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EXHIBIT 10.37
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
among
COMPOSITECH LTD.
(the "Company")
and
The Persons Listed On The Signature Pages Hereto
(the "Purchasers")
Dated as of March 16, 1999
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This Series 1 Bridge Note Purchase And Security Agreement provides for the
offer, sale, and issuance of up to $1,500,000 in principal amount of Secured,
Convertible, Series 1 Bridge Financing Notes with detachable Warrants, and
attached Repricing Warrants.
TABLE OF CONTENTS
Table of Contents.......................................................................i
ARTICLE 1. BRIDGE NOTES..............................................................2
Section 1.1. Authorization, Issuance, and Sale of Notes............................2
Section 1.2. Authorization and Issuance of Warrants................................2
Section 1.3. Form of Payment.......................................................2
Section 1.4. Closing...............................................................2
Section 1.5. Deliveries at Closing.................................................2
ARTICLE 2. SECURITY AGREEMENT........................................................3
Section 2.1. Grant of Security Interest............................................3
Section 2.2. Remedies Upon Default.................................................4
Section 2.3. Filing of UCC Financing Statement.....................................4
Section 2.4. Notice................................................................4
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................5
Section 3.1. Organization and Qualification........................................5
Section 3.2. Authorization, Enforcement, Compliance with Other Instruments.........5
Section 3.3. Capitalization........................................................6
Section 3.4. Issuance of Securities................................................6
Section 3.5. No Conflicts..........................................................6
Section 3.6. SEC Documents; Financial Statements..................................7
Section 3.7. Absence of Certain Changes............................................7
Section 3.8. Absence of Litigation.................................................8
Section 3.9. Purchase of Bridge Notes..............................................8
Section 3.10. No Undisclosed Events, Liabilities, Developments, or Circumstances....8
Section 3.11. No General Solicitation...............................................8
Section 3.12. No Integrated Offering................................................8
Section 3.13. Employee Relations....................................................9
Section 3.14. Intellectual Property Rights..........................................9
Section 3.15. Environmental Laws....................................................9
Section 3.16. Title. 9
Section 3.17. Insurance.............................................................10
Section 3.18. Regulatory Permits....................................................10
Section 3.19. Internal Accounting Controls..........................................10
Section 3.20. No Materially Adverse Contracts, Etc..................................10
Section 3.21. Tax Status............................................................10
Section 3.22. Certain Transactions..................................................10
Section 3.23. Dilutive Effect.......................................................11
Section 3.24. Fees and Rights of First Refusal......................................11
Section 3.25. Foreign Corrupt Practices Act.........................................11
Section 3.26. Disclosure............................................................11
ARTICLE 4. REPRESENTATION AND WARRANTIES OF PURCHASERs.................................11
Section 4.1. Investment Purpose....................................................11
Section 4.2. Accredited Investor Status............................................11
Section 4.3. Reliance on Exemptions................................................12
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Section 4.4. Information...........................................................12
Section 4.5. No Governmental Review................................................12
Section 4.6. Transfer or Resale....................................................12
Section 4.7. Legends...............................................................13
Section 4.8. Authorization Enforcement.............................................13
Section 4.9. Residence.............................................................13
Section 4.10. No Scheme to Evade Registration.......................................13
Section 4.11. Covenant Not to Trade.................................................14
ARTICLE 5. CONDITIONS OF INITIAL CLOSING...............................................14
Section 5.1. Transaction Agreements................................................14
Section 5.2. Opinion of Counsel....................................................14
Section 5.3. Representations and Warranties; No Default............................14
Section 5.4. Purchase and Loan Permitted by Applicable Laws........................15
Section 5.5. No Adverse Litigation.................................................15
Section 5.6. Approvals and Consents................................................15
Section 5.7. No Material Adverse Change............................................15
Section 5.8. Proceedings...........................................................15
Section 5.9. Secretary Certificate.................................................15
Section 5.10. Lien Search...........................................................16
Section 5.11. UCC Financing Statement...............................................16
Section 5.12. Transfer Agent Instructions...........................................16
ARTICLE 6. CONDITIONS TO ADDITIONAL CLOSINGS...........................................16
Section 6.1. Representations and Warranties; No Default............................16
Section 6.2. No Suspensions........................................................16
Section 6.3. Opinion of Counsel....................................................16
Section 6.4. Shareholder Approval..................................................16
Section 6.5. No Material Adverse Change............................................16
ARTICLE 7. AFFIRMATIVE COVENANTS.......................................................16
Section 7.1. Financial Information.................................................17
Section 7.2. Form D................................................................17
Section 7.3. Reporting Status......................................................17
Section 7.4. Inspection of Property................................................18
Section 7.5. Maintenance of Properties; Insurance..................................18
Section 7.6. Maintenance of Security Interest......................................18
Section 7.7. Expenses..............................................................18
Section 7.8. Authorized Shares of Common Stock, Reservation of Shares..............18
Section 7.9. Corporate Existence, Etc..............................................18
Section 7.10. Transfer Agents.......................................................19
Section 7.11. Shareholder Approval; Proxy...........................................19
Section 7.12. Transfer Agent Instructions...........................................19
Section 7.13. Payment of Taxes......................................................19
Section 7.14. Compliance with Laws, Etc.............................................20
Section 7.15. Use of Proceeds.......................................................20
Section 7.16. Registration Statement................................................20
Section 7.17. Listings..............................................................20
Section 7.18. Indemnification.......................................................20
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ARTICLE 8. NEGATIVE COVENANTS...........................................................21
Section 8.1. Restrictions on Debt..................................................21
Section 8.2. Restrictions on Dividends.............................................22
Section 8.3. Restrictions on Transactions with Affiliates..........................22
Section 8.4. Restrictions on Investments...........................................22
Section 8.5. Restrictions on Sale and Lease-Back Transactions......................23
Section 8.6. Restrictions on Sales of Assets.......................................23
Section 8.7. Restrictions on Subsidiaries..........................................23
Section 8.8. Change in Business....................................................23
ARTICLE 9. Miscellaneous..............................................................23
Section 9.1. Counterparts..........................................................23
Section 9.2. Headings..............................................................23
Section 9.3. Severability..........................................................23
Section 9.4. Entire Agreement. Amendments..........................................23
Section 9.5. Notices...............................................................24
Section 9.6. Interest..............................................................24
Section 9.7. Successors and Assigns................................................24
Section 9.8. No Third Party Beneficiaries..........................................25
Section 9.9. Publicity.............................................................25
Section 9.10. Further Assurances....................................................25
Section 9.11. No Strict Construction................................................25
Section 9.12. Governing Law.........................................................25
TABLE OF SCHEDULES AND EXHIBITS
Schedule 1 Disclosure Schedule
Exhibit A Form of Series 1 Bridge Note (with form of Repricing Warrant
attached)
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Escrow Agreement
Exhibit E Financing Statement
Exhibit F Form of Opinion of Company Counsel to Purchasers
Exhibit G List of Collateral
Exhibit H Form of Transfer Agent Instructions
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TABLE OF DEFINED TERMS
Term Section
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Additional Closing Section 1.4
Additional Closing Date Section 1.4
Agreement Preamble
Bridge Notes Background
Bylaws Section 3.3
Charter Section 3.3
Charter Amendment Section 3.2 (a)
Closing Section 1.4
Collateral Section 2.1 (b)
Closing Date Section 1.4
Common Stock Background
Company Preamble
Compliance Certificate Section 1.5 (i)
Consents Section 5.6
Conversion Shares Background
Debt Article 8
Disclosure Schedule Article 3
Environmental Laws Section 3.15
Equipment Section 2.1 (a)
Escrow Agent Section 1.4
Escrow Agreement Section 1.5
Event of Default Section 2.2
Financial Statements Section 3.6
Financing Statement Section 1.5 (f)
First Closing Section 1.4
First Closing Date Section 1.4
Transfer Agent Instructions Section 1.5 (h)
Minimum Amount Section 1.4
Obligations Section 2.1
Preferred Stock Section 3.3
Purchaser Preamble
Purchase Price Section 1.1
Purchased Bridge Notes Section 1.1
Registration Period Section 7.3
Registration Rights Agreement Background
Regulation D Background
Repricing Shares Background
Repricing Warrants Background
Rule 144 Section 4.6 (b)
Secretary Certificate Section 1.5 (j)
Securities Article 3.2 (b)
SEC Documents Section 3.6
Transaction Agreement Section 3.2 (a)
Warrants Background
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Warrant Shares Background
1933 Act Background
1934 Act Section 3.6
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SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
THIS SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT (the "Agreement")
is made and entered into as of this 16th day of March, 1999, between COMPOSITECH
LTD., a Delaware corporation (the "Company") and the persons listed on the
Purchaser signature pages attached hereto (each of whom is individually referred
to as a "Purchaser" and all of whom collectively are referred to as the
"Purchasers").
