Exhibit 4.3
SERIES B CONVERTIBLE PREFERRED STOCK
EXCHANGE AGREEMENT
between
ENERGY BIOSYSTEMS CORPORATION
and
THE EXCHANGING PARTY LISTED ON SCHEDULE I
Dated as of February 21, 1997
STOCK EXCHANGE AGREEMENT
STOCK EXCHANGE AGREEMENT dated as of February 21, 1997 by and between
Energy BioSystems Corporation, a Delaware corporation (the "Company"), and the
Exchanging Party listed on Schedule I of this Agreement (the "Exchanging
Party").
W I T N E S S E T H :
WHEREAS, the Company has offered to the holders of shares of Series A
Preferred Stock to exchange (the "Exchange Offer") their shares of Series A
Preferred Stock for shares of the authorized but unissued Series B Convertible
Preferred Stock, par value $0.01 per share, of the Company (the "Series B
Preferred Stock"), and the Exchanging Party desires to exchange its shares of
Series A Preferred Stock for shares of Series B Preferred Stock upon the terms
and provisions hereinafter set forth.
WHEREAS, concurrently with this Exchange Offer, the Company will be selling
up to 280,000 shares of the Company's authorized but unissued Series B Preferred
Stock to purchasers who will be executing Stock Purchase Agreements
substantially similar to this Agreement, containing similar representations and
warranties by the Company, covenants of the Company, registration rights,
conditions and other terms.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. EXCHANGE OF THE PREFERRED SHARES
(a) The Company agrees to issue to the Exchanging Party and, subject to
the terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, the
Exchanging Party agrees to exchange all of its shares of Series A Preferred
Stock which are set forth opposite the Exchanging Party's name on Schedule I
hereto (the "Exchanged Shares") for the same number of shares of the Company's
Series B Preferred Stock on the Closing Date specified in Section 2 hereof. The
exchange of Exchanged Shares for Shares shall be on a one-for-one basis. The
shares of Series B Preferred Stock being acquired under this Agreement and by
the other Exchanging Parties under the other Stock Exchange Agreements (as
hereinafter defined) are collectively herein referred to as the "Shares",
containing rights and privileges as more fully set forth in the Certificate of
Designations for the Series B Preferred Stock of the Board of Directors of the
Company which shall be substantially in the form attached hereto as Exhibit A
(the "Series B Certificate of Designations").
(b) The Shares are being issued to the Exchanging Party listed on Schedule
I hereto and to other Exchanging Parties under substantially identical
agreements (collectively, the "Exchanging Parties") pursuant to this Agreement
and other substantially identical agreements dated as of the date hereof (all
such agreements collectively, as from time to time assigned, supplemented or
amended
or as the terms thereof may be waived, the "Stock Exchange Agreements").
All Stock Exchange Agreements shall be dated the date hereof and shall be
identical except as to the identities of the respective Exchanging Parties. The
exchange of Exchanged Shares for Shares by each Exchanging Party under each
Stock Exchange Agreement is to be a separate exchange, and no Exchanging Party
shall have any liability under any Stock Exchange Agreement other than the Stock
Exchange Agreement to which it is a party.
(c) The Company will not be receiving any proceeds from the exchange of
the Exchanged Shares for the Shares.
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, the closing of the
exchange of the Exchanged Shares for Shares by the Exchanging Party (the
"Closing") will take place at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P., ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ at 10:00 A.M., Houston, Texas time, on February
26, 1997, or such other location, time and date as shall be determined by the
Company and the Agent. The Exchanging Party acknowledges that the Company will
conduct an initial closing of the Exchange Offer (the "Initial Closing")
concurrently with a closing of the sale of shares of Series B Preferred Stock
under one or more Stock Purchase Agreements, and may subsequently conduct an
additional closing or closings (a "Subsequent Closing") of the Exchange Offer
from time to time thereafter. The Closing shall occur on the date of the
Initial closing if the conditions to the Closing have been satisfied on or
before the Business Day preceding the Initial Closing and on the date of the
Subsequent Closing that follows the satisfaction of such conditions if the
Closing does not occur on the date of the Initial Closing. The Subsequent
Closing shall take place no later than March 10, 1997 unless such date is
extended by the Company in its sole discretion, to a date no later than March
31, 1997. The time and date of the Closing are herein referred to as the
"Closing Date."
(b) Subject to the terms and conditions hereof, on the Closing Date (i)
the Exchanging Party will deliver to the Company the certificate or certificates
representing the Exchanged Shares, duly endorsed for transfer to the Company and
(ii) the Company will deliver to the Exchanging Party a certificate registered
in the Exchanging Party's name (or the name of its nominee, if any, as specified
on Schedule I hereto) evidencing the same number of Shares.
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SECTION 3. DEFINITIONS
(a) For purposes of this Agreement, the following definitions shall apply
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined):
"Affiliate", when used with respect to any Person, means (i) if such Person
is a corporation, any executive officer or director thereof (other than a
director nominated pursuant to the Series B Certificate of Designations) and any
Person which is, directly or indirectly, the beneficial owner (by itself or as
part of any group) of more than five percent (5%) of any class of any equity
security (within the meaning of the Securities Exchange Act) thereof, and, if
such beneficial owner is a partnership, any general partner thereof, or if such
beneficial owner is a corporation, any Person controlling, controlled by or
under common control with such beneficial owner, or any executive officer or
director of such beneficial owner or of any corporation occupying any such
control relationship, (ii) if such Person is a partnership, any general partner
thereof, and (iii) any other Person which, directly or indirectly, controls or
is controlled by or is under common control with such Person. For purposes of
this definition, "control" (including the correlative terms "controlling",
"controlled by" and "under common control with"), with respect to any Person,
shall mean possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise. Except as provided
above, the holding of Shares (or Conversion Shares obtained upon conversion of
Shares), and the rights under any Stock Exchange Agreement or under the Series B
Certificate of Designations (or the exercise of any such rights, including,
without limitation, nominating a director to the Board of the Company or sending
an observer to Board meetings of the Company or any of the Subsidiaries), shall
not, by themselves, cause an Exchanging Party to be deemed to be an "Affiliate"
of the Company or of any Subsidiary.
"Agreement" means this Stock Exchange Agreement (together with exhibits and
schedules) as from time to time assigned, supplemented or amended or as the
terms hereof may be waived.
"Board" or "Board of Directors" means with respect to any Person which is a
corporation, a business trust or other entity, the board of directors or other
group, however designated, which is charged with legal responsibility for the
management of such Person, or any committee of such board of directors or group,
however designated, which is authorized to exercise the power of such board or
group in respect of the matter in question.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York or the State of Texas are
authorized or obligated by law or executive order to close.
"Capitalized Leases" means any lease to which the Company or a Subsidiary
is a party as lessee, or by which it is bound, under which it leases any
property (real, personal or mixed) from any lessor other than the Company or a
Subsidiary, and which is required to be capitalized in accordance with generally
accepted accounting principles consistently applied.
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"Closing" has the meaning set forth in Section 2(a) hereof.
"Closing Date" has the meaning set forth in Section 2(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and interpretations thereunder.
"Commission" means the Securities and Exchange Commission and any other
similar or successor agency of the federal government administering the
Securities Act or the Securities Exchange Act.
"Common Stock" of the Company or of a Subsidiary (as the case may be) shall
mean the Company's or a Subsidiary's (as the case may be) present authorized
common stock and any stock into which such Common Stock may hereafter be changed
or for which such Common Stock may be exchanged after giving effect to the terms
of such change or exchange (by way of reorganization, recapitalization, merger,
consolidation or otherwise) and shall also include any common stock of the
Company or of a Subsidiary (as the case may be) hereafter authorized and any
capital stock of the Company or of a Subsidiary (as the case may be) of any
other class hereafter authorized which is not preferred as to dividends or
assets over any other class of capital stock of the Company or of a Subsidiary
(as the case may be) or which has ordinary voting power for the election of
directors of the Company or of a Subsidiary (as the case may be); provided that
preferred stock of the Company or a Subsidiary with the right to vote together
with the common stock of such entity on various matters shall not be treated as
"Common Stock" hereunder.
"Company" means Energy BioSystems Corporation, a Delaware corporation, its
successors and assigns.
"Consent and Exchange Agreement" is the agreement by which holders of
Series A Preferred Stock elect to exchange shares of Series A Preferred Stock
for shares of Series B Preferred Stock on a one-for-one basis.
"Conversion Price" has the meaning specified in Section 2 of the Series B
Certificate of Designations.
"Conversion Share" or "Conversion Shares" means the shares of the Company's
Common Stock, par value $0.01 per share, obtained or obtainable upon conversion
of the Shares and shall also include any capital stock or other securities into
which Conversion Shares are changed and any capital stock or other securities
resulting from or comprising a reclassification, combination or subdivision of,
or a stock dividend on, any Conversion Shares. In the event that any Conversion
Shares are sold either in a public offering pursuant to a registration statement
under Section 6 of the Securities Act or pursuant to a Rule 144 Transaction,
then the transferees of such Conversion Shares shall not be entitled to any
benefits under this Agreement with respect to such Conversion Shares and such
Conversion Shares shall no longer be considered to be "Conversion Shares" for
purposes
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of Section 8 hereof, for purposes of the definition of Majority Shareholders or
for purposes of any consent or waiver provision or any other provision of this
Agreement.
"Eligible Holder" means any holder (or group of affiliated holders) which
is an Exchanging Party (or transferee of an Exchanging Party approved by the
Company, such approval not to be unreasonably withheld) or a purchaser of Series
B Preferred Stock (or transferee of such purchaser approved by the Company, such
approval not to be unreasonably withheld) and which holds 100,000 or more
Shares, or Conversion Shares issued on conversion of 100,000 or more Shares, or
an equivalent combination of the foregoing.
"Environmental Lien" has the meaning set forth in Section 7.7 hereof.
"ERISA" means, collectively, the Employee Retirement Income Security Act of
1974, as amended, and the regulations and interpretations thereunder.
"Exchanged Shares" has the meaning set forth in Section 1(a) hereof.
"Exchanging Party" means the person who accepts and agrees to the terms
hereof as indicated by such person's signature (as "the undersigned Exchanging
Party") on the execution page of this Agreement, together with such person's
successors and assigns.
"Exchanging Parties" has the meaning set forth in Section l(b) hereof,
together with their respective successors and assigns.
"Guaranty" means (i) any guaranty or endorsement of the payment or
performance of, or any contingent obligation in respect of, any indebtedness or
other obligation of any other Person, (ii) any other arrangement whereby credit
is extended to one obligor (directly or indirectly) on the basis of any promise
or undertaking of another Person (a) to pay the indebtedness of such obligor,
(b) to purchase an obligation owed by such obligor, (c) to purchase or lease
assets (or to provide funds, goods or services) under circumstances that would
enable such obligor to discharge one or more of its obligations or (d) to
maintain the capital, working capital, solvency or general financial condition
of such obligor, in each case whether or not such arrangement is disclosed in
the balance sheet of such other Person or is referred to in a footnote thereto
and (iii) any liability as a general partner of a partnership in respect of
indebtedness or other obligations of such partnership; provided, however, that
the term "Guaranty" shall not include (1) endorsements for collection or deposit
in the ordinary course of business or (2) obligations of the Company or its
Subsidiaries which would constitute Guaranties solely by virtue of the
continuing liability of a Person which has sold assets subject to liabilities
for the liabilities which were assumed by the Person acquiring the assets,
unless such liability is required to be carried on the consolidated balance
sheet of the Company. The amount of any Guaranty and the amount of indebtedness
resulting from such Guaranty shall be the maximum amount of the guarantor's
potential obligation in respect of such Guaranty.
"Hazardous Materials" means any pollutant, toxic substance, petroleum or
petroleum by-products, hazardous waste, or any material, compound, element or
chemical identified as a pollutant,
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toxic substance or hazardous waste or determined to be hazardous or toxic by a
governmental agency under the Comprehensive Environmental Response Compensation
and Liability Act (CERCLA), 42 U.S.C. 9601 et seq., the Resource Conservation
and Recovery Act (RCRA), 42 U.S.C. 6901 et seq., the Toxic Substances Control
Act (TSCA), 15 U.S.C. 2601 et seq., the Water Pollution Control Act (CWA), 33
U.S.C. 1251 et seq., the Clean Air Act (CAA), 42 U.S.C. 7501 et seq., the
Occupational Safety and Health Act (OSHA), 29 U.S.C. 655 and any other federal,
state, local or municipal laws, statutes, ordinances, codes, rules or
regulations imposing liability or establishing standards of conduct for
environmental protection. The term "Hazardous Materials" shall also include: raw
materials used or stored by the Company that contain Hazardous Materials;
building components (including but not limited to asbestos-containing materials)
that contain Hazardous Materials and manufactured products containing Hazardous
Materials.
"Indebtedness" of any Person means, without duplication, as of any date as
of which the amount thereof is to be determined, (i) all obligations of such
Person to repay money borrowed (including, without limitation, all notes payable
and drafts accepted representing extensions of credit, all obligations under
letters of credit, all obligations evidenced by bonds, debentures, notes or
other similar instruments and all obligations upon which interest charges are
customarily paid), (ii) all Capitalized Leases in respect of which such Person
is liable as lessee or as the guarantor of the lessee, (iii) all monetary
obligations which are secured by any Lien existing on property owned by such
Person whether or not the obligations secured thereby have been incurred or
assumed by such Person, (iv) all conditional sales contracts and similar title
retention debt instruments under which such Person is obligated to make
payments, (v) all Guaranties by such Person and (vi) all contractual obligations
(whether absolute or contingent) of such Person to repurchase goods sold or
distributed. "Indebtedness" shall not include, however, Indebtedness of the
Company to any of its wholly-owned Subsidiaries or Indebtedness of any wholly-
owned Subsidiary to the Company or to another wholly-owned Subsidiary.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same effect as any of the foregoing,
any assignment or other conveyance of any right to receive income and any
assignment of receivables with recourse against the assignor), any filing of a
financing statement as debtor under the Uniform Commercial Code or any similar
statute and any agreement to give or make any of the foregoing.
