd) No General Solicitation or Advertising in Regard to this
--------------------------------------------------------
Transaction. Neither the Company nor, to the knowledge of the
-----------
Company, any of its directors or officers (i) has conducted or
will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect
to the sale of the Preferred Stock or the Warrants, or (ii) made
any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require
registration of the Preferred Stock, the Underlying Shares or the
Warrants under the Securities Act or made any "directed selling
efforts" as defined in Rule 902 of Regulation S.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the
-------------------------
knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any
corrupt funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political
activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made
by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of
1977, as amended.
(ff) Acknowledgment Regarding Purchasers' Purchase of Securities.
-----------------------------------------------------------
The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with
respect to this Agreement and the transactions contemplated
hereby. The Company further acknowledges that no Purchaser is
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 statement made by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental
to the Purchasers' purchase of the Securities. The Company
further represents to each Purchaser that the Company's decision
to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
(gg) Seniority. As of the date of this Agreement, no other
---------
equity of the Company is senior to the Preferred Stock in right
of payment, whether with respect to interest or upon liquidation
or dissolution, or otherwise.
16
3.2 Representations and Warranties of the Purchasers
------------------------------------------------
Each Purchaser hereby, for itself and for no other
Purchaser, represents and warrants as of the date hereof and as
of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an
-----------------------
entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated
by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by
all necessary corporate or similar action on the part of
such Purchaser. Each Transaction Document to which it is
party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited
by applicable law.
(b) Investment Intent. Such Purchaser understands
------------------
that the Securities are "restricted securities" and have not
been registered under the Securities Act or any applicable
state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for
distributing or reselling such Securities or any part
thereof, has no present intention of distributing any of
such Securities and has no arrangement or understanding with
any other persons regarding the distribution of such
Securities (this representation and warranty not limiting
such Purchaser's right to sell the Securities pursuant to
the Registration Statement or otherwise in compliance with
applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not
have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was
----------------
offered the Securities, it was, and at the date hereof it
is, and on each date on which it exercises any Warrants, it
will be either: (i) an "accredited investor" as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as
defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-
dealer under Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser,
-----------------------------
either alone or together with its representatives, has such
knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of
such investment. Such Purchaser is able to bear the
17
economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such
investment.
(e) General Solicitation. Such Purchaser is not purchasing
--------------------
the Securities as a result of any advertisement, article, notice
or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television
or radio or presented at any seminar or any other general
solicitation or general advertisement.
(f) Open Short Position. Each Purchaser, for itself only,
-------------------
represents and warrants that (i) as of April 8, 2004, neither it,
any of its Affiliates nor any person or entity acting at the
direction of such Purchaser, holds an open short position in the
Common Stock, and (ii) confirms that it acknowledges and
understands that it may not directly cover a short sale made
prior to the Effective Date with shares of Common Stock
registered for resale by such Purchaser on the Registration
Statement.
(g) No Advice. Each Purchaser understands that nothing
---------
in this Agreement or any other materials presented to such
Purchaser in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. Each
Purchaser has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate
in connection with its purchase of the Securities. In making an
investment decision as to whether to purchase the Preferred Stock
and Warrants offered hereby, each Purchaser has relied solely
upon the SEC Reports and the representation and warranties of the
Company contained herein and has conducted its own due diligence.
Each Purchaser has had the opportunity to ask questions of, and
receive answers from, representatives of the Company concerning
the Company and the officers and all such questions have been
asked and answered by the Company to the satisfaction of the
Purchaser.
The Company acknowledges and agrees that each Purchaser
does not make or has not made any representations or warranties
with respect to the transactions contemplated hereby other than
those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
---------------------
(a) The Securities may only be disposed of in
compliance with state and federal securities laws. In
connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144,
to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b),
---------------
the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor
and reasonably acceptable to the Company, the form and
substance of which opinion and shall be reasonably
satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be
18
bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long
as is required by this Section 4.1(b), of the following
--------------
legend on any certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
--------------
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser
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 Securities to a
financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and
the Registration rights Agreement and, if required under the
terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall
be required of such pledge. At the appropriate Purchaser's
expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of
any required prospectus supplement under Rule 424(b)(3)
under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall
not contain any legend (including the legend set forth in
Section 4.1(b)): (i) while a registration statement
----------------
(including the Registration Statement) covering the resale
of such Underlying Shares is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under Rule 144(k), or (iv) if such legend
19
is not required under applicable requirements of the
Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). If
all or any shares of Preferred Stock or any portion of a
Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover
the resale of the Underlying Shares, or if such Underlying
Shares may be sold under Rule 144(k) or if such legend is
not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof)
then such Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than five (5)
--------------
Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a certificate
representing Securities issued with a restrictive legend
(such date, the "Legend Removal Date"), deliver or cause to
-------------------
be delivered to such Purchaser a certificate representing
such Underlying 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 the restrictions on transfer set forth
in this Section.