Background
The Company has authorized the issuance, sale, and delivery of up to
$1,500,000 in original principal amount of the Company's Series 1 Secured
Convertible Bridge Financing Notes, in substantially the form attached hereto as
Exhibit A (the "Bridge Notes"). The Bridge Notes are convertible into shares of
the Company's common stock, par value $.01 (the "Common Stock"). The Common
Stock issuable upon conversion of the Bridge Notes is hereinafter referred to as
the "Conversion Shares"). The Bridge Notes have attached repricing rights
evidenced by a warrant in substantially the form of Attachment 1 to the Bridge
Notes (the "Repricing Warrant"), exercisable under certain circumstances for
additional shares of Common Stock (the "Repricing Shares") at the exercise price
of $.01. In connection with the issuance of the Bridge Notes, the Company has
authorized the issuance of Warrants, in substantially the form attached hereto
as Exhibit B (the "Warrants"), to purchase Common Stock. Each Purchaser will be
issued a Warrant at closing exercisable for 20,000 shares of Common Stock for
each $100,000 in principal amount of Bridge Notes purchased. The shares of
Common Stock issuable upon exercise of the Warrants are hereinafter referred to
as the "Warrant Shares." The proceeds of the Bridge Notes will be used to
provide the Company with operating capital, enhancement of equipment, and
expansion of the Company's sales and marketing efforts. The Bridge Notes are
secured by a pledge of certain equipment owned by the Company having a value of
approximately 200% of the principal amount of the Bridge Notes at any time
outstanding. Purchasers wish to purchase, upon the terms and conditions stated
in this Agreement, up to $1,500,000 in principal amount of the Bridge Notes,
with each Purchaser purchasing a Bridge Note in the principal amount set forth
on such Purchaser's signature page affixed to this Agreement. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement in substantially the
form attached hereto as Exhibit C (the "Registration Rights Agreement") pursuant
to which the Company has agreed to provide certain registration rights in
respect of the Warrant Shares under the Securities Act of 1933, as amended
("1933 Act") and the rules and regulations promulgated thereunder, and
applicable state securities laws. The Company and the Purchasers are executing
and delivering this Agreement in reliance upon the exemption from securities
registration pursuant to Section 4(2), and/or Regulation D ("Regulation D").
Agreement
For and in consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Purchaser hereby agree as
follows:
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ARTICLE 1. BRIDGE NOTES.
Section 1.1 Authorization, Issuance, and Sale of Notes. The Company has
authorized the sale and issuance, in accordance with the terms of this
Agreement, of up to $1,500,000 in original principal amount of its Bridge Notes
at one or more closings. The Company agrees to issue and sell to each Purchaser
and each Purchaser agrees to purchase from the Company, at a Closing, a Bridge
Note in the principal amount (the "Purchased Bridge Notes") set forth adjacent
to the caption "Purchased Bridge Notes" on the signature page to this Agreement
of each Purchaser hereto at a purchase price (the "Purchase Price") of 100% of
the principal amount of Bridge Notes purchased.
Section 1.2 Authorization and Issuance of Warrants. The Company has
authorized the issuance and delivery of Warrants exercisable for up to 300,000
shares of Common Stock (20% of total principal amount of Bridge Notes) in
connection with the issuance, sale, and delivery of the Bridge Notes. The
Company agrees to issue and deliver to each Purchaser a Warrant exercisable for
20,000 shares of Common Stock for each $100,000 in principal amount of the
Bridge Notes purchased by such Purchaser.
Section 1.3 Form of Payment. On or before the Closing Date, each Purchaser
shall pay the Purchase Price for the Purchased Bridge Notes to be issued and
sold to such Purchaser at the Closing, by wire transfer of immediately available
funds to:
Bank: SunTrust Bank, Atlanta
Center: 008
Account No.: 9088000008
ABA Routing No.: ▇▇▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Re: Compositech Ltd.-Escrow Account
Section 1.4 Closing. All closings of the purchase and sale of the Purchased
Bridge Notes shall take place at the offices of ▇▇▇▇▇▇▇ Law Group LLC, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ , within five (5) business
days following the date that $100,000 (the "Minimum Amount") is held by SunTrust
Bank, Atlanta (the "Escrow Agent"), subject to notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Section 5 below (such
closing being called the "First Closing" and such date and time being called the
"First Closing Date"). Following the First Closing, the Company anticipates it
will continue to offer the Bridge Notes until the offering of the Bridge Notes
is terminated or all $1,500,000 in principal amount is purchased. From time to
time, one or more additional closings may occur at such time and date as is
mutually agreeable between the Purchasers purchasing Bridge Notes at such
closing and the Company (each such closing being called an "Additional Closing"
and such date and time being called an "Additional Closing Date", and all of
such closings are hereinafter referred to individually as a "Closing" and
collectively as the "Closings," and each date on which a Closing shall occur is
hereinafter referred to as a "Closing Date" and collectively as the "Closing
Dates"). Each Closing is expected to take place by exchange of faxed signature
pages with originals to follow by overnight delivery.
Section 1.5 Deliveries at Closing. At each Closing the Company shall
deliver to the Purchasers:
(a) the original of this Agreement;
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(b) Bridge Notes in definitive form with attached Repricing
Warrants, registered in the name of each Purchaser, or the designee of
such Purchaser, representing the Purchased Bridge Notes purchased by
such Purchaser;
(c) Warrants in definitive form, registered in the name of each
Purchaser, or the designee of such Purchaser;
(d) a copy of the Registration Rights Agreement;
(e) a copy of the Escrow Agreement (the "Escrow Agreement") in
substantially the form of Exhibit D hereto;
(f) a copy of the Financing Statement (the "Financing Statement")
in substantially the form of Exhibit E hereto;
(g) a copy of the opinion of counsel to the Company, in
substantially the form of Exhibit F hereto;
(h) a copy of the Irrevocable Transfer Agent Instructions
Agreement (the "Transfer Agent Instructions"), in substantially the
form of Exhibit H hereto;
(i) the Compliance Certificate of the Company (the "Compliance
Certificate"); and
(j) the Secretary Certificate of the Company (the "Secretary's
Certificate").
ARTICLE 2. SECURITY AGREEMENT.
The provisions of this Section 2 shall remain in effect so long as any of
the Bridge Notes shall remain outstanding.
Section 2.1 Grant of Security Interest. In order to secure the obligations
of the Company due to the Purchasers (such obligations are sometimes hereinafter
referred to as the "Obligations") under the Bridge Notes, in addition to the
general credit of the Company, the Company hereby grants to Purchasers,
effective at the First Closing a continuing first priority security interest in
and a general lien upon:
(a) the equipment listed on Exhibit G hereto (the "Equipment");
and
(b) all proceeds, as such term is defined in Section 9-306(1) of
the UCC and, in any event, shall include, without limitation, (i) any
and all proceeds of any insurance, indemnity, warranty, or guaranty
payable to the Company from time to time with respect to any of the
Equipment, (ii) any and all payments (in any form whatsoever) made or
due and payable to the Company from time to time in connection with
any requisitions, confiscation, condemnation, seizure, or forfeiture
of all or any part of the Equipment by any governmental authority (or
any person acting under color of governmental authority), and (iii)
any and all other amounts from time to time paid or payable under or
in connection with any of the Equipment (collectively, the
"Collateral").