"Majority Shareholders" means the holder or holders, at the time, of at
least a majority of the Conversion Shares, including the Conversion Shares then
outstanding and the Conversion Shares then obtainable under outstanding Shares;
provided that such majority must in any event include each Eligible Holder.
"Material Adverse Effect" means any material and adverse effect on the
assets, properties, liabilities, business affairs, results of operations,
condition (financial or otherwise) or prospects of the Company.
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"Memorandum" means that certain Confidential Offering Memorandum dated
February 14, 1997 relating to the Shares.
"Outstanding" or "outstanding" means (a) when used with reference to the
Shares or the Conversion Shares as of a particular time, all Shares or
Conversion Shares theretofore duly issued except (i) Shares and Conversion
Shares theretofore reported as lost, stolen, mutilated or destroyed or
surrendered for transfer, exchange or replacement, in respect of which new or
replacement Shares or Conversion Shares have been issued by the Company, (ii)
Shares and Conversion Shares theretofore canceled by the Company and (iii)
Shares and Conversion Shares registered in the name of, as well as Shares and
Conversion Shares owned beneficially by, the Company, any Subsidiary or any of
their Affiliates and (b) when used with reference to the number of shares of
Common Stock of the Company as of a particular time, the then issued and
outstanding shares of Common Stock of the Company (not including treasury shares
or any other shares registered in the name of the Company, any Subsidiary or any
of their Affiliates), together with shares of Common Stock of the Company
issuable pursuant to any then outstanding warrants, options, convertible
securities or other rights to acquire shares of Common Stock of the Company.
For purposes of the preceding sentence, in no event shall "Affiliates" include
(x) the persons which are identified as "Exchanging Parties" on Schedule I
hereto or (y) any Affiliates of any such persons, except if such persons would
otherwise fall within the definition of "Affiliate" described above.
"Person" or "person" means an individual, corporation, partnership, firm,
association, joint venture, trust, unincorporated organization, government,
governmental body, agency, political subdivision or other entity.
"Preferred Stock" means any class of the capital stock of a corporation
(whether or not convertible into any other class of such capital stock) which
has any right, whether absolute or contingent, to receive dividends or other
distributions of the assets of such corporation (including, without limitation,
amounts payable in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of such corporation), which right is superior to the
rights of another class of the capital stock of such corporation. "Preferred
Stock" includes without limitation the Series B Preferred Stock.
"Registered Securities" means the Conversion Shares, any Common Stock
issued in payment of dividends on, or in connection with the redemption or
repurchase of, the Shares and any Shares included herein pursuant to Section
8.1(g) hereof.
"Restricted Payment" means (i) every dividend or other distribution paid,
made or declared by the Company or any Subsidiary on or in respect of any class
of its capital stock (as defined below), and (ii) every payment in connection
with the redemption, purchase, retirement or other acquisition by or on behalf
of the Company or any Subsidiary of any shares of the Company's or a
Subsidiary's capital stock (as defined below), whether or not owned by the
Company or any Subsidiary; provided, however, that the restrictions of the
foregoing clauses (i) and (ii) shall not apply to (a) any dividend, distribution
or other payment on or in respect of capital stock of the
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Company to the extent payable in shares of Common Stock of the Company, (b) any
payments from the Company to a wholly-owned Subsidiary, from a Subsidiary to the
Company or from a Subsidiary to a wholly-owned Subsidiary, (c) any repurchase of
Common Stock under stock purchase or option agreements from employees, advisors,
consultants or directors of the Company or otherwise upon termination of such
relationship with the Company (provided, that the aggregate amount paid pursuant
to such repurchases after the Closing Date shall not exceed $300,000 without the
consent of the Majority Shareholders), (d) any payments, dividends,
distributions or other transfers or actions (I) on or with respect to the
Company's Series A Preferred Stock or the shares of Common Stock issuable upon
conversion thereof pursuant to the terms of the Stock Purchase Agreements or the
Certificate of Designations relating to the Series A Preferred Stock should any
such shares of Series A Preferred Stock be remaining after the exchange
contemplated by this Agreement or (II) on or with respect to the Shares or the
Conversion Shares pursuant to terms of the Stock Exchange Agreements, Stock
Purchase Agreements or the Series B Certificate of Designations and (e) any
payments or distributions in respect of the liquidation and dissolution, or
winding up of the business and affairs, of the Company. For purposes of this
definition, "capital stock" shall also include warrants and other rights and
options to acquire shares of capital stock (whether upon exercise, conversion,
exchange or otherwise).
"Rights Expiration Date" means, with respect to any Eligible Holder, the
earlier of (a) the date on which such Eligible Holder owns neither (i) 100,000
or more Shares nor (ii) Conversion Shares issued on conversion of a number of
Shares at least equal to 100,000 less the number of any Shares remaining owned
by such Eligible Holder, and (b) the third anniversary of the Closing Date,
unless such Eligible Holder then owns 100,000 or more Shares.
"Rule 144" means (i) Rule 144 under the Securities Act as such Rule is in
effect from time to time and (ii) any successor rule, regulation or law, as in
effect from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act as such Rule is in
effect from time to time and (ii) any successor rule, regulation or law, as in
effect from time to time.
"Rule 144 Transaction" means a transfer of Shares or Conversion Shares (A)
complying with Rule 144 as such Rule is in effect on the date of such transfer
(but not including a sale other than pursuant to (i) "brokers' transactions" as
defined in clauses (1) and (2) of paragraph (g) or (ii) paragraph (k) of such
Rule as in effect on the date hereof) and (B) occurring at a time when Shares
(in the case of a transfer of Shares) or Conversion Shares (in the case of a
transfer of Conversion Shares) are registered pursuant to Section 12 of the
Securities Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules, regulations and interpretations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules, regulations and interpretations thereunder.
"Series A Certificate of Designations" has the meaning set forth in Section
4.2(d) hereof.
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"Series A Preferred Stock" has the meaning set forth in Section 4.2(a)
hereof.
"Series B Certificate of Designations" has the meaning set forth in Section
l(a) hereof.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock, par value $0.01 per share, which will be duly authorized on the
Closing Date and which will have the rights, powers and privileges on the
Closing Date as more fully set forth in the Series B Certificate of
Designations.
"Shares" has the meaning set forth in Section l(a) hereof, except that for
purposes of Section 7 and Section 8 hereof and the definition of "Conversion
Shares," the term "Shares" shall include the shares of Series B Preferred Stock
issued upon the exercise of the warrant, dated the date hereof, granting Alex.
▇▇▇▇▇ & Sons Incorporated (the "Agent") the right to purchase a specified number
of shares of Series B Preferred Stock and the shares of Series B Preferred Stock
issued upon the sale of shares of Series B Preferred Stock to purchasers
pursuant to the Stock Purchase Agreements. In the event that any Shares are
sold either in a public offering pursuant to a registration statement under
Section 6 of the Securities Act or pursuant to a Rule 144 Transaction, then the
transferees of such Shares shall not be entitled to any benefits under this
Agreement with respect to such Shares and such Shares shall no longer be
considered to be "Shares" for purposes of Section 8 hereof or any consent or
waiver provision or any other provision of this Agreement.
"Stock Exchange Agreements" has the meaning set forth in Section 1(b)
hereof.
"Stock Purchase Agreements" means the Series B Convertible Stock Purchase
Agreements, dated the date hereof, by which purchasers agree to purchase and the
Company agrees to sell shares of its authorized but unissued shares of Series B
Preferred Stock, par value $.01 per share. The Stock Purchase Agreement is
substantially similar to this Agreement, containing similar representations and
warranties by the Company, covenants of the Company, registration rights,
conditions and other terms.
"Subsidiary", with respect to any Person, means any corporation,
association or other entity of which more than 50% of the total voting power of
shares of stock or other equity interests (without regard to the occurrence of
any contingency) entitled to vote in the election of directors, managers or
trustees thereof is, at the time as of which any determination is being made,
owned or controlled, directly or indirectly, by such Person or one or more of
its Subsidiaries, or both. The term "Subsidiary" or "Subsidiaries" when used
herein without reference to any particular Person, means a Subsidiary or
Subsidiaries of the Company.
(b) For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision;
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(ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles consistently applied (except as otherwise provided herein);
(iii) all computations provided for herein, if any, shall be made in
accordance with generally accepted accounting principles consistently
applied (except as otherwise expressly provided herein);
(iv) any uses of the masculine, feminine or neuter gender shall also be
deemed to include any other gender, as appropriate;
(v) all references herein to actions by the Company or any Subsidiary,
such as "create", "sell", "transfer", "dispose of", etc., mean such action
whether voluntary or involuntary, by operation of law or otherwise;
(vi) the exhibits and schedules to this Agreement shall be deemed a
part of this Agreement;
(vii) each of the representations of the Company contained in Section 4
hereof is separate and is not limited, qualified or modified by the
existence, wording or satisfaction of any other representation of the
Company in Section 4 or otherwise;
(viii) each of the covenants of the Company contained in Section 7
hereof or otherwise contained in any Stock Exchange Agreement or the Series
B Certificate of Designations is separate and is not limited or satisfied
by the existence, wording or satisfaction of any other covenant of the
Company in Section 7 or otherwise; and
(ix) all references herein (in covenants or otherwise) to any action(s)
which are to be taken (or which are prohibited from being taken) by any
Person, the Company or any Subsidiary shall apply to such Person, the
Company or such Subsidiary, as the case may be, whether such action is
taken directly or indirectly.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Exchanging Party as follows as
of the date hereof and as of the Closing Date:
4.1 Corporate Existence, Power and Authority.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company is duly
qualified, licensed and authorized to
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do business and is in good standing in each jurisdiction in which it owns or
leases any material property or in which the conduct of its business requires it
to so qualify or be so licensed.
(b) The Company has no Subsidiaries, and does not control, directly or
indirectly, any other entity and does not own of record or beneficially,
directly or indirectly, (i) any shares of capital stock or securities
convertible into capital stock of any other corporation (except for short-term
investments of the Company's cash reserves and publicly-traded mutual funds) or
(ii) any participating interest in any partnership, joint venture or other non-
corporate business enterprise, except for the strategic alliances described in
the Memorandum.
(c) No proceeding has been commenced looking toward the dissolution or
merger of the Company or the amendment of its certificate of incorporation
(other than the Series B Certificate of Designations). The Company is not in
violation in any respect of its certificate of incorporation or bylaws.
(d) The Company has all requisite power, authority (corporate and other)
and legal right to own or to hold under lease and to operate the properties it
owns or holds and to conduct its business as now being conducted and as proposed
to be conducted, except where the failure to have such requisite power,
authority and legal right would not result in a Material Adverse Effect.
(e) The Company has all requisite power, authority (corporate and other)
and legal right to execute, deliver, enter into, consummate and perform the
Stock Exchange Agreements, including, without limitation, the issuance, exchange
and delivery by the Company of the Shares and to issue and deliver the
Conversion Shares issuable upon conversion of the Shares as contemplated herein
and therein and in the Series B Certificate of Designations. The execution,
delivery and performance of the Stock Exchange Agreements by the Company
(including, without limitation, the issuance, exchange and delivery by the
Company of the Shares and the issuance and delivery of the Conversion Shares
upon conversion of the Shares as contemplated herein and therein and in the
Series B Certificate of Designations) have been duly authorized by all required
corporate and other actions. As described in the Memorandum, the Company may
not have the ability to pay dividends on the Shares under certain circumstances.
The Company has duly executed and delivered the Stock Exchange Agreements. The
Stock Exchange Agreements constitute the legal, valid and binding obligations of
the Company enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally and except that the enforceability
of the indemnification provisions contained in the Stock Exchange Agreements may
be subject to considerations of public policy.
4.2 Stock.
(a) The authorized capital stock of the Company consists of (i) 30,000,000
shares of Common Stock, par value $0.01 per share, and (ii) 5,000,000 shares of
Preferred Stock, par value $0.01 per share, issuable in one or more series, of
which, after giving effect to the Series B Certificate of Designations, (w)
508,800 shares have been designated as Series A Convertible Preferred Stock
("Series A Preferred Stock"), (x) 904,000 shares have been designated as
Series B
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Preferred Stock, (y) 300,000 shares have been designated as Series One Junior
Participating Preferred Stock and (z) 3,287,200 shares are Undesignated
Preferred Stock. On the Closing Date and before giving effect to the exchange
of any shares of Series A Preferred Stock into shares of Series B Preferred
Stock: (A) 11,505,395 shares of the Company's Common Stock, par value $0.01 per
share, will be issued and outstanding (plus any shares of Common Stock issued
after February 13, 1997 pursuant to stock options in effect on such date), (B)
480,000 shares of Series A Preferred Stock will be issued and outstanding and
(C) up to 280,000 Shares of the Series B Preferred Stock will be outstanding.
The number of shares of Series A Preferred Stock will be reduced and the number
of shares of Series B Preferred Stock will be increased on a one-for-one basis
to the extent that shares of Series A Preferred Stock are exchanged for shares
of Series B Preferred Stock in the Exchange Offer. All of such outstanding
shares will be duly authorized, validly issued and outstanding, fully paid and
non-assessable with no personal liability attaching to the ownership thereof.