(d) In addition to such Purchaser's other available
remedies, the Company shall pay to a Purchaser, in cash, as
partial liquidated damages and not as a penalty, for each
$2,000 of Underlying Shares (based on the VWAP on the date
such Securities are submitted to the Company's transfer
agent) delivered for removal of the restrictive legend and
subject to this Section 4.1(c), $10 per Trading Day
---------------
(increasing to $20 per Trading Day five (5) Trading Days
after such damages have begun to accrue) for each Trading
Day after the Legend Removal Date until such certificate is
delivered. Nothing herein shall limit such Purchaser's right
to pursue actual damages for the Company's failure to
deliver certificates representing any Securities as required
by the Transaction Documents, and such Purchaser 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.
(e) Each Purchaser, severally and not jointly with
the other Purchasers, agrees that the removal of the
restrictive legend from certificates representing Securities
as set forth in this Section 4.1 is predicated upon the
-----------
Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements
of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.
(f) Each Purchaser, severally and not jointly
with the other Purchasers, agrees that the removal of the
restrictive legend from certificates representing Securities
as set forth in this Section 4.1 is predicated upon the
Company's reliance that the Purchaser will sell any
Securities in accordance with all applicable laws, rules and
regulations and pursuant to either the registration
requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.
4.2 Furnishing of Information. As long as any Purchaser
-------------------------
owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable
20
grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act. Upon the
request of any Purchaser, the Company shall deliver to such
Purchaser a written certification of a duly authorized officer as
to whether it has complied with the preceding sentence. As long
as any Purchaser owns Securities, if the Company is not required
to file reports pursuant to such laws, it will prepare and
furnish to each Purchaser and make publicly available in
accordance with Rule 144(c) such information as is required for
each Purchaser to sell the Securities under Rule 144. The
Company further covenants that it will take such further action
as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for
-----------
sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities
in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Principal Market
such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is
obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company
--------------------------------------
shall, by 8:30 a.m. Eastern time on the Trading Day following the
date hereof, issue a press release or file a Current Report on
Form 8-K, in each case reasonably acceptable to each Purchaser
disclosing the material terms of the transactions contemplated
hereby. The Company and each Purchaser shall consult with each
other in issuing any press releases with respect to the
transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make
any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any
press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required
by law, in which case the disclosing party shall promptly provide
the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any
regulatory agency or Principal Market, without the prior written
consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement
contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Principal Market
regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under
subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or
------------------------
enforced by the Company or, to the knowledge of the Company, any
other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the
Company and the Purchasers. The Company shall conduct its
business in a manner so that it will not become subject to the
Investment Company Act.
21
4.6 Non-Public Information. The Company covenants and
-----------------------
agrees that neither it nor any other Person acting on its behalf
will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-
public information, unless prior thereto such Purchaser shall
have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
4.7 Use of Proceeds. The Company shall use the net
-----------------
proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of
the Company's debt (other than payment of trade payables, capital
lease obligations, and accrued expenses in the ordinary course of
the Company's business and prior practices), to redeem any
Company equity or equity-equivalent securities or to settle any
outstanding litigation. Prior to the receipt of Shareholder
Approval, the Company shall not declare or pay any cash dividend
on its shares of Common Stock while any shares of Preferred Stock
remain outstanding. At the Closing, the Company shall deliver to
each Purchaser a completed and executed copy of the Closing
Statement, in the form of Annex A, attached hereto.
-------
4.8 Reimbursement. If any Purchaser becomes involved in
-------------
any capacity in any Proceeding by or against any Person who is a
stockholder of the Company (except as a result of sales, pledges,
margin sales and similar transactions by such Purchaser to or
with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable
legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and
shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the
Purchasers and any such Affiliate and any such Person. Provided
such persons have acted in accordance with applicable laws, rules
and regulations and have not breached and/or otherwise violated
this Agreement, the Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the
Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Securities
under this Agreement.