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Section 2.2 Remedies Upon Default. Upon the occurrence or existence of an
"Event of Default" as defined in Section 9 of the Bridge Notes, each Purchaser
shall have the right to pursue all available remedies at law or in equity,
including without limitation:
(a) all of the rights and remedies available to a secured party
under the Uniform Commercial Code as adopted in the State of New York
and any other applicable law, all of which shall be cumulative and
none of which shall be exclusive to the fullest extent permitted by
law, and all other legal and equitable rights under this Agreement and
the Transaction Agreements which may be available to Purchasers, all
of which shall be cumulative;
(b) the right to take possession of the Collateral upon receipt
by the Company of 24 hours' written notice of Purchasers' intention to
do so, and to enter the offices of the Company during normal business
hours to take possession of the Collateral; the right of the Purchaser
to (a) enter upon the premises of Company or any of its subsidiaries,
or any other place or places where the Collateral is located and kept,
through self-help and without judicial process, without first
obtaining a final judgment or giving Company or any of its
subsidiaries notice and opportunity for a hearing on the validity of
the Purchaser's claim and without any obligation to pay rent to
Company or any of its subsidiaries, and remove the Collateral
therefrom to the premises of Purchaser or any agent of Purchaser, for
such time as Purchaser may desire, in order to effectively collect or
liquidate the Collateral; and/or (b) require Company to assemble the
Collateral and make it available to Purchaser at a place to be
designated by the Purchaser, in their sole discretion.
(c) the right to sell or otherwise dispose of all or any part of
the Collateral in its then condition, at public or private sale or
sales, with such notice as may be required by law, in lots or in bulk,
for cash or on credit, all as such Purchaser may deem advisable, and
purchase all or any part of the Collateral at public or, if permitted
by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations,
and to apply the proceeds realized from such sale, after allowing two
(2) business days for collection, first to the reasonable costs,
expenses, and attorneys' fees and expenses incurred by such Purchaser
for collection and for acquisition, storage, sale, and delivery of the
Collateral, secondly to interest due upon the Obligations, and thirdly
to the principal of the Obligations; and
(d) the right to proceed by an action or actions at law or in
equity to obtain possession of the Collateral, to recover the
Obligations and amounts secured hereunder or to foreclose under this
Agreement and sell the Collateral or any portion thereof, pursuant to
a judgment or decree of a court or courts of competent jurisdiction,
all without the necessity of posting any bond.
Section 2.3 Filing of UCC Financing Statement. On, before, or as soon as
practicable after the First Closing, the Company shall execute and deliver for
filing one or more Financing Statements with the Secretary of State of New York
to perfect the security interest granted above.
Section 2.4 Notice. Any notice required to be given by Purchaser of a sale,
lease, or other disposition of the Collateral or any other intended action by
Purchaser, given to Company in the manner set forth in Section 9.5 below, at
least ten (10) days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to Company.
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce the Purchasers to purchase the Bridge Notes, the Company
represents and warrants to each Purchaser, except as referenced on Schedule 1
hereto (the "Disclosure Schedule"), which reference shall set forth the specific
section to which the qualification relates and the statement which constitutes
the qualification, that:
Section 3.1. Organization and Qualification. The Company and its
subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and each subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in which the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
Section 3.2. Authorization, Enforcement, Compliance with Other Instruments.
(a) The Company has the requisite corporate power and authority
to enter into and perform each of this Agreement, the Bridge Notes,
the Repricing Warrants, the Warrants, the Registration Rights
Agreement, the Escrow Agreement, the Transfer Agent Instructions, the
Financing Statement, and any related agreements (collectively, the
"Transaction Agreements" and individually a "Transaction Agreement"),
and to issue the Bridge Notes, the Repricing Warrants, and the
Warrants, and upon approval by the Company's stockholders and the
subsequent filing of an amendment to the Company's Charter at a
special meeting to be held by the Company on March 26, 1999 (the
"Charter Amendment"), the requisite power and authority to issue the
Conversion Shares, the Repricing Shares, and the Warrant Shares in
accordance with the terms hereof and thereof;
(b) the execution and delivery by the Company of each of the
Transaction Agreements and the consummation by it of the transactions
contemplated thereby, including without limitation the issuance of the
Bridge Notes, the Warrants, and the Repricing Warrants, and upon
approval and filing of the Charter Amendment, the reservation for
issuance and the issuance of the Conversion Shares issuable upon
conversion of the Bridge Notes and the reservation for issuance and
the issuance of the Repricing Shares and the Warrant Shares upon
exercise of the Repricing Warrants and the Warrants (the Bridge Notes,
the Repricing Warrants, the Warrants, the Conversion Shares, the
Repricing Shares, and the Warrant Shares are hereinafter collectively,
the "Securities") have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the
Company, its Board of Directors, or its stockholders;
(c) each of the Transaction Agreements have been duly and validly
executed and delivered by the Company; and
(d) each of the Transaction Agreements constitute the valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, or similar laws
relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
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Section 3.3. Capitalization. Immediately prior to Closing, the authorized
capital stock of the Company consisted of 29,714,161 shares of capital stock, of
which 25,000,000 shares are Common Stock, par value $.01, of which 14,973,016
shares are issued and outstanding, and 4,714,161 shares are preferred stock (the
"Preferred Stock"), of which 714,161 shares are Series A Preferred Stock, par
value $3.00 per share, of which 487,661 shares are issued and outstanding, 220
shares are 7% Series B Convertible Preferred Stock, par value $.01 per share and
stated value $10,000 per share, of which 25 shares are issued and outstanding,
and 3,999,780 shares are undesignated Preferred Stock, of which no shares are
issued or outstanding. All of such outstanding shares have been duly authorized
and validly issued and are fully paid and nonassessable. Except as described in
Section 3.3 of the Disclosure Schedule, no shares of Common Stock or preferred
stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in
Section 3.3 of the Disclosure Schedule, as of the effective date of this
Agreement, (a) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls, or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings,
or arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (b) there are no outstanding debt securities, and (c) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement). There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities in the manner contemplated by this
Agreement. The Company has furnished to the Purchaser true and correct copies
of: (x) the Company's Certificate of Incorporation, as amended prior to the date
here of (the "Charter") and as proposed to be amended pursuant to the Charter
Amendment, (y) the Company's Bylaws, as in effect on the date hereof (the
"Bylaws"), and (z) the terms of all securities convertible into or exercisable
for Common Stock and the material rights of the holders thereof in respect
thereto.
Section 3.4. Issuance of Securities. The Bridge Notes have been duly
authorized and are free from all transfer and issuance taxes, liens, and charges
with respect to the issue thereof. The Conversion Shares issuable upon approval
and filing of the Charter Amendment and conversion of the Bridge Notes have been
duly authorized and reserved for issuance. The Repricing Warrants have been duly
authorized and are free from all transfer and issuance taxes, liens, and charges
with respect to the issuance thereof. The Repricing Shares issuable upon
approval and filing of the Charter Amendment and exercise of the Repricing
Warrants have been duly authorized and reserved for issuance. The Warrants have
been duly authorized and are free from all transfer and issuance taxes, liens,
and charges with respect to the issuance thereof. The Warrant Shares issuable
upon exercise of the Warrants have been duly authorized and reserved for
issuance. Upon conversion of the Bridge Notes, the Conversion Shares will, and
upon exercise of the Repricing Warrants and the Warrants, the Repricing Shares
and the Warrant Shares will, be duly and validly issued, fully paid, and
nonassessable, and free from all transfer and issuance taxes, liens, and
charges, with respect to the issuance thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock.