The Shares issued and delivered pursuant to this Stock Exchange Agreement will
be free and clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company. The Conversion Shares have been reserved for
issuance upon conversion of the Shares and, when issued in accordance with the
terms of the Shares, will be duly authorized, validly issued, fully paid and
non-assessable. None of the shares of the Company's capital stock outstanding
at Closing (including, without limitation, the Shares issued under the Stock
Exchange Agreements) (i) are subject to preemptive rights or (ii) provide the
holders thereof with any preemptive rights with respect to any issuances of
capital stock. Neither the issuance, exchange or delivery of the Shares nor the
issuance or delivery of the Conversion Shares is subject to any preemptive right
of stockholders of the Company or to any right of first refusal or other right
in favor of any person.
(b) The only shares of the Company's Common Stock reserved for issuance by
the Company are as follows (before giving effect to the exchange of any shares
of Series A Preferred Stock into shares of Series B Preferred Stock): (i)
3,083,636 shares issuable upon conversion of the Series A Preferred Stock
(including the Series A Preferred Stock issuable upon the exercise of warrants
issued to the placement agents in connection with the offering of the Series A
Preferred Stock), (ii) 2,105,862 shares issuable upon conversion of the Series B
Preferred Stock (including the Series B Preferred Stock issuable upon the
exercise of warrants issued to the Agent in connection with the offering of the
Series B Preferred Stock), (iii) 2,030,964 shares issuable upon exercise of
currently outstanding stock options pursuant to the Company's 1992 Stock
Compensation Plan, its Non-Employee Director Stock Option Plan and director and
consultant stock option agreements and (iv) 263,020 shares reserved for issuance
pursuant to the 1992 Stock Compensation Plan, the Non-Employee Director Stock
Option Plan and the Company's 1997 Stock Option Plan with respect to which no
options are presently outstanding.
(c) Except as referred to in Section 4.2(b) or in the Company's Amended
and Restated Certificate of Incorporation, there are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which the Company may become obligated to issue, sell, exchange or
transfer shares of its capital stock or other securities.
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(d) The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Amended and Restated
Certificate of Incorporation of the Company and the Certificate of Designations
with respect to the Series A Preferred Stock (the "Series A Certificate of
Designations"), a copy of each of which is attached hereto as Exhibit B and
Exhibit C, respectively, and the Series B Certificate of Designations.
(e) Except as contemplated by Section 8 hereof or as summarized on
Schedule II hereto, there are no outstanding registration rights with respect to
any capital stock of the Company.
(f) Except as provided in the Series A Certificate of Designations and the
Series B Certificate of Designations, the Company has no obligation (contingent
or other) to purchase, redeem or otherwise acquire any of its capital stock or
any interest therein or to pay any dividend or make any other distribution in
respect thereof.
(g) The Company has no knowledge of any voting agreements, voting trusts,
stockholders' agreements, proxies or other agreements or understandings that are
currently in effect or that are currently contemplated with respect to the
voting of any capital stock of the Company.
(h) There are no anti-dilution protections or other adjustment provisions
in existence with respect to any capital stock of the Company or any capital
stock referred to in Section 4.2(b) or 4.2(c) above, except with respect to the
Shares and except as provided in the Amended and Restated Certificate of
Incorporation of the Company, the Series A Certificate of Designations and for
standard provisions in option agreements under the Company's plans for
employees, directors, consultants and advisors and in the warrants and warrant
agreements issued by the Company and described in (b) above.
(i) All of the outstanding securities of the Company were issued in
compliance with all applicable federal and state securities laws.
(j) The Series B Certificate of Designations has been duly adopted by the
Company and is fully effective. The Series B Certificate of Designations
accurately describes all of the rights, priorities and terms of the Shares.
4.3 Business.
The Company is engaged in the business of developing and commercializing
innovative biotechnology-based processes for the petroleum refining and
production industries. The Company
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does not currently engage in, or have any intention of engaging in, any other
business other than that which is described in the Memorandum.
4.4 No Defaults or Conflicts.
(a) The Company is not in violation or default in any material respect
under any indenture, agreement or instrument to which it is a party or by which
it or its properties may be bound. The Company is not in violation of or
default in any material respect under any law, rule, regulation, order, writ,
injunction, judgment, decree, award or other action of any court or governmental
authority or arbitrator(s). The Company is not in violation of its certificate
of incorporation or bylaws.
(b) The execution, delivery and performance by the Company of the Stock
Exchange Agreements and any of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Shares and the Conversion
Shares as contemplated herein and therein and in the Series B Certificate of
Designations and the adoption of the Series B Certificate of Designations) does
not and will not (i) violate or conflict with, with or without the giving of
notice or the passage of time or both, any provision of (A) the certificate of
incorporation or bylaws of the Company or (B) any law, rule, regulation or order
of any federal, state, county, municipal or other governmental authority, or any
judgment, writ, injunction, decree, award or other action of any court or
governmental authority or arbitrator(s), or any agreement, indenture or other
instrument applicable to the Company or any of its properties, except in the
case of this clause (B) for such violations or conflicts that will not
individually or in the aggregate have a Material Adverse Effect, (ii) result in
the creation of any Lien upon any of the Company's properties, assets or
revenues, (iii) require the consent, waiver, approval, order or authorization
of, or declaration, registration, qualification or filing with, any Person
(whether or not a governmental authority and including, without limitation, any
shareholder approval) except for required securities law filings and board of
director approvals, certain approvals of the holders of Series A Preferred Stock
and certain registration rights modifications, which board of director and
Series A Preferred Stockholder approvals and registration rights modifications
have been obtained or (iv) cause anti-dilution clauses of any outstanding
securities to become operative except with respect to the Series A Preferred
Stock pursuant to the Series A Certificate of Designations or give rise to any
preemptive rights. No provision referred to in the preceding clause (i)
materially adversely affects or reasonably may be expected to materially
adversely affect the continued conduct of the Company's business as described in
the Memorandum or the ability of the Company to perform its obligations under
the Stock Exchange Agreements, the Series B Certificate of Designations or any
of the transactions contemplated hereby or thereby.
4.5 Disclosure Materials: Other Information.
(a) The Company has furnished to the Exchanging Party the Memorandum and
the documents incorporated therein (the "Disclosure Material"). The audited and
unaudited financial statements referred to or contained in the Disclosure
Material fairly present the financial condition of the Company as of the
respective dates thereof and the results of the operations of the Company
-14-
for such periods and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that any such unaudited
statements may omit notes and may be subject to normal year-end adjustments.
(b) Since December 31, 1995, (i) the business of the Company has been
conducted in the ordinary course and (ii) there has been no material adverse
change in the assets, properties, liabilities, business, affairs, results of
operations, condition (financial or otherwise) or prospects of the Company that
has not been described in the Disclosure Material. As of the Closing Date and
as of the date hereof, there are no material liabilities of the Company which
would be required to be provided for in a balance sheet of the Company as of
either such date prepared in accordance with generally accepted accounting
principles consistently applied, other than liabilities provided for in the
financial statements referred to in Section 4.5(a) above. Since December 31,
1995, no amount or property has directly or indirectly been declared, ordered,
paid, made or set aside for any Restricted Payment nor has any such action been
agreed to.
(c) The Company is not aware of any material liabilities, contingent or
otherwise, of the Company that have not been disclosed in the financial
statements (including the notes thereto) referred to in Section 4.5(a) above or
otherwise disclosed in the Disclosure Material.
(d) Nothing has come to the attention of the Company that would cause it
to believe that any of the Disclosure Material contained or contains a false or
misleading statement of a material fact or omits to state any material fact
necessary in order to make the statements made in such material, in light of the
circumstances under which they were made, not misleading.
(e) There is no fact known to the Company which is not in the Disclosure
Material and which materially and adversely affects, or would reasonably be
expected to materially and adversely affect, the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company.
4.6 Litigation.
There is no action, suit, proceeding, investigation or claim pending
against the Company or, to the knowledge of the Company, threatened against the
Company in law, equity or otherwise before any federal, state, municipal or
local court, administrative agency, commission, board, bureau, instrumentality
or arbitrator which either (i) questions the validity of the Stock Exchange
Agreements, the Series B Certificate of Designations, the Shares or the
Conversion Shares or any action taken or to be taken pursuant hereto or thereto,
or (ii) might adversely affect the right, title or interest of any Exchanging
Party to the Shares or the Conversion Shares or (iii) might result in a material
adverse change in the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of the
Company. The Company has not received any opinion or memorandum or legal advice
from legal counsel to the effect that it is exposed, from a legal standpoint, to
any liability or disadvantage which may be material to its assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects. There is no action or suit by the Company pending or
threatened against others.
-15-
4.7 Taxes.
The Company has filed all federal, state, local and other tax returns and
reports (except for foreign returns and reports the failure to file which will
not result in any material liability to the Company), and any other material
returns and reports with any governmental authorities (federal, state or local),
required to be filed by it. The Company has paid or caused to be paid all taxes
(including interest and penalties) that are due and payable, except those which
are being contested by it in good faith by appropriate proceedings and in
respect of which adequate reserves are being maintained on its books in
accordance with generally accepted accounting principles consistently applied.
The Company does not have any material liabilities for taxes other than those
incurred in the ordinary course of business and in respect of which adequate
reserves are being maintained by it in accordance with generally accepted
accounting principles consistently applied. Federal and state income tax
returns for the Company have not been audited by the Internal Revenue Service or
state authorities. No deficiency assessment with respect to or proposed
adjustment of the Company's federal, state, local or other tax returns is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any federal, state, local or other tax authority
outstanding against the assets, properties or business of the Company. There
are no applicable taxes, fees or other governmental charges payable by the
Company in connection with the execution and delivery of the Stock Exchange
Agreements or the issuance by the Company of the Shares or the Conversion
Shares, except for governmental fees paid in connection with securities law
filings.
4.8 Employees; ERISA.
The Company has good relationships with its employees and has not had and
does not expect to have any substantial labor problems. The Company does not
have any knowledge as to any intentions of any key employee or any group of
employees to leave the employ of the Company. Each of the officers of the
Company, each key employee and each other employee now employed by the Company
who has access to proprietary business information of the Company has executed a
confidentiality and non-disclosure agreement and such agreements are in full
force and effect. Other than the Company's Simplified Employee Pension Plan
adopted in April 1992, the Company has not established, sponsored, maintained,
made any contributions to or been obligated by law to establish, maintain,
sponsor or make any contributions to any "employee pension benefit plan" or
"employee welfare benefit plan" (as such terms are defined in ERISA), including,
without limitation, any "multi-employer plan". The Company has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and the payment of Social Security and other taxes, and with ERISA.
4.9 Legal Compliance.
(a) The Company has complied with all applicable laws, rules, regulations,
orders, licenses, judgments, writs, injunctions, decrees or demands, except to
the extent that failure to
-16-
comply would not materially adversely affect the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company. The Company has all necessary permits,
licenses and other authorizations required to conduct its business as currently
conducted, and as proposed to be conducted, in all material respects.
(b) There are no adverse orders, judgments, writs, injunctions, decrees or
demands of any court or administrative body, domestic or foreign, or of any
other governmental agency or instrumentality, domestic or foreign, outstanding
against the Company.
(c) There is no existing law, rule, regulation or order, and the Company is
not aware of any proposed law, rule, regulation or order, which would prohibit
or materially restrict the Company from, or otherwise materially adversely
affect the Company in, conducting its business as now being conducted and as
proposed to be conducted.
4.10 Permits, Licenses and Approvals.
The Company owns or possesses and holds free from restrictions or conflicts
with the rights of others all franchises, licenses, permits, consents, approvals
and other authority (governmental or otherwise), and all rights and privileges
with respect to the foregoing, as are necessary for the conduct of its business
as now being conducted, and as proposed to be conducted, except where the
failure to own or possess and hold such franchises, licenses, permits, consents,
approvals and other authority (governmental or otherwise) would not have a
Material Adverse Effect, and none is in default in any material respects under
any of such franchises, licenses, permits, consents, approvals or other
authority.
4.11 Patents, Trademarks and Other Rights.
The Company has sufficient trademarks, trade names, service marks, patent
rights, copyrights, manufacturing processes, formulae, applications, trade
secrets, know how, licenses, approvals and governmental authorizations (or
rights thereto)(collectively, the "Intellectual Property") to conduct its
business as now conducted and the Company believes that it will be able to
obtain such Intellectual Property as will be necessary to conduct its business
as proposed to be conducted except in either case where the absence of such
Intellectual Property would not have a Material Adverse Effect. No claim is
pending or, to the Company's knowledge, threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and,
to the best of the Company's knowledge, there is no basis for any such claim
(whether or not pending or threatened). To the best of the Company's knowledge,
all proprietary technology developed by or belonging to the Company and material
to its business which has not been patented has been kept confidential by the
Company, its employees and agents. The Company has no knowledge of any
infringement by it of any Intellectual Property or other similar rights of
others, and there is no claim being made or, to the Company's knowledge,
threatened against the Company regarding infringement by the Company on such
Intellectual Property of others which could reasonably be expected to have a
-17-
Material Adverse Effect and, to the Company's knowledge, there is no basis for
any such claim (whether or not pending or threatened).
4.12 Status Under Certain Statutes.
The Company is not: (i) a "public utility company" or a "holding company",
or an "affiliate" or a "subsidiary company" of a "holding company", or an
"affiliate" of such a "subsidiary company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility"
as defined in the Federal Power Act, as amended, or (iii) an "investment
company" or an "affiliated person" thereof or an "affiliated person" of any such
"affiliated person", as such terms are defined in the Investment Company Act of
1940, as amended.