4.9 Indemnification of Purchasers. Subject to the
-------------------------------
provisions of this Section 4.9, the Company will indemnify and
hold the Purchasers and their directors, officers, shareholders,
partners, employees and agents (each, a "Purchaser Party")
harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or
relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their
respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the
transactions contemplated by the Transaction Documents (unless
22
such action is based upon a breach of such Purchaser's
representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such
Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its
own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall
be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable
to any Purchaser Party under this Agreement (i) for any
settlement by an Purchaser Party effected without the Company's
prior written consent, which shall not be unreasonably withheld
or delayed; or (ii) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser
Party's (a) breach of any of the representations, warranties,
covenants or agreements made by the Purchasers in this Agreement
or in the other Transaction Documents; (b) willful and/or
negligent actions; and/or (iii) violations of any applicable law,
rule and/or regulation.
4.10 Reservation and Listing of Securities.
-------------------------------------
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to
the Transaction Documents in such amount as may be required
to fulfill its obligations in full under the Transaction
Documents.
(b) If, on any date, the number of authorized but
unissued (and otherwise unreserved) shares of Common Stock
is less than 130% of (i) the Actual Minimum on such date,
minus (ii) the number of shares of Common Stock previously
issued pursuant to the Transaction Documents, then the Board
of Directors of the Company shall use commercially
reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least
the Actual Minimum at such time (minus the number of shares
of Common Stock previously issued pursuant to the
Transaction Documents), as soon as possible and in any event
not later than the 75th day after such date; provided that
the Company will not be required at any time to authorize a
number of shares of Common Stock greater than the maximum
remaining number of shares of Common Stock that could
possibly be issued after such time pursuant to the
Transaction Documents.
(c) The Company shall: (i) in the time and manner
required by the Principal Market, prepare and file with such
Principal Market an additional shares listing application
covering a number of shares of Common Stock at least equal
to the Actual Minimum on the date of such application, (ii)
take all steps necessary to cause such shares of Common
Stock to be approved for listing on the Principal Market as
23
soon as possible thereafter, (iii) provide to each Purchaser
evidence of such listing, and (iv) use reasonable efforts to
maintain the listing of such Common Stock on such Principal
Market or another Principal Market. At the Company's annual
2004 shareholder meeting, the Company shall seek Shareholder
Approval, with the recommendation of the Company's Board of
Directors that such proposal be approved, and the Company
shall solicit proxies (if necessary) from its shareholders
in connection therewith in the same manner as all other
management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies
in favor of such proposal.
(d) If, on any date, the Company is listed on a
different Principal Market, then the Company shall take the
necessary actions to list all of the Underlying Shares and
Warrant Shares on such Principal Market as soon as
reasonably possible.
4.11 Conversion and Exercise Procedures. The form of
-------------------------------------
Election to Purchase included in the Warrants and the forms of
Conversion Notice included in the Certificate of Designation set
forth the totality of the procedures required in order to
exercise the Warrants or convert the Preferred Stock. No
additional legal opinion or other information or instructions
shall be necessary to enable each Purchaser to exercise their
Warrants or convert their Preferred Stock. The Company shall
honor exercises of the Warrants and conversions of the Preferred
Stock and shall deliver Underlying Shares in accordance with the
terms, conditions and time periods set forth in the Transaction
Documents. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain
market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including its
obligation to issue the Underlying Shares pursuant to the
Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any
claim the Company may have against any Purchaser and regardless
of the dilutive effect that such issuance may have on the
ownership of the other stockholders of the Company.
4.12 Equal Treatment of Purchasers. 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 the Transaction
Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. For clarification
purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each
Purchaser, and is intended to treat for the Company the
Purchasers as a class and shall not in any way be construed as
the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
4.13 Participation in Future Financing. Until the 6th
---------------------------------
month anniversary of the Effective Date, upon any financing by
the Company of its Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to
--------------------
participate in up to 50% of such Subsequent Financing. At least
10 Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"),
which Pre-Notice shall ask such Purchaser if it wants to review
the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the request of a Purchaser,
---------------------------
and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1
24
Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be
raised thereunder, the Person with whom such Subsequent Financing
is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto. If by 6:30 p.m.