Section 3.5. No Conflicts. Except as disclosed in Section 3.5 of the
Disclosure Schedule, the execution, delivery, and performance of the Transaction
Agreements by the Company, and the consummation by the Company of the
transactions contemplated thereby, will not (a) result in a violation of the
Charter or the Bylaws of the Company or (b) conflict with, constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of
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termination, amendment, acceleration, or cancellation of, any agreement,
indenture, or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment,
or decree (including federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its subsidiaries is
bound or affected. Except as described in Section 3.5 of the Disclosure
Schedule, neither the Company nor any subsidiary is in violation of any term of,
or in default under, its Charter or the Bylaws or their organizational charter
or Bylaws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree, or order or any statute,
rule, or regulation applicable to the Company or its subsidiaries. The business
of the Company and its subsidiaries is not being conducted, and shall not be
conducted in violation of any law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization, or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver, and perform any of its obligations under or contemplated by
the Transaction Agreements in accordance with the terms thereof. Except as
disclosed in Section 3.5 of the Disclosure Schedule, all consents,
authorizations, orders, filings, and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
Section 3.6. SEC Documents; Financial Statements. Since November 16, 1998,
the Company has filed all reports, schedules, forms, statements, and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents"). The Company has made available to the Purchaser or its
representative true and complete copies of the SEC Documents. The Company (i) is
a "reporting issuer" as defined in Rule 902(1) of Regulation S and (ii) has a
class of securities registered under Section 12(b) or 12(g) of the 1934 Act or
is required to file reports pursuant to Section 15(d) of the 1934 Act, and has
filed all the materials required to be filed as reports pursuant to the Exchange
Act for the period the Company was required by law to file such material. As of
their respective dates, the financial statements of the Company included in the
SEC Documents (the "Financial Statements") complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (a) as may be
otherwise indicated in such financial statements or the notes thereto, or (b) in
the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and present fairly, in all
material respects, the financial position of the Company as of the dates
thereof, and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Purchaser which is not included in the SEC Documents, including, without
limitation, information referred to in Section 3.5 of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
Section 3.7. Absence of Certain Changes. Except as described in Section 3.7
of the Disclosure Schedule or the SEC Documents, there has been no material
adverse change and no material
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adverse development in the business, properties, operations, financial
condition, results of operations, or prospects of the Company or any subsidiary.
The Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any subsidiary have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
Section 3.8. Absence of Litigation. There is no action, suit, proceeding,
inquiry, or investigation before or by any court, public board, government
agency, self-regulatory organization, or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company, the Common Stock, or any of the Company's subsidiaries, wherein an
unfavorable decision, ruling or finding would (a) have a material adverse effect
on the transactions contemplated hereby, (b) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under the Transaction Agreements, or (c) except as expressly set
forth in Schedule 3.8 of the Disclosure Schedule, have a material adverse effect
on the business, operations, properties, financial condition, or results of
operation of the Company and its subsidiaries taken as a whole.
Section 3.9. Purchase of Bridge Notes. The Company acknowledges and agrees
that the Purchaser is acting solely in the capacity of an arm's length purchaser
with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any advice given by
the Purchasers or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser's purchase of the Bridge Notes or the
Conversion Shares. The Company further represents to the Purchaser that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its representatives.
Section 3.10. No Undisclosed Events, Liabilities, Developments, or
Circumstances. No event, liability, development, or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
subsidiaries or their respective business, properties, prospects, operations, or
financial condition, which is material but which has not been publicly announced
or disclosed in writing to the Purchaser.
Section 8.11. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Bridge Notes or the Conversion Shares. The Company represents that it has not
offered the Bridge Notes or Conversion Shares to the Purchaser in the U.S. or,
to the best knowledge of the Company, to any person in the United States or any
U.S. person.
Section 3.12. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Bridge Notes, the Conversion Shares, the Repricing Warrants, the Repricing
Shares, the Warrants, or the Warrant Shares under the 1933 Act or cause this
offering to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions.
-8-
Section 3.13. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
Section 3.14. Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets, and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Section 3.14 of the
Disclosure Schedule, none of the Company's trademarks, trade names, service
marks, service ▇▇▇▇ registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets, or other intellectual property rights have expired or terminated, or
are expected to expire or terminate prior to the first anniversary of this
Agreement. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of the trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service ▇▇▇▇ registrations, trade secret, or other similar rights
of others, or of any such development of similar or identical trade secrets, or
technical information by others and, except as set forth on Section 3.14 of the
Disclosure Schedule, there is no claim, action, or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
▇▇▇▇ registrations, trade secret, or other infringement, and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality, and value of all of
their intellectual properties.
Section 3.15. Environmental Laws. The Company and its subsidiaries are (a)
in compliance with any and all applicable foreign, federal, state, and local
laws and regulations relating to the protection of human health and safety, the
environment, or hazardous, toxic substances, wastes, pollutants, or contaminants
("Environmental Laws"), (b) have received all permits, licenses, or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses, and (c) are in compliance with all terms and conditions
of any such permit, license, or approval.
Section 3.16. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances, and defects except as described in Section 3.16 of the Disclosure
Schedule or as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries. Any real property and facilities held under lease
by the Company and its subsidiaries are held by them under valid, subsisting,
and enforceable leases with such exceptions as are not material, and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries. The Equipment is owned by the
Company free and clear of any and all encumbrances, liens, and adverse claims
whatsoever, has been at all times prior to the date hereof, and shall remain
from and after the date of this Agreement in the possession of the Company and
located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The cost of the
Equipment is approximately 200% of the aggregate principal amount of the Bridge
Notes from time to time outstanding.
-9-
Section 3.17. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks, and in such amounts, as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for, and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial, or otherwise, or the earnings, business, or operations of
the Company and its subsidiaries, taken as a whole.
Section 3.18. Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations, and permits issued by the appropriate federal,
state, or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization, or permit.
Section 3.19. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization, and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 3.20. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its subsidiaries is subject to any charter, corporate, or other legal
restriction, or any judgment, decree, order, rule, or regulation which in the
judgment of the Company's officers has, or is expected in the future to have, a
material adverse effect on the business, properties, operations, financial
condition, results of operations, or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has, or is
expected to have, a material adverse effect on the business, properties,
operations, financial condition, results of operations, or prospects of the
Company or its subsidiaries.
Section 3.21. Tax Status. Except as set forth on Section 3.21 of the
Disclosure Schedule, the Company and each of its subsidiaries has made or filed
all federal and state 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 has set aside on its books amounts deemed 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.
Section 3.22. Certain Transactions. Except as set forth on Section 3.22 of
the Disclosure Schedule and in the SEC Documents, and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the
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Company could obtain from third parties and other than the grant of stock
options disclosed on Section 3.3 of the Disclosure Schedule, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers,
and directors), including any contract, agreement, or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director, or such employee or, to the knowledge of the Company, any
corporation, partnership, trust, or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee, or partner.
Section 3.23. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Bridge
Notes will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Bridge
Notes in accordance with this Agreement and the Bridge Notes is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
Section 3.24. Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents, or other
third parties.
Section 3.25. Foreign Corrupt Practices Act. The Company has not made,
offered, or agreed to offer anything of value to any government official,
political party, or candidate for government office nor has it taken any action
which would cause the Company to be in violation of the Foreign Corrupt
Practices Act of 1977.
Section 3.26. Disclosure. Neither this Agreement nor any Schedule or
Exhibit hereto, contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
ARTICLE 4. REPRESENTATION AND WARRANTIES OF PURCHASERS
Each Purchaser represents and warrants to the Company, with respect to such
Purchaser only that:
Section 4.1. Investment Purpose. Purchaser is acquiring the Securities for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided however, that by
making the representations herein, Purchaser does not agree to hold any
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
Section 4.2. Accredited Investor Status. Purchaser is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
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Section 4.3. Reliance on Exemptions. Purchaser understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments, and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire such securities.
Section 4.4. Information. Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances, and operations
of the Company and materials relating to the offer and sale of the Securities,
which have been requested by such Purchaser. Purchaser and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by Purchaser or
its advisors, if any, or its representatives shall modify, amend, or affect such
Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 hereof. Purchaser understands that its investment in the
Securities involves a high degree of risk. Purchaser has sought such accounting,
legal, and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Securities.