4.13 Title to Properties; Leasehold Interests.
The Company has good and marketable title to each of the properties and
assets owned by it. The Company does not own any real property. Certain real
property used by the Company in the conduct of its business is held under lease,
and the Company is not aware of any pending or threatened claim or action by any
lessor of any such property to terminate any such lease. None of the properties
owned or leased by the Company is subject to any Liens which could reasonably be
expected to materially and adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company. Each lease or agreement to which the Company is a
party under which it is the lessee of any property, real or personal, is a valid
and subsisting agreement without any material default of the Company thereunder
and, to the best of the Company's knowledge, without any material default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or agreement or, to the
best of the Company's knowledge, by any party thereto, except for such defaults
that would not individually or in the aggregate have a Material Adverse Effect.
The Company's possession of such property has not been disturbed and, to the
best of the Company's knowledge, no claim has been asserted against it adverse
to its rights in such leasehold interests.
4.14 Environmental Compliance.
(a) There is no Hazardous Material about or in, any property, real or
personal, in which the Company has any interest, in violation of law in a manner
which could reasonably be expected to materially and adversely affect the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company.
(b) There is no (and has not been any) off-site disposal or on-site
disposal at any locations currently or formerly owned or occupied by the Company
as a result of which disposal there would exist a reasonably foreseeable risk
that the Company would incur a material liability or obligation under federal,
state or local environmental or other laws, regulations or ordinances.
-18-
(c) Neither the Company nor, to the best of the knowledge of the Company,
any prior or present owner, operator, tenant, subtenant or invitee of any of the
real property (including improvements) currently or formerly owned or occupied
by the Company has (i) used, installed, stored, spilled, released, transported,
disposed of or discharged any Hazardous Material upon, into, beneath, from or
affecting such real property (including improvements) in violation of law in a
manner which could reasonably be expected to materially and adversely affect the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company, or (ii) received
any verbal or written notice, citation, subpoena, summons, complaint or other
correspondence or communication from any Person (not previously satisfactorily
resolved) with respect to the presence of Hazardous Material upon, into,
beneath, or emanating from or affecting any of the real property (including
improvements) currently or formerly owned or occupied by the Company which could
materially and adversely affect the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company.
(d) There has been no intentional or unintentional, gradual or sudden,
release, disposal or discharge upon, into or beneath the real property
(including improvements) currently or formerly owned or occupied by the Company
by the Company or, to the best of the knowledge of the Company, by any prior
owner, operator, tenant, subtenant or invitee with respect thereto, that has
caused or is causing soil or ground water contamination which under applicable
environmental laws, regulations or ordinances could require investigation or
remediation or could otherwise create a material liability or obligation on the
part of the Company.
4.15 Disaster.
Neither the business nor the properties of the Company is currently
affected (or has been affected at any time since December 31, 1995) by any fire,
explosion, accident, strike, lockout or other dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), of a kind which (individually or in the
aggregate) has materially adversely affected, or could reasonably be expected to
materially adversely affect, the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company.
4.16 No Burdensome Agreements; Transactions with Affiliates.
Except as disclosed in the Disclosure Material, the Company is not a party
to, or bound by (nor is any of its properties affected by), any commitment,
contract or agreement, any term of which materially adversely affects, or which
the Company expects in the future to materially adversely affect, the assets,
properties, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company. Except as disclosed in the Disclosure
Material, the Company is not a party to any contract or agreement with any
Affiliate of the Company. The terms of any contracts or agreements between the
Company and any of its Affiliates are no less favorable to the Company
-19-
than those which might have been obtained, at the time such contract or
agreement was entered into, from a person who was not such an Affiliate.
4.17 Other Names.
The business previously or presently conducted by the Company has not been
conducted under any corporate, trade or fictitious name other than "Energy
BioSystems Corporation" and "Environmental BioScience Corporation", which was
the name of the Company until it was so changed in March 1992.
4.18 Offering of the Shares.
Neither the Company nor, to the knowledge of the Company, any person
authorized or employed by the Company as agent, broker, dealer or otherwise
acting on its behalf, directly or indirectly, (i) offered any of the Shares or
any similar security of the Company (A) by any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) or (B) for sale to or solicited offers to buy any thereof from, or
otherwise approached or negotiated with respect thereto with, any person which
the Company did not reasonably believe was an "accredited investor" within the
meaning of Regulation D under the Securities Act or (ii) has done or caused to
be done (or has omitted to do or to cause to be done) any act, which act (or
which omission) would result in bringing the issuance or sale of the Shares
within the provisions of Section 5 of the Securities Act or the filing,
notification or reporting provisions of any state securities laws, except for
filings, notices or reports pursuant to state securities laws which have already
been made or which are contemplated in connection with the offering and exchange
of the Shares.
4.19 No Foreign Assets Control Regulation Violation.
The transactions contemplated by this Agreement will not result in a
violation of any of the foreign assets control regulations of the United States
Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended (including,
without limitation, the Foreign Assets Control Regulations, the Transaction
Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds
Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan
Trade Control Regulations, the South African Transactions Regulations, the
Libyan Sanctions Regulations, the Soviet Gold Coin Regulations, the Panamanian
Transactions Regulations, the Kuwaiti Assets Control Regulations and the Iraqi
Sanctions Regulations contained in said Chapter V), or any ruling issued
thereunder or any enabling legislation or other Presidential Executive Order
granting authority therefor, and the proceeds of the sale of the Shares will not
be used by the Company in a manner which would violate any such regulations.
4.20 Indebtedness.
Schedule II hereto sets forth (i) the amount of all Indebtedness of the
Company outstanding on the Closing Date (excluding Indebtedness in individual
amounts of less than $35,000, but not exceeding an aggregate excluded amount of
$75,000), (ii) any Lien with respect to such Indebtedness
-20-
and (iii) a brief description of each instrument or agreement governing such
Indebtedness. The Company has made available to the Exchanging Party a complete
and correct copy of each such instrument or agreement (including all amendments,
supplements or modifications thereto). No default exists with respect to or
under any such Indebtedness or any instrument or agreement relating thereto.
4.21 Proprietary Information of Third Parties.
No third party has claimed or, to the best of the Company's knowledge, has
reason to claim that any person now or previously employed or engaged as a
consultant by the Company has (a) violated or, to the Company's knowledge, may
be violating any of the terms or conditions of his employment, non-competition
or non-disclosure agreement with such third party, (b) disclosed or, to the best
of the Company's knowledge, may be disclosing or utilized or, to the best of the
Company's knowledge, may be utilizing any trade secret or proprietary
information of documentation of such third party or violated any confidential
relationship which such person may have had with such third party in connection
with the business of the Company or (c) interfered or may be interfering in the
employment relationship between such third party and any of its present or
former employees. No third party has requested information from the Company
which reasonably suggests that such a claim might be contemplated. To the best
of the Company's knowledge, none of the execution or delivery of the Stock
Exchange Agreements, or the carrying on the business of the Company as officers,
employees or agents by any officer, director or key employee of the Company, or
the conduct or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such individual is obligated.
4.22 Insurance.
The Company holds valid policies covering insurance in the amounts and type
that the Company reasonably believes is appropriate and customary for companies
in the same or similar businesses to that of the Company or otherwise required
to be maintained by it.
4.23 Material Contracts and Agreements.
With respect to all material contracts, agreements, indentures or
instruments not otherwise specifically referred to herein, the Company and, to
the best of the Company's knowledge, each other party thereto have in all
material respects performed all the obligations required to be performed by them
to date, have received no notice of default and are not in default, in any
material respect, (with due notice or lapse of time or both) under any material
contract, agreement, indenture or other instrument now in effect to which the
Company is a party or by which it or its property may be bound. The Company has
no present expectation or intention of not fully performing all its obligations
under each such material contract, agreement, indenture or other instrument and
the Company has no knowledge of any breach and has received no written notice of
any anticipated breach by the other party to any material contract or commitment
which the Company is a party.
-21-
4.24 Governmental Approvals.
Subject to the accuracy of the representations and warranties of the
Exchanging Party set forth in Section 5 hereof, no registration or filing with,
or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Stock Exchange
Agreement, the issuance, exchange and delivery of the Shares to the Exchanging
Party or, upon conversion thereof, the issuance and delivery of the Conversion
Shares, other than filings pursuant to federal and state securities laws (all of
which filings have been or, with respect to those filings which may be duly made
after the Closing will be, made by or on behalf of the Company) in connection
with the exchange of the Shares.
4.25 Brokers.
The Company has no contract, arrangement or understanding with any broker,
finder or similar agent with respect to the transactions contemplated by this
Agreement.
4.26 Disclosure.
The Disclosure Material, as of its date, does not contain an untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. All of the statements contained in this Stock
Exchange Agreement, including any Schedule or Exhibit hereto, and contained in
any document, certificate or other items prepared or supplied by the Company
directly to the Exchanging Party with respect to the transactions contemplated
hereby are accurate in all material respects. There is no fact which the
Company has not disclosed to the Exchanging Party in writing and of which the
Company is aware which materially and adversely affects or could reasonably be
expected to materially and adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company.
SECTION 5. REPRESENTATIONS OF THE EXCHANGING PARTY
The Exchanging Party hereby makes the representations and warranties to the
Company contained in this Section 5.
(a) The Exchanging Party has all requisite power, authority and legal
right to execute, deliver, enter into, consummate and perform this Agreement.
The execution, delivery and performance of this Agreement by the Exchanging
Party have been duly authorized by all required corporate, partnership or other
actions on the part of the Exchanging Party. The Exchanging Party has duly
executed and delivered this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of the Exchanging Party enforceable against the
Exchanging Party in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to the
rights of creditors generally.
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(b) The Exchanging Party hereby represents to the Company that it has
substantial knowledge, skill and experience in making investment decisions of
this type, it is capable of evaluating the risk of its investment in the Shares
being received by it pursuant to the exchange and is able to bear the economic
risk of such investment, including the risk of losing the entire investment,
that (except as the Exchanging Party has otherwise advised the Company and the
Exchanging Party's counsel in writing) it is taking the Shares to be received by
it upon the exchange for its own account, and that the Shares are being
exchanged by it for investment and not with a present view to any distribution
thereof in violation of applicable securities laws. It is understood that the
disposition of the Exchanging Party's property shall at all times be within the
Exchanging Party's control. If the Exchanging Party should in the future decide
to dispose of any of its Shares, it is understood that it may do so only in
compliance with the Securities Act, applicable state securities laws and this
Agreement. The Exchanging Party represents that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
(c) The Exchanging Party has received and reviewed the Memorandum and it
has had an opportunity to fully discuss the Company's business, management and
financial affairs with the Company's management.
(d) The Exchanging Party understands that (i) the Shares and the
Conversion Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) or Section 3(b) thereof or Rule 506
promulgated under the Securities Act, (ii) the Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration and (iii) the Shares and the Conversion Shares will bear a
legend to such effect.
(e) The Exchanging Party represents that at no time was the Exchanging
Party presented with or solicited by or through any leaflet (other than the
Memorandum), public promotional meeting, advertisement or any other form of
general or public advertising or solicitation. In addition, the Exchanging
Party acknowledges that there has never been any representation, guaranty or
warranty made by the Company or any agent or representative of the Company as to
the amount of or type of consideration or profit, if any, to be realized as a
result of any investment by the Exchanging Party in the Preferred Stock.
(f) If the Exchanging Party is a resident of the State of Florida, he
understands that he has the privilege of voiding the exchange within three (3)
days after the first tender of consideration is made by such Exchanging Party to
the Company or an agent of the Company.
(g) If the Exchanging Party is a resident of the Commonwealth of
Pennsylvania, he will not sell his Shares within 12 months from the date of
receipt upon exchange unless the Shares are registered under the Pennsylvania
Securities Act of 1972 or the Securities Act.
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SECTION 6. RESTRICTIONS ON TRANSFER
(a) The Exchanging Party agrees that it will not sell or otherwise dispose
of any Shares or Conversion Shares unless (i) such Shares or Conversion Shares
have been registered under the Securities Act and, to the extent required, under
any applicable state securities laws, or (ii) such Shares or Conversion Shares
are sold in accordance with the applicable requirements and limitations of Rule
144 or Rule 144A, or (iii) the Company has been furnished with an opinion or
opinions from counsel to the Exchanging Party (which counsel and which
opinion(s) shall be reasonably satisfactory to the Company and which counsel may
be inside counsel to the Exchanging Party) to the effect that registration under
the Securities Act is not required for the transfer as proposed (which opinion
may be conditioned upon the transferee assuming the obligations of a holder of
Shares or Conversion Shares under this Section) or (iv) the Company has been
furnished with a letter from the Division of Corporate Finance of the Commission
to the effect that such Division would not recommend any action to the
Commission if such proposed transfer were effected without a registration
statement effective under the Securities Act. The Company agrees that within
five (5) Business Days after receipt of any opinion referred to in (iii) above,
it will notify the holder supplying such opinion whether such opinion is
satisfactory to the Company.
(b) The Company may endorse on all certificates evidencing Shares or
Conversion Shares a legend stating or referring to the transfer restrictions
contained in paragraph (a) above; provided, that no such legend shall be
endorsed on any certificates which, when issued, are no longer subject to the
restrictions of this Section 6; provided, further, that if a transfer is made
pursuant to clause (i), (ii) (other than pursuant to Rule 144A) or (iv) of
paragraph (a) of this Section 6, or if an opinion of counsel provided pursuant
to clause (iii) of paragraph (a) concludes that the legend is no longer
necessary, the Company will deliver upon transfer, certificates without such
legends.