(New York City time) on the 10th Trading Day after all of the
Purchasers have received the Pre-Notice, notifications of the
Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to provide) is, in the
aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and to the Persons set
forth in the Subsequent Financing Notice. If the Company
receives no notice from a Purchaser as of such 10th Trading Day,
such Purchaser shall be deemed to have notified the Company that
it does not elect to participate. The Company must provide the
Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of participation set forth
above in this Section 4.13, if the Subsequent Financing subject
to the initial Subsequent Financing Notice is not consummated for
any reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice. In the event the Company receives
responses to Subsequent Financing Notices from Purchasers seeking
to purchase more than the aggregate amount of the Subsequent
Financing, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Subsequent
Financing. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of a participating Purchaser and (y) the sum
of the aggregate Subscription Amount of all participating
Purchasers. Notwithstanding the foregoing, this Section 4.13
shall not apply in respect of an Exempt Issuance. For further
clarity, the Additional Investment Option set forth in Section
4.15 shall not constitute a Subsequent Financing.
4.14 Future Financings. From the date hereof until 60 days
-----------------
after the Effective Date, other than as contemplated by this
Agreement, neither the Company nor any Subsidiary (with respect
to Common Stock Equivalents) shall issue or sell any Common Stock
or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock. Notwithstanding anything herein to the
contrary, the 60 day period set forth in this Section 4.14 shall
------------
be extended for the number of Trading Days during such period in
which (i) trading in the Common Stock is suspended by any
Principal Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by each
Purchaser for the resale of the Underlying Shares.
Notwithstanding anything to the contrary herein, this Section
-------
4.14 shall not apply in respect of an Exempt Issuance. In
----
addition to the limitations set forth herein, from the date
hereof until such time as no Purchaser holds any of the
Securities, the Company shall be prohibited from effecting or
enter into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction" (as defined below). The
-------------------------
term "Variable Rate Transaction" shall mean a transaction in
--------------------------
which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable
for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any
time after the initial issuance of such debt or equity
securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market
for the Common Stock. In addition, unless Shareholder Approval
25
has been obtained and deemed effective in accordance with Section
4.10(c), the Company shall not make any issuance whatsoever of
Common Stock or Common Stock Equivalents which would cause any
adjustment of the Set Price to the extent the holders of
Preferred Stock would not be permitted, pursuant to Section
5(a)(iii) of the Certificate of Designations, to convert their
respective outstanding Preferred Stock and Warrants in full.
4.15 Additional Investment Option. From the date hereof until
----------------------------
180 days after the Effective Date, Midsummer Investments Ltd.
("Midsummer") may, in its sole determination, elect to purchase
---------
additional Preferred Stock and Warrants for an aggregate purchase
price of up to $2,000,000. Any additional investment will be on
terms and prices identical those set forth in the Transaction
Documents, mutatis mutandis. In order to effectuate a purchase
and sale of the additional shares of Preferred Stock and
Warrants, the Company and Midsummer shall enter into the
following agreements: (x) a securities purchase agreement
identical to this Agreement, mutatis mutandis and shall include
updated disclosure schedules and (y) a registration rights
agreement identical to the Registration Rights Agreement, mutatis
mutandis and shall include updated disclosure schedules. Any
such additional investment shall close within 10 Trading Days of
notice to the Company by Midsummer that it elects to exercise its
rights hereunder.
4.16 Waiver of Certain Dividends. The Purchaser hereby agrees
---------------------------
that notwithstanding anything to the contrary provided herein or
elsewhere (including, but not limited to, Section 2 of the
Certificate of Designation), dividends on the Preferred Stock
purchased by the Purchaser pursuant to this Agreement shall not
begin to accrue until May 8, 2004, and any rights to any such
dividends are hereby expressly and irrevocably waived by the
Purchaser.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except as otherwise set forth in
------------------
this Agreement, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all
other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together
----------------
with the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.3 Notices. Any and all notices or other communications
-------
or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number
specified on the signature page prior to 5:30 p.m. (New York City
time) on a Trading Day and an electronic confirmation of delivery
is received by the sender, (b) the next Trading Day after the
date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this
Section on a day that is not a Trading Day or later than 5:30
26
p.m. (New York City time) on any Trading Day, (c) three Trading
Days following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt
by the party to whom such notice is required to be given. The
addresses for such notices and communications are those set forth
on the signature pages hereof, or such other address as may be
designated in writing hereafter, in the same manner, by such
Person.
5.4 Amendments; Waivers. No provision of this Agreement
-------------------
may be waived or amended except in a written instrument signed,
in the case of an amendment, by the Company and each Purchaser
or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of
any other provision, condition or requirement hereof, nor shall
any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience
------------
only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof. 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.