Section 4.5. No Governmental Review. Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities, or
the fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
Section 4.6. Transfer or Resale. Purchaser understands that except as
provided in the Registration Rights Agreement:
(a) the Securities, the Repricing Warrants, and the Warrants,
have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold,
assigned, or transferred unless;
(i) subsequently registered thereunder;
(ii) Purchaser shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned, or transferred may be
sold, assigned, or transferred pursuant to an exemption from such
registration; or
(iii) Purchaser provides the Company with reasonable
assurance that such securities can be sold, assigned, or
transferred pursuant to Rule 144 or promulgated under the 1933
Act (or a successor rule thereto);
(b) any sale of such securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule
144") may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities
under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is
defined in the ▇▇▇▇ ▇▇▇) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and
(c) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and
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conditions of any exemption thereunder.
Section 4.7. Legends. Purchaser understands that the certificates or other
instruments representing the Bridge Notes and, until such time as the sale of
the Conversion Shares have been registered under the 1933 Act as contemplated by
the Registration Rights Agreement, the stock certificates representing the
Conversion Shares shall bear a restrictive legend in substantially the following
form (and a stop transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF
AN EFFECTive REGIStratiON STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Bridge Notes and the
Conversion Shares, upon which it is stamped, if, unless otherwise required by
state securities laws, (a) the sale of the Conversion Shares is registered under
the 1933 Act, (b) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment, or transfer of the Bridge Notes and the
Conversion Shares may be made without registration under the 1933 Act, or (c)
such holder provides the Company with reasonable assurances that the Bridge
Notes and the Conversion Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold.
Section 4.8. Authorization Enforcement. This Agreement has been duly and
validly authorized, executed, and delivered on behalf of Purchaser and is a
valid and binding agreement of Purchaser enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
Section 4.9. Residence. Purchaser is a resident of that country specified
in its address on the Schedule of Purchaser.
Section 4.10. No Scheme to Evade Registration. Purchaser represents and
warrants to the Company that the acquisition of the Repricing Warrants and the
Repricing Shares, is not a transaction (or any element of a series of
transactions) that is part of a plan or scheme by the Purchaser to evade the
registration provisions of the 1933 Act.
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act;
(b) it has sufficient knowledge and experience to evaluate the risks
and merits of its investment in the Company and it is able financially to
bear the risks thereof;
(c) it has had an opportunity to ask questions of and receive answers
from and to discuss the Company's business, management, and financial
affairs with the Company's management;
-13-
(d) the Securities are being acquired for its own account for the
purpose of investment and not with a view to or for sale in connection with
any distribution thereof;
(e) it was not offered nor made aware of the Company's interest in
issuing the Bridge Notes by any means of public advertisement or
solicitation;
(f) in connection with such Purchaser's purchase of the Securities, it
has been solely responsible for its own (i) due diligence investigation of
the Company and (ii) investment decision, and has not engaged or relied
upon any agent or "purchaser representative" to review or analyze the
Company's business and affairs or advise Purchaser with respect to the
merits of the investment;
(g) it has full power and authority to execute, deliver, and perform
this Agreement; and this Agreement will constitute the legal, valid, and
binding obligation of the Purchaser, enforceable against it in accordance
with their respective terms; and
(h) in the event that the Purchaser proposes to sell the Securities
pursuant to Rule 144A under the Securities Act, it will (A) take reasonable
steps to obtain the information required by such Rule to establish a
reasonable belief that the prospective purchaser is a "qualified
institutional buyer" as such term is defined in Rule 144A and (B) advise
the prospective purchaser that the Purchaser is relying on the exemption
from the registration provisions of the Securities Act available pursuant
to Rule 144A.
Section 4.10. Covenant Not to Trade. Each Purchaser for itself and on
behalf of each affiliate and associate of Purchaser covenants and agrees, not to
purchase, sell, make any short sale of, pledge, grant any option for the
purchase or sale of or otherwise trade any Common Stock prior to the conversion
of the Bridge Notes (other than a purchase of Common Stock from the Company
pursuant to the exercise of the Repricing Warrant or the Warrant), without the
prior written consent of the Company.
ARTICLE 5. CONDITIONS OF INITIAL CLOSING
The Purchaser's obligation to purchase and pay for the Securities is
subject to the satisfaction prior to or at the Closing of the following
conditions:
Section 5.1. Transaction Agreements. The Company shall have delivered to
Purchaser the Transaction Agreements as provided in Section 1.5, above, executed
by all the parties thereto, provided however, that the Company at its option may
deliver to Purchaser the Transfer Agent Instructions in accordance with Section
7.12 hereof.
Section 5.2. Opinion of Counsel. Purchaser shall have received from counsel
for the Company, an opinion in substantially the form of Exhibit F, addressed to
Purchaser, dated the Closing Date. To the extent that the opinion referred to in
the preceding sentence is rendered in reliance upon the opinion of any other
counsel, Purchaser shall have received a copy of such opinion of such other
counsel, dated the Closing Date and addressed to Purchaser, or a letter from
such other counsel, dated the Closing Date and addressed to Purchaser,
authorizing Purchaser to rely on such other counsel's opinion.
Section 5.3. Representations and Warranties; No Default. The
representations and warranties of the Company contained in this Agreement and
those otherwise made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement shall be true in all
material respects, except to the extent of changes caused by the transactions
contemplated herein;
-14-
provided however, that there shall exist at the time of the Closing and after
giving effect to such transactions no default or Event of Default (as defined in
Section 9 of the Bridge Note).
Section 5.4. Purchase and Loan Permitted by Applicable Laws. The purchase
of, and payment for, all the Securities evidenced by or attendant to the Bridge
Notes shall not violate any applicable domestic law or governmental regulation
(including, without limitation, Section 5 of the Securities Act) and shall not
subject Purchaser to any tax, penalty, liability, or other onerous condition
under, or pursuant to, any applicable law or governmental regulation or order.
Section 5.5. No Adverse Litigation. There shall be no action, suit,
investigation, or proceeding, pending or, to the best of Purchaser's or the
Company's knowledge, threatened, against or affecting Purchaser, the Company,
any of Purchaser's or the Company's properties or rights, or any of Purchaser's
or the Company's affiliates, officers, or directors, by or before any court,
arbitrator, or administrative or governmental body which (i) seeks to restrain,
enjoin, prevent the consummation of, or otherwise affect the transactions
contemplated by this Agreement or (ii) questions the validity or legality of any
such transactions, or (iii) seeks to recover damages or obtain other relief in
connection with any such transactions, and, to the best of Purchaser's and the
Company's knowledge, there shall be no valid basis for any such action,
proceeding, or investigation, and Purchaser shall have received a certificate
executed by the chief executive officer of the Company, dated the Closing Date,
to such effect.
Section 5.6. Approvals and Consents. The Company shall have duly received
all authorizations, waivers, consents, approvals, licenses, franchises, permits,
and certificates (collectively, "Consents") by or of all federal, state, and
local governmental authorities and all material consents by or of all other
persons necessary or advisable for the issuance of the Bridge Notes, all such
consents shall be in full force and effect at the time of Closing, and Purchaser
shall have received a certificate executed by the chief executive officer of the
Company, dated the Closing Date, to such effect.
Section 5.7. No Material Adverse Change. Since Septenber 30, 1998, there
shall not have been any material adverse change in the business, condition
(financial or other), assets, properties, operations, or prospects of the
Company, and Purchaser shall have received a certificate executed by the chief
executive officer of the Company, dated the Closing Date, to such effect.
Section 5.8 Proceedings. All proceedings taken or to be taken in connection
with the transactions contemplated hereby, and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and
Purchasers counsel, and Purchaser and Purchasers counsel shall have received all
such counterpart originals or certified or other copies of such documents as the
Purchaser or Purchasers' counsel may reasonably request.