SECTION 7. COVENANTS OF THE COMPANY
The Company covenants and agrees, so long as (i) any Shares are outstanding
or (ii) there are any Eligible Holders, whichever is longer (unless such other
period is expressly provided in any subsections of this Section 7, in which case
such specific period will govern) as follows:
7.1 Use of Proceeds.
The Company will use the proceeds from the sale of the Shares pursuant to
the Stock Purchase Agreements for purposes described in the section of the
Memorandum entitled "Use of Proceeds." No portion of such proceeds will be used
for the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying, within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended from time to time, any "margin stock" as
defined in said Regulation U, or any "margin stock" as defined in Regulation G
of the Board of Governors of the Federal Reserve System, as amended from time to
time, or for the purpose of purchasing, carrying or trading in securities within
the meaning of Regulation T of the Board of Governors of the Federal Reserve
System, as amended from time to time, or for the purpose of reducing or retiring
any indebtedness which both (i) was originally incurred to purchase any such
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margin stock or other securities and (ii) was directly or indirectly secured by
such margin stock or other securities. None of the assets of the Company or any
Subsidiary includes any such "margin stock", and neither the Company nor any
Subsidiary has any present intention of acquiring any such "margin stock."
7.2 Financial Information.
(a) The Company will maintain a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in accordance with generally accepted accounting
principles consistently applied. The Company will deliver the following to each
Eligible Holder during the period through the Rights Expiration Date for such
Eligible Holder (and, in the case of paragraph (v) below, each other holder of
Shares and/or Conversion Shares):
(i) as soon as practicable but not later than ten (10) Business Days
after their issuance, and in any event within ninety (90) days after the
close of each fiscal year of the Company, (A) a consolidated balance sheet
of the Company and its Subsidiaries as of the end of such fiscal year and
(B) consolidated statements of operations, stockholders' equity and cash
flows of the Company and its Subsidiaries for such fiscal year, in each
case setting forth in comparative form the corresponding figures for the
preceding fiscal year, all such balance sheets and statements to be in
reasonable detail and certified by an independent public accounting firm of
recognized national standing selected by the Company, and such statements
shall be accompanied by management analyses of any material differences
between the results for such fiscal year and the corresponding figures for
the preceding fiscal year and between the budgeted figures (as supplied
pursuant to paragraph (ii) below) and the results for such year and a
narrative discussion of the Company's liquidity and capital resources as of
the end of such year materially conforming to the disclosure requirements
contained in Item 303 of Regulation S-K under the Securities Act. The
Company's Annual Report on Form 10-K filed, or to be filed, with the
Commission will satisfy the requirements of this paragraph, except for the
requirement of the management analyses regarding the comparison of the
Company's results for such fiscal year to the budgeted figures (as supplied
pursuant to paragraph (ii) below);
(ii) as soon as reasonably practicable, and in any event within thirty
(30) days after the close of the preceding fiscal year of the Company, a
budget for the current fiscal year (or the upcoming fiscal year, as the
case may be) prepared on a quarterly basis regarding the Company's
operations and capital expenditures on a consolidated basis, together with
an analysis of such budget prepared in reasonable detail by the Vice
President of Finance or the President of the Company; and (A) any operating
budget of the Company otherwise prepared and submitted to the Board and (B)
any revisions or amendments made by the Company (and submitted to its
Board) to any budget delivered under this paragraph (ii);
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(iii) as soon as reasonably practicable, and in any event within forty-
five (45) days after the close of each of the first three (3) fiscal
quarters of the Company, (A) a consolidated balance sheet of the Company
and its Subsidiaries as of the end of such fiscal quarter and (B)
consolidated statements of operations and cash flows of the Company and its
Subsidiaries for the quarter just ended and for the portion of the fiscal
year ended with the end of such quarter, in each case in reasonable detail,
certified by the Vice President of Finance or the President of the Company
and setting forth in comparative form the corresponding figures for the
comparable period one year prior thereto (subject to normal year-end
adjustments) and the comparable figures included in the budget for such
quarter (as delivered or modified pursuant to paragraph (ii) above),
together with management analyses of any material differences between such
results and the corresponding figures for such prior period and between
such results for such quarter and such budgeted figures. The Company's
Quarterly Report on Form 10-Q filed, or to be filed, with the Commission
will satisfy the requirements of this paragraph, except for the requirement
of the management analyses regarding the comparison of the Company's
results for such quarter to the budgeted figures;
(iv) as soon as reasonably practicable, copies of summary financial
information prepared on a quarterly basis regarding the Company on a
consolidated basis as presented to the Board and any other summary
financial information otherwise prepared and provided to the Board;
(v) as soon as reasonably practicable, copies of (A) all financial
statements, proxy material or reports sent by the Company to the Company's
or any Subsidiary's stockholders, (B) any public announcements or press
releases issued by the Company and (C) all reports or registration
statements (excluding registration statements on Form S-8) filed by the
Company with the Commission pursuant to the Securities Act or the
Securities Exchange Act;
(vi) as soon as reasonably practicable and without duplication of any
of the above items, all materials furnished, from time to time, to the
Board of Directors of the Company (including without limitation all
communications and information furnished to the Board of Directors), and
copies of minutes of meetings of the Boards of Directors of the Company;
(vii) as soon as reasonably practicable and without duplication of any
of the above items, any other materials furnished to holders of the
Company's capital stock or any material information furnished to holders of
the Company's indebtedness, including without limitation any compliance
certificates furnished in respect of such indebtedness; and
(viii) as soon as reasonably practicable, such other material
information as may reasonably be requested by a holder of Shares (unless
reasonably objected to by the Company), regarding the assets, properties,
liabilities, business, affairs, results of operations, conditions
(financial or otherwise) or prospects of the Company or any Subsidiary.
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All such financial statements shall be prepared in accordance with generally
accepted accounting principles consistently applied (except for any change in
accounting principles specified in the accompanying certificate and except that
any interim financial statements may omit notes and may be subject to normal
year-end adjustments).
(b) Without limiting the foregoing provisions of this Section 7.2, the
Company agrees that, if requested in writing by any Eligible Holder, it will not
deliver to such Eligible Holder (until otherwise instructed by such Eligible
Holder) (x) any non-public information or non-public materials regarding the
Company or any Subsidiary (whether described in this Section 7.2 or otherwise)
and (y) any information (whether or not included in clause (x)) which such
holder specifies that it does not want to receive. The Company shall comply
with any such request with respect to each such Eligible Holder and any
subsequent holders of Shares or Conversion Shares acquired directly or
indirectly (through one or more transfers) from such Eligible Holder, until
instructed otherwise in writing by the then holder of such Shares or Conversion
Shares.
7.3 Tax Matters.
Unless otherwise required by the Code or applicable state or local law, the
Company agrees that it will not report the accrual of a dividend under Section
305 of the Code with respect to any redemption premium with which the Series B
Preferred Stock may have been issued, whether on Form 1099 or any other form, to
the Internal Revenue Service or any state or local taxing authority.
7.4 Inspection.
At the request of an Eligible Holder, and without out of pocket expenses to
the Company, the Company will permit such Eligible Holder and any authorized
representative of such holder, subject to (if requested by the Company)
execution by such Eligible Holder of a reasonable confidentiality agreement, to
visit and inspect any of the properties of the Company and its Subsidiaries, and
to discuss with their officers the business, results of operations, condition
(financial or otherwise) or prospects of the Company or any Subsidiary, at
mutually acceptable times.
7.5 Maintenance of Existence; Properties and Franchises; Compliance with
Law; Taxes; Insurance.
The Company will, and will cause each Subsidiary to:
(a) maintain their respective corporate existences, rights and other
franchises in full force and effect, except as may be affected by a transaction
permitted by Section 7.11; provided, that the Company may terminate the
corporate existence of any Subsidiary, or permit the termination or abandonment
of rights or other franchises, if in the opinion of the Company it is no longer
in the Company's best interests to maintain such existence, rights or other
franchises and such termination or abandonment will not be prejudicial in any
material respect to the holders of the Shares;
-27-
(b) maintain their respective tangible assets in good repair, working
order and condition so far as necessary or advantageous to the proper carrying
on of their respective businesses;
(c) comply with all applicable laws and with all applicable orders, rules,
rulings, certificates, licenses, regulations, demands, judgments, writs,
injunctions and decrees, provided, that such compliance shall not be necessary
so long as (i) the applicability or validity of any such law, order, rule,
ruling, certificate, license, regulation, demand, judgment, writ, injunction or
decree shall be contested in good faith by appropriate proceedings and (ii)
failure to comply will not have a Material Adverse Effect on a consolidated
basis;
(d) pay promptly when due all taxes, fees, assessments and other
government charges imposed upon their respective properties, assets or income
and all claims or indebtedness (including, without limitation, materialmen's,
vendor's, workmen's and like claims) which might become a lien upon such
properties or assets; provided, that payment of any such tax, fee, assessment,
charge, claim or indebtedness shall not be necessary so long as (i) the
applicability or validity thereof shall be contested in good faith by
appropriate proceedings and a reserve, if appropriate, shall have been
established with respect thereto and (ii) failure to make such payment will not
have a Material Adverse Effect on a consolidated basis; and
(e) keep adequately insured, by financially sound and reputable insurers
of nationally recognized stature, all their respective properties of a character
customarily insured by entities similarly situated, against loss or damage of
the kinds and in amounts customarily insured against by such entities and with
such deductibles or co-insurance as is customary.
7.6 Office for Payment, Exchange and Registration; Location of Office;
Notice of Change of Name or Office.
(a) So long as any of the Shares is outstanding, the Company will maintain
an office or agency where Shares may be presented for payment, exchange,
conversion or registration of transfer as provided in this Agreement. Such
office or agency initially shall be the office of the Company's transfer agent
and shall be the following: KeyCorp Shareholder Services, Inc., ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
(b) The Company shall give each holder of Shares at least twenty (20)
days' prior written notice of any change in (i) the name of the Company as then
in effect or (ii) the location of the office of the Company required to be
maintained under this Section 7.6.
7.7 Environmental Matters.
(a) The Company and each Subsidiary shall keep any property either owned
or occupied by the Company or any Subsidiary free and clear of any material
Liens imposed for failure to comply with any environmental laws, regulations or
ordinances (each, an "Environmental Lien"), and the Company and each Subsidiary,
as the case may be, shall keep all such property in material compliance with all
environmental laws, regulations and ordinances; provided, however, that the
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Company or any Subsidiary shall have the right at its cost and expense, and
acting in good faith, to contest, object or appeal by appropriate legal
proceeding the validity of any Environmental Lien. The contest, objection or
appeal with respect to the validity of an Environmental Lien shall suspend the
Company's obligation to eliminate such Environmental Lien under this paragraph
pending a final determination by appropriate administrative or judicial
authority of the legality, enforceability or status of such Environmental Lien,
provided that the following conditions are satisfied: (i) contemporaneously
with the commencement of such proceedings, the Company shall give written notice
thereof to each holder of Shares or Conversion Shares; and (ii) if under
applicable law any real property or improvements thereon are subject to sale or
forfeiture for failure to satisfy the Environmental Lien prior to a final
determination of the legal proceedings, the Company or such Subsidiary must
successfully move to stay such sale, forfeiture or foreclosure pending final
determination of the Company's (or Subsidiary's) action; and (iii) the Company
or such Subsidiary must, if requested, furnish to the holders of Shares or
Conversion Shares a good and sufficient bond, surety, letter of credit or other
security satisfactory to such holders equal to the amount (including any
interest and penalty) secured by the Environmental Lien.
(b) The Company will defend, indemnify and hold harmless each current,
former and future holder of Shares or Conversion Shares, its employees,
officers, directors, stockholders, partners, agents, representatives and
assigns, from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits and claims, joint or several, and any
costs, disbursements and expenses (including attorneys' fees and expenses and
costs of investigation) of whatever kind or nature, known or unknown, contingent
or otherwise, arising out of or in any way related to (i) the presence,
disposal, release, removal, discharge, storage or transportation of any
Hazardous Material upon, into, from or affecting any real property (including
improvements) owned or occupied (or formerly owned or occupied) by the Company
or any Subsidiary; and (ii) any judicial or administrative action, suit or
proceeding, actual or threatened, relating to Hazardous Material upon, in, from
or affecting any real property (including improvements) owned or occupied (or
formerly owned or occupied) by the Company or any Subsidiary; and (iii) any
violation of any environmental law, regulation or ordinance by the Company or
any Subsidiary or any of their agents, tenants, subtenants or invitees; and (iv)
the imposition of any Environmental Lien for the recovery of costs expended in
the investigation, study or remediation of any environmental liability of (or
asserted against) the Company or any Subsidiary, provided, however, that in no
case shall such persons be entitled to indemnification under this Section 7.7(b)
for a decrease in the value of the Shares or the Conversion Shares resulting
from or in any way related to items (i) though (iv) herein, but that the
preceding clause shall in no way limit any indemnification that an Exchanging
Party may otherwise be entitled to under any other provisions of this Stock
Exchange Agreement. This Section 7.7(b) shall survive any payment, conversion or
transfer of Shares and any termination of this Agreement.
7.8 No Change in Business.
Neither the Company nor any of its Subsidiaries will engage in any business
other than business of the general nature described in the Memorandum.
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7.9 Restrictive Agreements Prohibited.
Neither the Company nor any of its Subsidiaries shall become a party to any
agreement which by its terms restricts the Company's performance of this
Agreement.
7.10 Restricted Payments.
Neither the Company nor any Subsidiary will declare or make or permit to be
declared or made any Restricted Payment.