5.6 Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights
or obligations hereunder without the prior written consent of
each Purchaser. Any Purchaser may assign any or all of its
rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided such transferee
agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the
"Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is
------------------------------
intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any
other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the
---------------
construction, validity, enforcement and interpretation of the
Transaction Documents shall be governed by and construed and
enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law
thereof. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including
with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to
27
assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. 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
via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding
to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed
by the other party for its reasonable attorneys' fees and other
costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.9 Survival. The representations and warranties contained
--------
herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable.
5.10 Execution. This Agreement may be executed in two or
---------
more counterparts, all of which when taken together 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, it being understood that both parties need not
sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create
a valid and binding obligation of the party executing (or on
whose behalf such signature is executed) with the same force and
effect as if such facsimile signature page were an original
thereof.
5.11 Severability. If any provision of this Agreement is
------------
held to be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby
and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision
in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding
----------------------------------
anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any
Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, in
the case of a rescission of a conversion of the Preferred Stock
or exercise of the Warrant, the Purchaser shall be required to
return any shares of Common Stock subject to such conversion or
exercise notice.
5.13 Replacement of Securities. If any certificate or
---------------------------
instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or
in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction
and customary and reasonable indemnity, if requested. The
applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
28
5.14 Remedies. In addition to being entitled to exercise
--------
all rights provided herein or granted by law, including recovery
of damages, each of each Purchaser and the Company will be
entitled to specific performance under the Transaction Documents.
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 agrees
to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes
-----------------
a payment or payments to any Purchaser pursuant to any
Transaction Document or a Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not
been made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and
-----------------------------------------------------
Rights. The obligations of each Purchaser under any Transaction
------
Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way
for the performance of the obligations of any other Purchaser
under any Transaction Document. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction
Document. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the
rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented
by its own separate legal counsel in their review and negotiation
of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not
represent all of the Purchasers but only Midsummer. The Company
has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.
5.17 Liquidated Damages. The Company's obligations to pay
------------------
any accrued but unpaid partial liquidated damages or other
amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all
accrued and unpaid partial liquidated damages and other amounts
have been paid notwithstanding the fact that the instrument or
security pursuant to which such partial liquidated damages or
other amounts are due and payable shall have been canceled.
[SIGNATURE PAGE FOLLOWS]
29
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated
above.
PACIFIC CMA, INC. Address for Notice:
------------------
By:
-----------------------------
Name:
Title:
With a copy to (which shall not
constitute notice):
30
[PURCHASER SIGNATURE PAGES TO ▇▇▇ SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this
Securities Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated
above.
Name of Investing Entity:_____________________________
Signature of Authorized Signatory of Investing Entity:___________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Authorized Signatory:___________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same
as above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
31
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as
of the date hereto, the purchasers shall purchase $2,000,000 of
Preferred Stock and Warrants from Pacific CMA, Inc., (the
"Company"). All funds will be wired to the Company. All funds
will be disbursed in accordance with this Closing Statement.
Disbursement Date: May ____, 2004
_________________________________________________________________
I. PURCHASE PRICE
--------------
Gross Proceeds to be Received $
II. DISBURSEMENTS
-------------
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
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To:________________________________
To:________________________________
SCHEDULE 3.1(g)
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(Outstanding Options, Warrants)
Option Plan
-----------
Pacific CMA, Inc. has a 2000 Stock Plan ("Plan") to issue
stock options and grants pursuant to various agreements with
employees, service providers, business associates. The maximum
number of shares of Pacific's common stock available for the
issuance under the Plan is 2,200,000 shares.
Under the Plan, on September 1, 2000, Pacific issued options
to purchase 200,000 shares of the Company's common stock at an
exercise price of $0.098. These options expire on August 31,
2005.
Also under the Plan, Pacific has issued stock grants for
902,550 shares.
Warrants Issued and Outstanding Series A Convertible Preferred Stock
--------------------------------------------------------------------
In or about October 2003, Pacific issued warrants to R.
▇▇▇▇▇ ▇▇▇▇▇▇. ▇▇. ▇▇▇▇▇▇'▇ warrants are exercisable at $0.85 for
up to 50,000 shares of common stock until September 30, 2008.