Section 5.9 Secretary Certificate. Purchaser shall have received a
Secretary's Certificate from the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (A) that attached thereto is a
true and complete copy of the Charter as then in effect, certified or bearing
evidence of filing by the Secretary of State of Delaware, and (B) a certificate
of said Secretary of State, dated as of a recent date as to the due
incorporation and good standing of the Company, the payment of all franchise
taxes by the Company, and listing all documents of the Company on file with said
Secretary of State; (C) that attached thereto is a true and complete copy of the
Bylaws of the Company as in effect on the date of such certification; (D) that
attached thereto is a true and complete copy of all resolutions adopted by the
Board of Directors or the shareholders of the Company authorizing the execution,
delivery, and performance of Transaction Agreements and the issuance, sale, and
delivery of the Securities, and that all such resolutions are in full force and
effect and are all the resolutions adopted in
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connection with the foregoing agreements and the transactions contemplated
thereby; (E) that the Charter has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause (A) above;
and (F) to the incumbency and specimen signature of each officer of the Company
executing all Transaction Agreements and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of the Company as to the
incumbency and signature of the officer signing the certificate.
Section 5.10. Lien Search. The Company shall execute a lien search, the
results of which shall indicate that, upon filing of the appropriate required
UCC Financing Statements, Purchaser shall gain a priority security interest in
the Collateral.
Section 5.11. UCC Financing Statement. The Company shall have promptly
filed the appropriate UCC Financing Statement in the form, manner, time, and
place of filing required by the County and State where the Collateral is
situated, to properly perfect the security granted herein.
Section 5.12. Transfer Agent Instructions. The Transfer Agent Instructions,
in form and substance satisfactory to the Purchaser, shall have been delivered
to and acknowledged in writing by the Company's transfer agent.
ARTICLE 6. CONDITIONS TO ADDITIONAL CLOSINGS
Section 6.1. Representations and Warranties; No Default. The
representations and the warranties of the Company contained in this Agreement
and those otherwise made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement shall be true in all
material respects, except to the extent of changes caused by the transactions
contemplated herein; provided however, that there shall exist no Event of
Default under this Agreement or any of the Bridge Notes at the time of an
Additional Closing.
Section 6.2. No Suspensions. There shall be no suspensions of trading in or
in delisting (or pending delisting) of the Common Stock.
Section 6.3. Opinion of Counsel. Purchaser shall have received from counsel
for the Company, an opinion in substantially the form of Exhibit F, addressed to
Purchaser, dated the Additional Closing Date. To the extent that the opinion
referred to in the preceding sentence is rendered in reliance upon the opinion
of any other counsel, Purchaser shall have received a copy of such opinion of
such other counsel, dated the Additional Closing Date and addressed to
Purchaser, or a letter from such other counsel, dated the Additional Closing
Date and addressed to Purchaser, authorizing Purchaser to rely on such other
counsel's opinion.
Section 6.4. Shareholder Approval. Company, if required, must obtain
shareholder approval on placement so as to address the NASD 20% rule.
Section 6.5. No Material Adverse Change. Since date hereof, there shall not
have been any material adverse change in the business, condition (financial or
other), assets, properties, operations, or prospects of the Company, and
Purchaser.
ARTICLE 7. AFFIRMATIVE COVENANTS
The Company covenants that from and after the date of this Agreement
through the Closing and thereafter so long as the Bridge Notes remain
outstanding:
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Section 7.1. Financial Information. The Company shall furnish to Purchaser:
(a) within five (5) days after the filing thereof with the SEC, a copy
of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K, and any registration statements or amendments
filed pursuant to the 1933 Act;
(b) within one (1) day after release thereof, copies of all press
releases issued by the Company or any of its subsidiaries;
(c) copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders;
(d) promptly upon any officer of the Company obtaining knowledge (i)
of any condition or event which constitutes an Event of Default, (ii) that
the holder of any Bridge Note has given any notice or taken any other
action with respect to a claimed Event of Default under this Agreement,
(iii) of any condition or event which, in the opinion of management of the
Company would have a material adverse effect on the business, condition
(financial or other), assets, properties, operations, or prospects of the
Company, other than conditions or events applicable to the economy as a
whole, (iv) that any person has given any notice to the Company or taken
any other action with respect to a claimed Event of Default, or (v) of the
institution of any litigation involving claims against the Company, unless
such litigation is defended by the insurance carrier without any
reservation of rights and is reasonably expected to be fully covered by a
creditworthy insurer, in an amount equal to or greater than $250,000 with
respect to any single cause of action or of any adverse determination in
any litigation involving a potential liability to the Company equal to or
greater than $100,000 with respect to any single cause of action, a
certificate executed by the chief executive officer of the Company
specifying the nature and period of existence of any such condition or
event, or specifying the notice given or action taken by such holder or
person and the nature of such claimed Event of Default, event or condition,
and what action the Company has taken, is taking, or proposes to take with
respect thereto; and
(e) with reasonable promptness, such other information and data with
respect to the Company as Purchaser may reasonably request.
Section 7.2 Form D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Purchaser at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Purchaser on or prior
to the Closing Date.
Section 7.3. Reporting Status. Until the earlier of (a) the date as of
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares without restriction pursuant to
Rule l44(k) promulgated under the 1933 Act (or successor thereto), or (b) the
date on which (i) the Investors shall have sold all the Conversion Shares and
(ii) none of the Bridge Notes is outstanding (the "Registration Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file
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reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise permit such termination.
Section 7.4. Inspection of Property. The Company will permit any Person
designated by any Purchaser in writing, at Purchaser's expense, to visit and
inspect any of the properties of the Company, to examine the books and financial
records of the Company and make copies thereof or extracts therefrom and to
discuss its affairs, finances, and accounts with its officers and its
independent public accountants, all at reasonable times and upon reasonable
prior notice to the Company.
Section 7.5. Maintenance of Properties; Insurance. The Company will
maintain or cause to be maintained in good repair, working order, and condition
all properties used or useful in the business of the Company and from time to
time will make or cause to be made all appropriate repairs, renewals, and
replacements thereof. The Company will maintain or cause to be maintained, with
financially sound and reputable insurers (or, as to workers' compensation or
similar insurance, in an insurance fund or by self-insurance authorized by the
laws of the jurisdiction in question), insurance with respect to their
respective properties and businesses against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or similar businesses and similarly situated, of such type and in such
amounts as are customarily carried under similar circumstances by such other
corporations and as are in good faith believed by the Company to be sufficient
to prevent the Company from becoming a co-insurer within the terms of the
policies in question.
Section 7.6. Maintenance of Security Interest. The Company will maintain or
cause to be maintained a perfected first priority security interest in favor of
Purchasers in the Collateral having a value of approximately 200% of the
aggregate principal amount of the Bridge Notes then outstanding.
Section 7.7. Expenses. The Company and Purchasers shall pay all costs and
expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution, and delivery of this Agreement, the other
Transaction Agreements, and all other documents executed in connection with the
issuance of the Bridge Notes. The fees, costs, and expenses of legal counsel to
Sovereign Capital, LLC (not to exceed $15,000 in fees plus all expenses for the
First Closing) shall be paid for by the Company at the First Closing, and the
fees and expenses for all subsequent Closings (not to exceed $2,000 in fees plus
all expenses for each subsequent Closing) shall be paid for by the Company at
each subsequent Closing.
Section 7.8. Authorized Shares of Common Stock, Reservation of Shares. The
Company shall at all times, so long as any of the Bridge Notes are outstanding
and upon approval and filing of the Charter Amendment, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Bridge Notes, such number of shares
of Common Stock equal to or greater than 200% of the number of Conversion Shares
issuable upon conversion of the Bridge Notes which are then outstanding or which
could be issued at any time under this Agreement.
Section 7.9. Corporate Existence, Etc. The Company will at all times
preserve and keep in full force and effect its corporate existence, and rights,
licenses, and franchises material to its business, and will qualify to do
business as a foreign corporation in each jurisdiction where the failure to so
qualify would have a material adverse effect on the business, condition
(financial or other), assets, properties, or operations of the Company, taken as
a whole.