7.11 Consolidation, Merger and Sale.
Without the consent of the Majority Shareholders, neither the Company nor
any Subsidiary will do any of the following (or agree to do any of the
following) pursuant to a transaction approved by the Board of Directors of the
Company: (a) wind up, liquidate or dissolve its affairs; (b) sell, lease,
transfer or otherwise dispose of all or substantially all of its assets to any
other Person; (c) consolidate with, merge into or enter into a share exchange
with any other Person; or (d) permit any other Person (other than a wholly-owned
Subsidiary on the date hereof) to merge into or sell, lease or transfer all or
substantially all of its property, assets or capital stock to the Company or any
Subsidiary, unless:
(i) in the case of actions under clause (a) or (b) above, a wholly-
owned Subsidiary is wound-up, dissolved and liquidated into another wholly-
owned Subsidiary or into the Company or a wholly-owned Subsidiary sells,
leases, transfers or otherwise disposes of all or substantially all of its
assets to another wholly-owned Subsidiary or to the Company; or
(ii) in the case of actions under clause (c) or (d) above, each of the
following conditions is satisfied:
(A) if such action involves the Company and if such surviving
Person is a corporation other than the Company, all liabilities and
obligations of the Company under the Stock Exchange Agreements shall remain
in effect and shall have been expressly assumed by such surviving Person
(pursuant to a document in form and substance reasonably satisfactory to
the Majority Shareholders and their counsel) as if such surviving Person
were the "Company" hereunder and thereunder; and
(B) either (x) the Common Stock of such transferee Person into
which the Series B Preferred Stock will thereafter be convertible (or
American Depositary Receipts with respect thereto) is listed on a national
securities exchange in the United States or traded on The Nasdaq Stock
Market, or (y) all of the Series B Preferred Stock is concurrently redeemed
for cash in accordance with Section 5 of the Series B Certificate of
Designations.
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7.12 Transactions with Affiliates.
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, enter into any transaction or agreement (including, without
limitation, the purchase, sale, distribution, lease or exchange of any property
or the rendering of any service) with any Affiliate of the Company or of any
Subsidiary, other than a wholly-owned Subsidiary of the Company, unless such
transaction or agreement (a) is approved by disinterested members of the Board
of Directors of the Company, and (b) is on terms that are no less favorable to
the Company or such Subsidiary, as the case may be, than those which might be
obtained at the time of such transaction from a Person who is not such an
Affiliate; provided, however, that this Section 7.12 shall not limit, or be
applicable to, (i) employment arrangements with any individual who is an
employee of the Company or any Subsidiary if such arrangements are approved by
the Board; and (ii) the payment of reasonable and customary regular fees to
directors who are not employees of the Company.
7.13 Observer Rights.
Each of the Eligible Holders shall have the right, during the period
through the Rights Expiration Date for such Eligible Holder, and (if requested
by the Company) subject to execution by such observer of a reasonable
confidentiality agreement, to send one (1) representative to meetings of the
Company's and each Subsidiary's Board of Directors (and the executive committee
if the executive committee has more than five members) of such Boards, such
representatives to act as observers without a vote or other rights as a director
(except the right to receive sufficient notice to enable such attendance and the
right to receive all other communications, information and materials furnished,
from time to time, to directors of the Company and each Subsidiary). Any
representative acting under this Section 7.13 shall be chosen from the list of
Persons provided to the Company concurrently with execution of this Agreement
(or another individual selected by such holders and reasonably acceptable to the
Company)
7.14 No Dilution or Impairment; No Changes in Capital Stock.
The Company will not, by amendment of its certificate of incorporation or
through any consolidation, merger, reorganization, transfer of assets,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Stock
Exchange Agreements or the Series B Certificate of Designations. The Company
will at all times in good faith assist in the carrying out of all such terms,
and in the taking of all such action, as may be necessary or appropriate in
order to protect the rights of the holders of Shares (as such rights are set
forth in the Stock Exchange Agreements and the Series B Certificate of
Designations) against impairment. Without limiting the generality of the
foregoing, the Company (a) will not permit the par value or the determined or
stated value of any shares of the Company's Common Stock receivable upon the
conversion of the Shares to exceed the amount payable therefor upon such
conversion, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and non-
assessable shares of the Company's Common Stock free from all taxes, Liens and
charges with respect to the issue thereof, upon the
-31-
conversion of the Shares from time to time outstanding, (c) will not take any
action which results in any adjustment of the Conversion Price under the Series
B Certificate of Designations if the total number of shares of the Company's
Common Stock (or other securities) issuable after the action upon the conversion
of all of the then outstanding Shares would exceed the total number of shares of
the Company's Common Stock (or other securities) then authorized by the
Company's certificate of incorporation and available for the purpose of issuance
upon such conversion, (d) will not have any authorized Common Stock other than
its existing authorized Common Stock, (e) will not amend its certificate of
incorporation to change any terms of its Common Stock, (f) will not amend its
certificate of incorporation in any manner to alter or change the powers,
privileges or preferences of the holders of the Series B Preferred Stock
(including without limitation changing the Series B Certificate of Designations
after any Shares have been called for redemption), (g) will not create or
authorize the creation of any additional class or series of shares of capital
stock unless the same ranks junior to the Series B Preferred Stock as to the
payment of dividends or the distribution of assets on the liquidation,
dissolution or winding up of the Company, or increase the authorized amount of
the Series B Preferred Stock, or increase the authorized amount of any
additional class or series of shares of stock unless the same ranks junior to
the Series B Preferred Stock as to the payment of dividends or the distribution
of assets on the liquidation, dissolution or winding up of the Company, or
create or authorize any obligation or security convertible into shares of Series
B Preferred Stock or into shares of any other class or series of stock unless
the same ranks junior to the Series B Preferred Stock as to the payment of
dividends or the distribution of assets on the liquidation, dissolution or
winding up of the Company, whether any such creation, authorization or increase
shall be by means of amendment to the certificate of incorporation or by merger,
consolidation or otherwise and (h) after the date hereof, will not create or
establish (or make any grants or awards under) any phantom stock, stock
appreciation rights or other equity equivalent plan for employees, officers,
directors, agents or consultants of the Company (unless such plans in the
aggregate relate to the equivalent of less than 5% of the Common Stock of the
Company) whereby the Company or any Subsidiary agrees to pay any Person a
percentage of, or an amount otherwise determined by reference to, the earnings
of the Company or any Subsidiary, the value of their stock or the proceeds from
a sale of their stock or upon their liquidation.
7.15 Reservation of Shares.
There have been reserved, and the Company shall at all times keep reserved,
free from preemptive rights, out of its authorized Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the conversion
rights of the Shares provided in the Series B Certificate of Designations. If
at any time the number of authorized but unissued shares of Common Stock of the
Company shall not be sufficient to effect the conversion of the Shares or
otherwise to comply with the terms of this Agreement, the Company will forthwith
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative body that
may be required under applicable state securities laws in connection with the
issuance of the Common Stock upon conversion of the Shares.
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7.16 Listing of Shares.
If any shares of the Company's Common Stock or Series B Preferred Stock are
listed on any national securities exchange (or on The Nasdaq Stock Market or
comparable system), then the Company will take such action as may be necessary,
from time to time, to list the Conversion Shares or the Shares, as the case may
be, on such exchange (or system as the case may be). The Company shall have no
obligation to list the Shares if the Series B Preferred Stock is not so listed.
7.17 Securities Exchange Act Registration.
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the Securities Exchange Act) under Section 12(b) or
Section 12(g), whichever is applicable, of the Securities Exchange Act, with
respect to the Company's Common Stock, and will file on time such information,
documents and reports as the Commission may require or prescribe for companies
whose stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable.
(b) The Company will, upon the request of any holder of Shares or
Conversion Shares, make whatever other filings with the Commission, or otherwise
make generally available to the public such financial and other information, as
any such holder may deem reasonably necessary or desirable in order to enable
such holder to be permitted (i) to sell Conversion Shares pursuant to the
provisions of Rule 144 and (ii) after the Company has filed a registration
statement with respect to Series B Preferred Stock under Section 6 of the
Securities Act or Section 12(b) or 12(g) of the Securities Exchange Act, to sell
Shares pursuant to the provisions of Rule 144.
7.18 Maintenance of Public Market.
Except as contemplated by Section 7.11, the Company will not (i) proceed
with a program of acquisition of its own Common Stock or of Series B Preferred
Stock (other than by redemption in accordance with the Series B Certificate of
Designations), (ii) initiate a corporate reorganization or recapitalization or
undertake a consolidation or merger or (iii) authorize, consent to or take any
action without the consent of the Eligible Holders, which would have the effect
of:
(a) removing the Company from registration with the Commission under
the Securities Exchange Act with respect to the Company's Common Stock,
(b) requiring the Company to make a filing under Section 13(e) of the
Securities Exchange Act,
(c) reducing substantially or eliminating the public market for
shares of Common Stock of the Company
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(d) if any shares of the Company's Common Stock or Series B Preferred
Stock are at any time listed on The Nasdaq Stock Market, causing a
delisting of the Company's Common Stock or Series B Preferred Stock, as the
case may be, from such systems (unless such stock is delisted as a result
of being listed on a national securities exchange), or
(e) if any shares of the Company's Common Stock or Series B Preferred
Stock are at any time listed on a national securities exchange, causing a
delisting of such stock from such exchange.
7.19 Private Placement Status.
Neither the Company nor any agent nor other Person acting on the Company's
behalf will do or cause to be done (or will omit to do or to cause to be done)
any act which act (or which omission) would result in bringing the issuance or
exchange of the Shares or the Conversion Shares within the provisions of Section
5 of the Securities Act or the filing, notification or reporting requirements of
any state securities law (other than in accordance with a registration and
qualification of Conversion Shares pursuant to Section 7.17 hereof), except for
filings, notices or reports pursuant to state securities laws which have already
been made or which are contemplated in connection with the offering and exchange
of the Shares.
7.20 Delivery of Information.
If a holder of Shares or Conversion Shares proposes to transfer any such
Shares or Conversion Shares pursuant to Rule 144A, the Company agrees to provide
(upon the request of such holder or the prospective transferee) to such holder
and (if requested) to the prospective transferee any information concerning the
Company and its Subsidiaries which is required to be delivered to any transferee
of such Shares or Conversion Shares pursuant to such Rule 144A.
7.21 Notices.
The Company will give to all holders of Shares or Conversion Shares copies
of all notices given by the Company to holders of its Common Stock concurrently
with the giving of such notices to such holders of Common Stock.
7.22 No Dividends in Common Stock Unless Registered.
The Company will not declare and cause to be paid dividends on the Shares
in shares of Common Stock until a registration statement covering the resale of
such Common Stock has been filed with the Commission and has been declared
effective thereby.
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SECTION 8. REGISTRATION RIGHTS
8.1 Registration of the Shares.
(a) The holders of at least an aggregate of 100,000 Shares may request the
Company to register under the Securities Act the resale of all or any portion of
such Shares, but in no event less than 60,000 Shares, held by such requesting
holder or holders for sale in the manner specified in such notice.
(b) Following receipt of any notice under this Section 8.1, the Company
shall immediately notify all holders of the Shares from whom notice has not been
received and shall commit to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice from
requesting holders, the number of Shares specified in such notice (and in all
notices received by the Company from other holders within 30 days after the
giving of such notice by the Company). All such holders who submit requests to
the Company pursuant to this Section 8.1 shall be referred to individually as a
"Requesting Holder" and collectively as "Requesting Holders." If the Requesting
Holders may elect to have the Shares sold to one or more persons participating
as underwriters ("Underwriters") for an offering of Shares to the public (an
offering of any shares of capital stock of the Company by means of Underwriters
to the public shall be referred to as an "Underwritten Offering"), the holders
of a majority of the Shares to be sold in such offering may designate the
managing Underwriter of such offering, subject to approval of the Company, which
approval will not be unreasonably withheld or delayed. The Company shall be
obligated to register the Shares pursuant to this Section 8.1 on two occasions
only, provided, however, that such obligation shall be deemed satisfied only
when a registration statement covering at least 60% of the total Shares
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the Requesting Holders, shall have become
effective and, if such method of disposition is an Underwritten Offering, all
such shares shall have been sold pursuant thereto.
(c) Except for registration statements on Form ▇-▇, ▇-▇ or any successor
thereto and except as required under the registration rights agreements referred
to in Schedule II hereto, the Company will not file with the Commission without
the approval of the Requesting Holders any other new registration statements
with respect to its capital stock, whether for its own account or that of other
stockholders, from the date of receipt of a notice from Requesting Holders
pursuant to this Section 8.1 until the earlier of (i) six (6) months from the
date of receipt of such notice and (ii) the completion of the period of
distribution of the registration contemplated thereby. The registration
statement, together with all amendments and supplements, including post-
effective amendments, in each case including the prospectus contained therein
(including the preliminary prospectus and all amendments and supplements to the
prospectus, including post-effective amendments) (collectively, the
"Prospectus"), all exhibits thereto or to the Prospectus and all material
incorporated by reference therein or to the Prospectus, is referred to as the
"Registration Statement".