On or about November 18, 2003, Pacific issued to the persons
and entities identified below the number of common stock purchase
warrants stated opposite their names:
Name Number of Warrants (1)
---- ----------------------
1. Max Communications, Inc. 31,056
2. Castle Creek Technology Partners, LLC 77,640
3. Stone Street, Limited Partnership 62,112
4. Gamma Opportunity Capital Partners, LP 31,056
5. Alpha Capital A.G. 31,056
6. Otape Investments, LLC 62,112
7. Bristol Investment Fund, Ltd. 93,168
8. Polaris Partners, LP 46,584
9. Insider Trend Fund, LP 38,820
10. ▇▇▇ ▇. ▇▇▇▇▇▇, Non-GST Exempt 38,820
Family Trust II
11. Cornell Capital 31,056
12. Whalehaven Fund, Limited 31,056
13. Greenwich Growth Fund, Limited 31,056
14. Bridges & Pipes, LLC 15,528
_____________
1 One-half of said warrants are exercisable at $1.61 per share
with the remaining one-half of said warrants exercisable at
$2.17 per share.
In connection with the sales described above, Pacific also
issued warrants to purchase 186,335 shares at an exercise price
of $1.93 per share to Rockwood, Inc. ("Rockwood").
On November 18, 2003, Pacific issued warrants to purchase an
aggregate of 100,000 shares to ▇▇▇▇▇▇ Capital LLC ("▇▇▇▇▇▇"). One-
half of the warrants issued to ▇▇▇▇▇▇ are exercisable at $0.80
per share and one-half are exercisable at $1.20 per share.
On November 18, 2003, Pacific issued warrants to purchase an
aggregate of 200,000 shares to Strategic Growth International,
Inc. ("Strategic"). Such amount subsequently was reduced to
50,000.
All of the Warrants issued to the fourteen (14) investors
named above, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and Strategic, expire in November
2008.
In or about December 2003, Pacific entered into a Consulting
Agreement with Piedmont Consulting, Inc. ("Piedmont"). The
Agreement with Piedmont is being renegotiated, but as now stated,
it may obligate Pacific to issue warrants to purchase up to
200,000 shares of Common Stock exercisable for five years at a
price of $2.00. Up to 150,000 of said Warrants could be issuable
in three (3) equal increments, if the last sale price of
Pacific's Common Stock exceeds $3.00, $4.00 and $5.00,
respectively.
On April 13, 2004, the Company sold to Midsummer Investments
Ltd. and Crestview Financial Ltd., in the aggregate 3,000 shares
of the Company Series A 6% Convertible Preferred Stock and
Warrants to purchase 937,500 shares of Common Stock. In
connection with such transaction, the Company issued to Pacific
Summit Securities warrants to purchase 145,833 shares of Common
Stock.
SCHEDULE 3.1(s)
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(Broker's, Finder's Fees or Commissions)
1. The Company has agreed to pay to (i) Pacific Summit
Securities, and (ii) The Oberon Group, LLC ("Oberon") five
(5%) percent and six (6%) percent, respectively, of the
gross proceeds received by the Company from the sale of the
Securities to the Purchaser. The Company also agreed to
issue to Oberon warrants to purchase 70,000 shares of Common
Stock.
SCHEDULE 3.1(a)
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(Subsidiaries of Pacific CMA, Inc.)
Equity Interest
Owned
by Pacific
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Name of Company Place of Incorporation Directly Indirectly
--------------- ---------------------- -------- ----------
Pacific CMA International LLC Colorado, United States 100%
AGI Logistics (HK) Ltd. Hong Kong 100%
AGI China Ltd. Hong Kong 100%
Shenzhen Careship Transportation Hong Kong 100%
Limited (formerly known as
Guangdong Springfield Logistics
Services Ltd.)
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ 81%
Airgate International Corporation Illinois, United States 81%
(Chicago)
SCHEDULE 3.1(v)
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(Registration Rights)
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1. Midsummer Investments Ltd. and Crestview Investments
Ltd. have registration rights in connection with their purchase
of the Company's Series A Preferred Stock and Warrants pursuant
to a Securities Purchase Agreement dated as of April 8, 2004 by
and between such persons and the Company (the "Prior Financing").
2. Pacific Summit Securities has piggyback registration
rights with respect to warrants to purchase 145,833 shares of
Common Stock received in connection with the Prior Financing.
3. The Oberon Group LLC has piggyback registration rights
with respect to warrants to purchase 70,000 shares of Common
Stock to be issued in connection with the Proposed Financing.