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Section 7.10. Transfer Agents. The Company covenants and agrees that, in
the event that the Company's agency relationship with the transfer agent should
be terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the transfer agent execute and agree to be bound by the terms
of the Transfer Agent Instructions.
Section 7.11. Shareholder Approval; Proxy. The Company covenants to submit
to its shareholders at its next shareholder meeting a proposal for ratification
of the issuance of the Bridge Notes and the Conversion Shares, if and as
required by the rules of the National Association of Securities Dealers, Inc.
(the "NASD") applicable to the transaction. All officers and directors will,
upon request of Purchaser, execute a proxy authorizing Purchaser or any designee
of Purchaser to vote all shares of Common Stock, the voting of which is
controlled by such officer or director, at any meeting (or any adjournment
thereof) at which Shareholder action is proposed to ratify the issuance of the
Bridge Notes and the Conversion Shares.
Section 7.12. Transfer Agent Instructions. The Company may deliver to
Purchaser the Transfer Agent Instructions, executed by the Company and the
Company's transfer agent, at any time up to thirty (30) days after the First
Closing. The Company shall issue the Transfer Agent Instructions to its transfer
agent to issue certificates, registered in the name of the Purchaser or its
respective nominee(s), for the Conversion Shares, the Repricing Shares, and the
Warrant Shares in such amounts as specified from time to time by the Purchaser
to the Company upon conversion of the Bridge Notes. Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 4.7 of this Agreement. The Company
warrants that no instruction other than the Transfer Agent Instructions referred
to in this Section 7.12, and stop transfer instructions to give effect to
Section 4.6 hereof (in the case of the Conversion Shares, prior to registration
of such shares under the ▇▇▇▇ ▇▇▇) will be given by the Company to its transfer
agent and that the Bridge Notes and the Conversion Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 7.12 shall affect in any way the Purchaser's obligations and
agreement to comply with all applicable securities laws upon resale of the
Bridge Notes or Conversion Shares. If the Purchaser provides the Company with an
opinion of counsel, reasonably satisfactory in form, and substance to the
Company, that registration of a resale by the Purchaser of any of the Bridge
Notes or Conversion Shares is not required under the 1933 Act, the Company shall
permit the transfer, and, in the case of the Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchaser. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Purchaser by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 7.12 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 7.12, that the Purchaser shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
Section 7.13. Payment of Taxes. The Company will pay all taxes,
assessments, and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income,
or properties before any penalty or significant interest accrues thereon, and
all claims (including, without limitation, claims for labor, services,
materials, and supplies) for sums which have become due and payable and which by
law have or may become a lien upon any of its properties or assets, provided
that no such charge or claim need be paid if such claim is (i) being
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contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, and (ii) the amount of such claim is accrued on the
financial statements of the Company or other appropriate provision is made as
shall be required by generally accepted accounting principles.
Section 7.14. Compliance with Laws, Etc. The Company will comply with the
requirements of all applicable laws, rules, regulations, and orders of any court
or other governmental authority (including, without limitation, those related to
environmental or ERISA compliance), noncompliance with which could materially
adversely affect the business, condition (financial or other), assets, property,
operations, or prospects of the Company.
Section 7.15. Use of Proceeds. The Company will use the proceeds from the
sale and issuance of the Bridge Notes as follows: ongoing working capital
requirements, enhancement of existing equipment, and expansion of the Company's
sales and marketing efforts.
Section 7.16. Registration Statement. The Company shall fulfill all its
obligations under and otherwise shall comply with all the terms of the
Registration Rights Agreement within the time frames specified therein.
Section 7.17. Listings. The Company shall promptly secure the listing of
the Conversion Shares, the Repricing Shares, and the Warrant Shares in
accordance with the Registration Rights Agreement, upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listings of all Conversion Shares, the Repricing Shares, and the Warrant Shares
form time to time issuable under the terms of the Bridge Notes, the Repricing
Warrants, the Warrants, and the Registration Rights Agreement. The Company shall
maintain the Common Stock's authorization for quotation in the over-the-counter
market. The Company shall promptly provide to Purchaser copies of any notices it
receives regarding the continued eligibility of the Common Stock for trading in
the over-the-counter market.
Section 7.18. Indemnification. In consideration of the Purchaser's
execution and delivery of this Agreement and acquiring the Bridge Notes, the
Warrant, the Conversion Shares, and the Warrant Shares hereunder and in addition
to all of the Company's other obligations under this Agreement, the Company
shall defend, protect, indemnify, and hold harmless the Purchaser and each other
holder of the Bridge Notes, the Warrant, the Conversion Shares, and the Warrant
Shares and all of their officers, directors, employees, and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities, and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Indemnitees
or any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in any Transaction Agreement or any other certificate, instrument, or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement, or obligation of the Company contained in the Transaction Agreements,
or any other certificate, instrument or document contemplated hereby or thereby,
or (c) any cause of action, suit, or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance, or enforcement of this Agreement or any other instrument, document,
or agreement executed pursuant hereto by any of the Indemnitees, any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Bridge Notes, or the status of the Purchaser or
holder of the Bridge Notes or the
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Conversion Shares, as an investor in the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
ARTICLE 8. NEGATIVE COVENANTS
The provisions of this Article 8 shall remain in effect so long
as the Bridge Notes shall remain outstanding. For purposes of this
Agreement, the capitalized term "Debt" of any Person shall mean:
(i) all indebtedness of such Person for borrowed money,
including without limitation obligations evidenced by bonds,
debentures, the Bridge Notes, or other similar instruments;
(ii) all indebtedness guaranteed in any manner by such
Person, or in effect guaranteed by such Person through an
agreement to purchase, contingent or otherwise;
(iii) all indebtedness secured by any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in
property owned by such Person, even though such Person has not
assumed or become liable for the payment of such indebtedness;
(iv) all indebtedness created or arising under any
conditional sale agreement or lease in the nature thereof
(including obligations as lessee under leases which shall have
been or should be, in accordance with generally accepted
accounting principles, recorded as capitalized leases) (but
excluding operating leases) or other title retention agreement
with respect to property acquired by such Person, even though the
rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession of such
property;
(v) all bankers' acceptances and letters of credit; and
(vi) liabilities in respect of unfunded vested benefits
under Plans covered by Title IV of ERISA.
Section 8.1. Restrictions on Debt. The Company will not create, assume, or
incur or become or at any time be liable in respect of, any Debt, except:
(a) the Bridge Notes issued pursuant to this Agreement;
(b) Debt outstanding on the date hereof to the extent reflected
on the most recent balance sheet of the Company or incurred in the
ordinary course of business thereafter; and
(c) Debt incurred in real estate leases; and
(d) purchase money security interests not to exceed $250,000 per
year.
Notwithstanding the foregoing provisions of Section 8.1, the Company will not
create, assume, or incur, or become or at any time be liable in respect of, any
Debt for money borrowed, advances made, or goods purchased, if the Purchaser of
such money or the Person making such advances or the vendor of such
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goods (or any Person who guarantees or becomes surety for all or any part of
such Debt or acquires any right or incurs any obligation to become, either
immediately or upon the occurrence of some future contingency, the owner of all
or any part thereof) shall have any right, by reason of any statute or
otherwise, to have any claim in respect of such Debt first satisfied out of the
general assets of the Company in priority to the claims of its general
creditors.
Section 8.2. Restrictions on Dividends. The Company will not (i) pay any
dividends, in cash or otherwise, on, (ii) make any distributions to holders of,
or (iii) purchase, redeem, or otherwise acquire any of its outstanding Common
Stock or Preferred Stock or set apart assets for a sinking or other analogous
fund for the purchase, redemption, retirement, or other acquisition of, any
shares of its Common Stock or Preferred Stock; provided however, that the
Company may, so long as at the time of and after giving effect thereof no Event
of Default has occurred and is continuing: (i) pay dividends on its outstanding
Preferred Stock in accordance with the Charter; (ii) with prior written approval
of Purchaser to repurchase shares of its Common Stock issued or to be issued by
the Company upon exercise of stock options granted to employees and directors of
the Company pursuant to the terms of plans adopted by the Board of Directors of
the Company; and (iii) pay cash in lieu of fractional shares of its Common Stock
on the exercise of outstanding warrants to purchase its Common Stock, pursuant
to the terms of such warrants.