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(d) If and whenever the Company is required by the provisions of this
Section 8.1 to effect the registration of any Shares under the Securities Act,
the Company will, as expeditiously as possible:
(i) prepare and file with the Commission, no later than 60 days after
the receipt of the first notice from the Requesting Holders, a Registration
Statement on Form S-2 (or other appropriate form) with respect to such
securities and use its reasonable best efforts to cause such Registration
Statement to become and remain effective for the period of distribution
contemplated thereby (determined as hereinafter provided);
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for the period contemplated in (i) above and comply
with the provisions of the Securities Act with respect to the disposition
of all Shares covered by such Registration Statement in accordance with the
sellers' intended method of disposition set forth in such Registration
Statement for such period;
(iii) register or qualify the Shares, by the time the Registration
Statement is declared effective by the Commission, under all applicable
state securities or "Blue Sky" laws of such jurisdictions as each
Underwriter, if any, or the Requesting Holders shall request in writing,
provided that the Company shall not be obligated to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject;
(iv) keep each such registration or qualification effective during the
period the Registration Statement is required to be kept effective;
(v) upon request by the Requesting Holders, do any and all other acts
and things which may be reasonably necessary to enable such Underwriter, if
any, and the Requesting Holders to consummate the disposition of the Shares
in each such jurisdiction;
(vi) notify the Requesting Holders when the Registration Statement has
become effective and when any post-effective amendments and supplements
thereto become effective;
(vii) in connection with an Underwritten Offering, if any, notify the
Requesting Holders if, between the effective date of the Registration
Statement and the closing of any sale of Shares, the representations and
warranties of the Company contained in the underwriting agreement relating
to any Underwritten Offering cease to be true and correct in all material
respects or if the Company receives any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction
or the initiation of any proceeding for such purpose;
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(viii) furnish or cause to be furnished forthwith to the Requesting
Holders, a "cold comfort" letter of the Company's independent accountants,
as of the effective date of the Registration Statement, as to such matters
as customarily are covered in accountant's letters delivered to
underwriters in underwritten public offerings of securities;
(ix) furnish or cause to be furnished forthwith to the Requesting
Holders, an opinion of counsel to the Company, as of the effective date of
the Registration Statement, in the form customarily provided by issuer's
counsel in underwritten public offerings of securities;
(x) furnish such number of Prospectuses and other documents incident
thereto, including any amendment of or supplement to the Prospectus as the
Requesting Holders from time to time may reasonably request during the
period of distribution of the Shares;
(xi) provide a transfer agent and registrar for all of the Shares; and
(xii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission with respect to the
disposition of the Shares covered by such Registration Statement, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but not
more than eighteen months, beginning with the first month after the
effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
(e) For purposes of this Section 8.1, the period of distribution of the
Shares in an Underwritten Offering shall be deemed to extend until each
Underwriter has completed the distribution of all securities purchased by it
(but no later than 180 days), and the period of distribution of the Shares in
any other registration shall be deemed to extend until the earlier of the sale
of all Shares covered thereby and 180 days after the effective date thereof.
(f) In connection with each registration under this Section 8.1, and as a
condition to the inclusion of their shares therein, the Requesting Holders will
furnish to the Company in writing such information with respect to themselves
and the proposed distribution by them as reasonably shall be necessary in order
to assure compliance with federal and applicable state securities laws.
(g) As soon as the Company is eligible to register the Shares on Form S-3
(or any successor form thereto under the Securities Act), the Company will, as
expeditiously as possible but in any event no later than 60 days after the
Company is eligible to register the Shares on Form S-3, undertake to amend the
"shelf" Registration Statement on Form S-3 referred to in Section 8.2 to include
any Shares outstanding or to file and to use its reasonable best efforts to have
declared effective a separate registration statement registering the resale of
the Shares. Any Shares so registered pursuant to the Company's "shelf"
Registration Statement on Form S-3 or such other registration statement shall be
thereinafter included within the definition of "Registered Securities".
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(h) Subject to Section 8.3 below, the Company agrees to supplement or
amend the Registration Statement, if required by the Securities Act.
8.2 Shelf Registration of the Registered Securities.
The Company agrees to use its reasonable best efforts to file with the
Commission a "shelf" Registration Statement on Form S-3 (or other appropriate
form under the Securities Act), providing for the resale of all of the
Registered Securities, within sixty (60) days after the Closing Date. The
Company will use its reasonable best efforts to have the Registration Statement
declared effective by the Commission as soon as practicable after the filing
thereof. Subject to Section 8.3 hereof, the Company will use its reasonable best
efforts to keep the Registration Statement continuously effective until the
earlier of:
(A) the date upon which all of the outstanding Registered
Securities have been sold pursuant to the Registration Statement or are no
longer outstanding, or
(B) such date as the Company and each of the Eligible Holders
shall be satisfied that Rule 144(k) of the regulations under the Securities
Act is available for the resale of the Registered Securities held by them,
or, in the case of Eligible Holders for whom Rule 144(k) is unavailable,
such Eligible Holders have consented in writing to permit the Company to
discontinue the effectiveness of the Registration Statement.
Subject to Section 8.3 below, the Company agrees to supplement or amend the
Registration Statement, if required by the Securities Act.
8.3 Interference with Registration.
(a) For purposes of this Section 8.3, any Registration Statement pursuant
to either Section 8.1 or 8.2 hereof shall collectively be referred to as the
"Registration Statements." If, after the Registration Statements have been
declared effective, a stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court is issued which
suspends the effectiveness of a Registration Statement, (i) upon receipt of
notice from the Company, the Requesting Holders or Exchanging Party (as
applicable) will discontinue any disposition of Shares or Registered Securities,
respectively, pursuant to that Registration Statement until receipt of notice
from the Company that the suspension of the effectiveness of the Registration
Statement has been withdrawn and (ii) the Company will use its reasonable best
efforts to obtain the withdrawal of such order or to meet such requirement at
the earliest possible time.
(b) If, after the Registration Statements have become effective, an event
occurs as a result of which the Company determines that a Registration Statement
or the related Prospectus contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
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made, not misleading, the Company will notify the Requesting Holders and any
Exchanging Party (as applicable) thereof and, if applicable, use its reasonable
best efforts to prepare and promptly file a post-effective amendment or a
supplement to the Registration Statement or the related Prospectus or promptly
file any other required document so that, as thereafter delivered to purchasers
of the Shares or Registered Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Without limiting Section 8.3(a) and 8.3(b) hereof, if any Requesting
Holder or Exchanging Party (as applicable) shall propose to sell any Shares or
Registered Securities, respectively, pursuant to the Registration Statements, it
shall notify the Company of its intent to do so at least three (3) full Business
Days prior to such sale. At any time within such three (3) Business Day period,
the Company may refuse to permit the Requesting Holder or Exchanging Party (as
applicable) to resell any Shares or Registered Securities, respectively,
pursuant to the Registration Statements; except that the Company may exercise
this right only once in any one hundred eighty (180) day period, unless the
matter giving rise to the exercise by the Company of this right is beyond the
Company's control; and provided, further, that in order to exercise this right,
the Company must deliver a certificate in writing to the Requesting Holder or
Exchanging Party (as applicable) to the effect that a delay in such sale is
necessary because a sale pursuant to such Registration Statement in its then-
current form would reasonably be expected to constitute a violation of the
federal securities laws. Without limiting Section 8.3(b) hereof, in no event
shall such delay exceed ten (10) Business Days; provided, however, that if,
prior to the expiration of such ten (10) Business Day period, the Company
delivers a certificate in writing to the Requesting Holder or Exchanging Party
(as applicable) to the effect that a further delay in such sale beyond such ten
(10) Business Day trading period is necessary because a sale pursuant to the
Registration Statement in its then-current form would reasonably be expected to
constitute a violation of the federal securities laws, the Company may refuse to
permit such Requesting Holder or Exchanging Party (as applicable) to resell any
Shares or Registered Securities, respectively, pursuant to the Registration
Statement for an additional period not to exceed five (5) Business Days, but in
no event shall any such delay exceed in the aggregate fifteen (15) Business
Days, unless the matter giving rise to the exercise of such right is beyond the
Company's control.
8.4 Selection of Underwriters for Registered Securities.
With respect to the registration of Registered Securities pursuant to
Section 8.2 hereof, at any time or from time to time after the Closing, the
Exchanging Party may elect to have the Registered Securities sold to one or more
persons participating as Underwriters for an Underwritten Offering. In such
event, the Company shall engage (a) Alex. ▇▇▇▇▇ & Sons Incorporated or (b)
another nationally recognized independent investment banking firm reasonably
acceptable to the holders of a majority of the Registered Securities, as
Underwriters; provided, however, that the Company shall not be required to
engage any Underwriter if such engagement would require the consent or approval
of any governmental authority (including the necessity of obtaining an exemptive
order under the Investment Company Act of 1940, as amended); provided, further,
that after three years after the
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Closing Date such Underwriters shall be selected by mutual agreement of the
Company and the holders of a majority of the Registered Securities, each acting
reasonably. In such event, the Company and each such Exchanging Party will
cooperate with the Underwriter or the managing Underwriter and take all
customary and reasonable actions to facilitate the disposition of Registered
Securities in an Underwritten Offering.
8.5 Other Obligations of the Company with respect to the Registered
Securities.
After the Closing, the Company will:
(a) use its reasonable best efforts
(i) to register or qualify the Registered Securities, by the time the
Registration Statement is declared effective by the Commission, under all
applicable state securities or "Blue Sky" laws of such jurisdictions as
each Underwriter, if any, or the Exchanging Party shall request in writing,
provided that the Company shall not be obligated to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject;
(ii) to keep each such registration or qualification effective during
the period the Registration Statement is required to be kept effective; and
(iii) upon request by the Exchanging Party, to do any and all other
acts and things which may be reasonably necessary to enable such
Underwriter, if any, and the Exchanging Party to consummate the disposition
of the Registered Securities in each such jurisdiction;
(b) notify the Exchanging Party
(i) when the Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective and
(ii) in connection with an Underwritten Offering, if any, if, between
the effective date of the Registration Statement and the closing of any
sale of Registered Securities, the representations and warranties of the
Company contained in the underwriting agreement relating to any
Underwritten Offering cease to be true and correct in all material respects
or if the Company receives any notification with respect to the suspension
of the qualification of the Registered Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose;
(c) Furnish or cause to be furnished forthwith to the Exchanging Party,
(i) a "cold comfort" letter of the Company's independent accountants,
as of the effective date of the Registration Statement, as to such matters
as customarily are covered
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in accountant's letters delivered to underwriters in underwritten public
offerings of securities and
(ii) an opinion of counsel to the Company, as of the effective date of
the Registration Statement, in the form customarily provided by issuer's
counsel in underwritten public offerings of securities;
(d) furnish such number of Prospectuses and other documents incident
thereto, including any amendment of or supplement to the Prospectus as an
Exchanging Party from time to time may reasonably request;
(e) cause all such Registered Securities registered as described herein to
be listed on each securities exchange and quoted on each quotation service on
which securities of the same class and series issued by the Company are then
listed or quoted;
(f) provide a transfer agent and registrar for all Registered Securities;
(g) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission with respect to the
disposition of the Registered Securities, and make available to its security
holders, as soon as reasonably practicable, an earnings statements covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
8.6 Registration Expenses.
The Company agrees to pay all Registration Expenses in connection with the
registrations pursuant to this Section 8. "Registration Expenses" means any and
all expenses incident to performance of or compliance with the provisions of
this Section 8 by the Company, including without limitation: (i) all Commission
and National Association of Securities Dealers, Inc. ("NASD") registration and
filing fees, (ii) all fees and expenses incurred in connection with compliance
with state securities or "Blue Sky" laws and compliance with the rules of the
NASD, (iii) all expenses in preparing, printing and distributing the
Registration Statements and other documents relating to the performance of and
compliance with this Agreement by the Company, (iv) the reasonable fees and
disbursements of counsel for the Company and of one counsel selected by the
Eligible Holders and reasonably acceptable to the Company and of the independent
public accountants of the Company, (v) any fees and disbursements of
Underwriters, dealers and agents, if any, customarily paid by issuers of
securities under similar circumstances relating to compliance with applicable
state securities or "Blue Sky" laws and the fees and expenses of any special
experts retained by the Company in connection with the Registration Statements;
but excluding (x) underwriting discounts and commissions and (other than as
provided in clause (v) of this paragraph) fees and disbursements of
Underwriters, dealers and agents in connection with an Underwritten Offering of
Shares or Registered Securities, if any, and (y) transfer taxes, if any,
relating to the sale and disposition of Shares or Registered Securities.
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8.7 Short Sales.
No Exchanging Party shall engage in any short-sales of the Company's Common
Stock prior to the effectiveness of the Registration Statement, except to the
extent that any such shortsale is fully covered by freely tradable shares of
Common Stock of the Company.
8.8 Representations of the Company.
The Company represents and warrants to, and agrees with, the Exchanging
Party that:
(a) The Registration Statements and the Prospectuses contained therein,
when they become effective or are filed with the Commission, as the case may be,
and, in the case of an Underwritten Offering, at the time of the closing under
the underwriting agreement relating thereto, will conform in all material
respects to the requirements of the Securities Act and will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and at all times subsequent to the effective date of such Registration
Statements when a Prospectus would be required to be delivered under the
Securities Act, except for the periods provided under Section 8.3 hereof, such
Registration Statements and Prospectuses will conform in all material respects
to the requirements of the Securities Act and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; provided, however, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to the
Company by the Exchanging Party or any Underwriter expressly for use therein.
(b) Any documents incorporated by reference in the Prospectuses, when they
become or became effective or are or were filed with the Commission, as the case
may be, will conform or conformed in all material respects to the requirements
of the Securities Act or the Exchange Act, as applicable, and none of such
documents will contain or contained, as of their respective dates, an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading at the time they become or became effective or are or were filed with
the Commission, as the case may be; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in reliance
upon and conformity with information furnished in writing to the Company by the
Exchanging Party or any Underwriter expressly for use therein.