Section 8.3. Restrictions on Transactions with Affiliates. The Company will
not make any loans or advances to any of its officers, directors, shareholders,
or affiliates, other than expense advances made by the Company to its officers
and employees in the ordinary course of business.
Section 8.4. Restrictions on Investments. Other than as permitted by this
Agreement, the Company will not purchase or acquire or invest in, or agree to
purchase or acquire or invest in the business, property, or assets of, or any
securities of, any other company or business, provided however, that the Company
may invest its Excess Cash as defined below in:
(a) securities issued or directly and fully guaranteed or insured
by the United States government or any agency thereof having
maturities of not more than one year from the date of acquisition;
(b) certificates of deposit or eurodollar certificates of
deposit, having maturities of not more than one hundred eighty days
from the date of acquisition, or one year from the date of acquisition
in the case of certificates of deposit or eurodollar certificates of
deposit being used to secure the Company's reimbursement obligations
under letters of credit (provided that nothing contained herein shall
be construed to permit letters of credit not otherwise permitted under
this Agreement);
(c) bank loan participations; and
(d) money market instruments having maturities of not more than
one hundred eighty days from the date of acquisition, or one year from
the date of acquisition in the case of money market instruments being
used to secure the Company's reimbursement obligations under letters
of credit (provided that nothing contained herein shall be construed
to permit letters of credit not otherwise permitted under this
Agreement);
in all cases of such credit quality as a prudent business person would invest
in. As used in this Section 8.4, Excess Cash shall mean that portion of the
proceeds of the Bridge Notes that has not been invested as described in Section
7.15 hereof.
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Section 8.5. Restrictions on Sale and Lease-Back Transactions. The Company
will not sell or transfer any of its properties to anyone with the intention of
taking back a lease of the same property or leasing other property for
substantially the same use as the property being sold or transferred; provided
however, that the Company may continue and extend its existing leasing
arrangements and may lease, under operating leases, fixtures, equipment, and
real estate in the ordinary course of business of the Company.
Section 8.6. Restrictions on Sales of Assets. The Company will not sell,
transfer, or dispose of any property except for sales of obsolete equipment
having a book value at the time of sale of not more than $100,000 in the
aggregate in any fiscal year.
Section 8.7. Restrictions on Subsidiaries. The Company will not, without
the written consent of Purchaser to organize, or transfer any assets to, any
Subsidiaries, provided that, if consent of the Purchaser is obtained and any
Subsidiaries are organized, or assets transferred, in compliance with this
Section 8.7, the Company will not permit such Subsidiaries to enter into any
transaction or agreement which would violate any of the provisions of this
Article 8 if such provisions were applicable to such Subsidiary.
Section 8.8. Change in Business. The Company will not cause or effect any
change in or addition to the primary business of the Company that has not been
approved by Purchaser, such that more than 10% of the net earnings of the
Company are derived from a business other than the business in which the Company
was engaged on the date hereof as reflected in the applicable last SEC Document
filed prior to the First Closing ("Change in Business").
Section 8.9. Permitted Actions under Article 8. The Company may undertake
an action otherwise prohibited under this Article 8, only if (i) the Company has
provided written notice of the proposed action to all Purchasers hereto, and has
provided to any Purchaser so requesting information with respect to the proposed
action, and (ii) the Company has obtained the prior written consent to any and
all such proposed actions from all the Purchasers hereto.
ARTICLE 9. MISCELLANEOUS.
Section 9.1. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
Section 9.2. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9.3. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 9.4. Entire Agreement. Amendments. This Agreement supersedes all
other prior oral or written agreements between the Purchaser, the Company, their
affiliates and persons acting on
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their behalf with respect to the matters discussed herein, and this Agreement
and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Purchaser
makes any representation, warranty, covenant, or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged with enforcement.
Section 9.5. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (a) upon
receipt, when delivered personally, (b) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested, (c)
three (3) days after being sent by U.S. certified mail, return receipt
requested, or (d) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Compositech, Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Executive Vice President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Patterson, Belknap, ▇▇▇▇ & Tyler LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Purchaser, to its address and facsimile number on the signature
page of such Purchaser hereto, with copies to such Purchaser's counsel as set
forth on the signature page of such Purchaser hereto. Each party shall provide
five- (5) days prior written notice to the other party of any change in address
or facsimile number.
Section 9.6. Interest. In no event shall the amount of interest due or
payable hereunder or under the Bridge Notes exceed the maximum rate of interest
allowed by applicable law, and if any such payment is inadvertently made by the
Company or is inadvertently received by any holder of Bridge Notes, then such
excess sum shall be credited as a payment of principal, unless the applicable
holder of a Bridge Note shall notify the Company in writing that it elects to
have such excess sum returned forthwith. It is the express intent hereof that
the Company not pay and the holder of the Bridge Notes not receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may
legally be paid by the Company under applicable law.
Section 9.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers. Any
Purchaser may assign its rights hereunder without the consent of the Company,
provided however,
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that any such assignment shall not release such Purchaser from its obligations
hereunder unless such obligations are assumed by such assignee and the Company
has consented to such assignment and assumption.
Section 9.8. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9. Publicity. The Company and Purchasers shall have the right to
approve, before issuance, any press releases or any other public statements with
respect to the transactions contemplated hereby; provided however, that the
Company shall be entitled, without the prior approval of Purchasers, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Purchaser shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
Section 9.10. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments, and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 9.11. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 9.12. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties agree that any appropriate
State court located in New Castle County, Delaware or the Federal courts located
in the District of Delaware, shall have jurisdiction of any case or controversy
arising under or in connection with this Agreement and shall be the proper forum
in which to adjudicate such case or controversy, and the parties further agree
to submit to the personal jurisdiction of such court.
IN WITNESS WHEREOF, Purchasers and the Company have caused this Series 1
Bridge Note Purchase and Security Agreement to be duly executed as of the date
first written above.
[Signatures on the following page]
-25-
COMPANY SIGNATURE PAGE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
COMPANY
COMPOSITECH, LTD.
By:_________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Executive Vice President
-26-
PURCHASER SIGNATURE PAGE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
PURCHASER
SOVCAP EQUITY PARTNERS, LTD.
By:__________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Director
================================================================================
SovCap Equity Partners, Ltd.
Purchaser Name Cumberland House
Address and #▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile Number P.O. Box CB - 13016
Nassau, New Providence
The Bahamas
================================================================================
Principal Amount of Bridge $500,000
Notes Purchased
================================================================================
Purchaser's Legal Counsel ▇▇▇▇▇▇▇ Law Group LLC
Address and ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
================================================================================
SCHEDULE 1
DISCLOSURE SCHEDULE
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
-1-
EXHIBIT A
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Form of Series 1 Bridge Note (with form of Repricing Warrant attached as
Attachment 1)
Form Attached hereto.
-1-
EXHIBIT B
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Form of Warrant
Form Attached hereto.
-1-
EXHIBIT C
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Form of Registration Rights Agreement
Form Attached hereto.
-1-
EXHIBIT D
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Form of Escrow Agreement
Form Attached hereto.
-1-
EXHIBIT E
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Financing Statement
-1-
EXHIBIT F
TO
SERIES 1 BRIDGE NOTE PURCHASE AND SECURITY AGREEMENT
Form of Opinion of Company Counsel to Purchasers
Form Attached hereto.
-1-
EXHIBIT G
TO
SERIES 1 BRIDGE NOT PURCHASE AND SECURITY AGREEMENT
List of Collateral
Form Attached hereto.
-1-
EXHIBIT H
TO
SERIES 1 BRIDGE NOT PURCHASE AND SECURITY AGREEMENT
Form of Transfer Agent Instructions Agreement
Form Attached hereto.