8.9 Indemnification.
(a) The Company will indemnify and hold harmless each holder of Shares and
Registered Securities and any underwriter (as defined in the Securities Act) for
such holder and each person, if any, who controls the holder or underwriter
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the holder or
underwriter or such
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controlling person may be subject, under the Securities Act or otherwise,
insofar as any thereof arise out of or are based upon (x) any untrue statement
or alleged untrue statement of a material fact contained in a Registration
Statement, a Prospectus or any amendment or supplement thereto, or (y) the
omission or alleged omission to state in any item referred to in the preceding
clause a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or alleged untrue statement or omission or alleged omission based upon
information furnished to the Company in writing by such holder or by any
underwriter for such holder expressly for use therein (with respect to which
information such holder or underwriter shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any, who controls
the Company or such underwriter within the meaning of the Securities Act). The
foregoing is subject to the condition that, insofar as the foregoing indemnities
relate to any untrue statement, alleged untrue statement, omission or alleged
omission made in any prospectus which is eliminated or remedied in any
amendment, supplement or final prospectus, the above indemnity obligations of
the Company shall not inure to the benefit of any indemnified person (or to the
benefit of any person who controls such indemnified person within the meaning of
the Securities Act) if a copy of such amendment, supplement or final prospectus
was not sent or given by such indemnified person at or prior to the time such
action is required of such indemnified person by the Securities Act and if
delivery of such amendment, supplement or final prospectus would have eliminated
(or been a sufficient defense to) any liability of such indemnified person with
respect to such statement or omission.
(b) The Exchanging Party will indemnify and hold harmless the Company, any
other Exchanging Parties, any underwriter (as defined in the Securities Act) and
each person, if any, who controls the Company, such other Exchanging Parties or
any underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint and several, and expenses (including
reasonable attorneys' fees and expenses and reasonable costs of investigation)
to which the Company, such other Exchanging Party, underwriter or such
controlling person may be subject, under the Securities Act or otherwise,
insofar as any thereof arise out of or are based upon (x) any untrue statement
or alleged untrue statement of a material fact contained in a Registration
Statement, a Prospectus or any amendment or supplement thereto, (y) the omission
or alleged omission to state in any item referred to in the preceding clause a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (z) any failure of the Exchanging Party to perform its
obligations hereunder or under law; provided, however, that the Exchanging Party
will be liable hereunder in any such case if and only to the extent that any
such loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in strict conformity with information pertaining to
the Exchanging Party, as such, furnished in writing to the Company by the
Exchanging Party stated to be specifically for use in such Registration
Statement and Prospectus; provided, further, however, that the liability of the
Exchanging Party hereunder shall be limited to the proportion of any such loss,
claim, damage, liability or expense which is equal to the proportion that the
public offering price of the Shares or Registered Securities sold by the
Exchanging Party under such Registration Statement bears to the total public
offering price of all securities sold thereunder,
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but not in any event to exceed the proceeds received by the Exchanging Party
from the sale of the Shares or Registered Securities covered by such
Registration Statement. The foregoing is subject to the condition that, insofar
as the foregoing indemnities relate to any untrue statement, alleged untrue
statement, omission or alleged omission made in any prospectus which is
eliminated or remedied in any amendment, supplement or final prospectus, the
above indemnity obligations of the Exchanging Party shall not inure to the
benefit of any indemnified person (or to the benefit of any person who controls
such indemnified person within the meaning of the Securities Act) if a copy of
such amendment, supplement or final prospectus was not sent or given by such
indemnified person at or prior to the time such action is required of such
indemnified person by the Securities Act and if delivery of such amendment,
supplement or final prospectus would have eliminated (or been a sufficient
defense to) any liability of such indemnified person with respect to such
statement or omission.
(c) Promptly after receipt by an indemnified party under Section 8.9(a) or
(b) hereof of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the failure to so notify an indemnifying party shall
not relieve the indemnifying party of its obligations under this Section 8.9
unless such failure to notify materially prejudices the indemnifying party's
defense. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of separate counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. In addition, an indemnifying party shall not be required
to indemnify, reimburse, or otherwise make any contribution to the amount paid
or payable by the indemnified party for any losses, claims, damages, expenses or
liabilities incurred by the indemnified party in settlement of any actions,
proceedings or investigations otherwise covered hereunder, unless such
settlement has been previously approved by the indemnifying party, which
approval shall not be unreasonably withheld.
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(d) If the indemnification provided for in this Section 8.9 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8.9(a) or
(b) hereof in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
not only (i) the relative benefits received by the Exchanging Party on the one
hand and the underwriter on the other from the offering of the Shares or the
Registered Securities but also (ii) the relative fault of the Company, the
Exchanging Party and the underwriter in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Exchanging
Party on the one hand and the underwriter on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Exchanging Party bear to the total
underwriting discounts and commissions received by the underwriter, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact related to information supplied by the
Company, the Exchanging Party or the underwriter and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The Company and the Exchanging Party agree that it would not be just
and equitable if contributions pursuant to this Section 8.9 were determined by
pro rata allocation (even if several underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8.9. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8.9 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8.9, no underwriter, if any, will be required to
contribute any amount in excess of the amount agreed to between the Company and
the underwriter at the time of such offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any underwriters' obligations to contribute will
be several in proportion to their respective underwriting obligations and not
joint.
(f) In any proceeding relating to a Registration Statement, a Prospectus
or any supplement or amendment thereto, each party against whom contribution may
be sought under this Section 8.9 hereby consents to the jurisdiction of any
court having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
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8.10 Transferees.
The right to sell Shares and Registered Securities pursuant to a
Registration Statement described herein will automatically be assigned to each
transferee of Shares or Registered Securities, other than any purchaser of
Shares or Registered Securities sold under a Registration Statement. In the
event that it is necessary, in order to permit an Exchanging Party to sell
Shares or Registered Securities pursuant to a Registration Statement, to amend
or supplement the Registration Statement to name such transferee, such
transferee shall, upon written notice to the Company, be entitled to have the
Company make such amendment or supplement as soon as reasonably practicable.
SECTION 9. CONDITIONS TO EXCHANGING PARTY'S OBLIGATIONS
The Exchanging Party's obligation to exchange Shares hereunder is subject
to satisfaction of the following conditions at the Closing (any of which may be
waived by the Exchanging Party):
9.1 Series B Certificate of Designations.
The Series B Certificate of Designations shall have been filed with the
Delaware Secretary of State in substantially the form attached hereto as
Exhibit A.
9.2 Certificates for Shares.
The Exchanging Party shall concurrently receive the certificates for Shares
contemplated by Section 2(b) hereof.
9.3 Accuracy of Representations and Warranties.
The representations and warranties of the Company in the Stock Exchange
Agreements or in any certificate or document delivered pursuant hereto or
thereto shall be correct and complete on and as of the Closing Date with the
same effect as though made on and as of the Closing Date (after giving effect to
transactions contemplated by this Agreement).
9.4 Compliance with Agreements.
The Company shall have performed and complied with all agreements,
covenants and conditions contained in the Stock Exchange Agreements and any
other document contemplated hereby or thereby which are required to be performed
or complied with by the Company on or before the Closing Date.
9.5 Officers' Certificates.
The Exchanging Party shall have received a certificate dated the Closing
Date and signed by the President and by the Secretary of the Company, to the
effect that the conditions of this Section 9 have been satisfied.
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9.6 Proceedings.
All corporate and other proceedings in connection with the transactions
contemplated by the Stock Exchange Agreements, and all documents incident
thereto, shall be in form and substance satisfactory to the Exchanging Party and
its counsel, and the Exchanging Party shall have received all such originals or
certified or other copies of such documents as the Exchanging Party or its
counsel may reasonably request.
9.7 Legality; Governmental and Other Authorization.
The purchase of and payment for the Shares shall not be prohibited by any
law or governmental order, rule, ruling, regulation, release, interpretation or
opinion applicable to the Exchanging Party and shall not subject the Exchanging
Party to any penalty, tax, liability or other onerous condition. Any necessary
consents, approvals, licenses, permits, orders and authorizations of, and any
filings, registrations or qualifications with, any governmental or
administrative agency or other person with respect to the transactions
contemplated by the Stock Exchange Agreements shall have been obtained or made
and shall be in full force and effect. The Company shall have delivered to the
Exchanging Party upon its reasonable request factual certificates or other
evidence, in form and substance satisfactory to the Exchanging Party and its
counsel, setting forth what is required to enable the Exchanging Party to
establish compliance with this condition.
9.8 Time of Exchange.
The Closing shall not be later than 5:00 P.M., New York City time, on March
10, 1997 unless such date is extended by the Company, in its sole discretion, to
a date no later than March 31, 1997.
9.9 No Change in Law, etc.
No legislation, order, rule, ruling or regulation shall have been proposed,
enacted or made by or on behalf of any governmental body, department or agency,
and no legislation shall have been introduced in either House of Congress, and
no investigation by any governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other governmental body
or arbitrator, which, in any such case, in the Exchanging Party's reasonable
judgment could adversely affect, restrain, prevent or change the transactions
contemplated by the Stock Exchange Agreements (including without limitation the
issuance of the Shares hereunder and thereunder and the issuance of the
Conversion Shares under the Series B Certificate of Designations) or materially
and adversely affect the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of the
Company.
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9.10 Opinions of Counsel.
The Exchanging Party shall have received an opinion dated the Closing Date
and addressed to the Exchanging Party of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P., counsel for the
Company, which opinion shall be in form and substance reasonably satisfactory to
the Exchanging Party.
9.11 Other Documents and Opinions.
The Exchanging Party shall have received such other documents and opinions,
in form and substance satisfactory to the Exchanging Party and its counsel,
relating to matters incident to the transactions contemplated hereby as the
Exchanging Party may reasonably request.
9.12 Receipt of Consent and Exchange Agreements.
The Company shall have received a sufficient number of Consent and Exchange
Agreements executed by the holders of Series A Preferred Stock in order to have
the necessary authorization for the parity treatment of the Series B Preferred
Stock and the modification to the registration rights as contemplated therein.
9.13 Special Dividend.
The Company shall have declared a dividend on the Series A Preferred Stock
to the holders of record of shares of Series A Preferred Stock immediately
preceding the Initial Closing Date. Such dividend shall be paid promptly
following the Initial Closing and shall constitute the amount of all accrued but
unpaid dividends on the Series A Preferred Stock through the date of the Initial
Closing.
SECTION 10. CONDITIONS TO COMPANY'S OBLIGATIONS
The Company's obligation to exchange and issue the Shares at the Closing
is, at the option of the Company, subject to the fulfillment or waiver of the
following conditions:
10.1 Representations and Warranties Correct.
The representations and warranties made by the Exchanging Party in Section
5 hereof shall be true and correct in all material respects when made, and shall
be true and correct in all material respects on the Closing Date with the same
force and effect as if they had been made on and as of said date.
10.2 Covenants.
All covenants, agreements and conditions contained in this Agreement to be
performed by the Exchanging Party on or prior to the Closing Date shall have
been performed or complied with in all material respects.
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10.3 Blue Sky.
The Company shall have obtained all necessary blue sky law permits and
qualifications, or secured exemptions therefrom, required by any state for the
offer and sale of the Shares. No stop order or other order enjoining the sale
of the Shares shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened.
10.4 Surrender of Certificates.
The Exchanging Party shall have delivered to the Company, on or prior to
the Closing Date, the certificate or certificates representing the Exchanged
Shares, duly endorsed for transfer to the Company.
10.5 Closing of Private Placement.
The Company shall have completed a closing of the sale of shares of Series
B Preferred Stock under one or more Stock Purchase Agreements.
SECTION 11. BROKERS
Except for certain fees payable to the Agent (all of which fees will be
paid by the Company), the Company represents and warrants to the Exchanging
Party that there is no liability for (and the Company will pay and indemnify the
Exchanging Party against) any fees or expenses (or claims therefor) of any
investment banker, finder or broker retained by the Company or its Affiliates
(or that claims it was retained by the Company or its Affiliates) in connection
with any Stock Exchange Agreement or any of the transactions contemplated hereby
or thereby. The Company will indemnify the Exchanging Party against all such
fees or expenses payable to the enumerated persons in the preceding sentence and
against any other such fees, expenses or claims of any person, unless such
person was engaged by the Exchanging Party in connection with this Agreement or
any of the transactions contemplated hereby.
SECTION 12. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) The representations and warranties (as of the date hereof and as of
the Closing Date), covenants and agreements of the Company and the Exchanging
Party contained in this Agreement or in any document or certificate delivered
pursuant hereto or in connection herewith shall survive, and shall continue in
effect following, the execution and delivery of the Stock Exchange Agreements,
the closings hereunder and thereunder, any investigation at any time made by the
Exchanging Party or on its behalf or by any other Person, the issuance, exchange
and delivery of the Shares, any disposition thereof and any payment, conversion
or cancellation of the Shares provided, that Section 7 (other than Sections 7.1,
7.2, 7.4, 7.5, 7.7, 7.8, 7.9, 7.12, 7.13, 7.16, 7.17, 7.18, 7.20 and 7.21) shall
terminate when no Shares are outstanding. All statements contained in any
certificate delivered to the Exchanging Party by or on behalf of the Company
pursuant hereto shall constitute representations and warranties by the Company
hereunder.
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(b) The Company agrees to indemnify and hold the Exchanging Party harmless
from and against and will pay to the Exchanging Party the full amount of any
loss, damage, liability or expense (including amounts paid in settlement and
attorneys' fees and expenses) to the Exchanging Party resulting either directly
or indirectly from any breach of the representations, warranties, covenants or
agreements of the Company contained in any Stock Exchange Agreement, or in any
certificate delivered to the Exchanging Party pursuant hereto or in connection
herewith.
SECTION 13. SPECIFIC PERFORMANCE
The parties agree that irreparable damage will result in the event that
this Agreement is not specifically enforced, and the parties agree that any
damages available at law for a breach of this Agreement would not be an adequate
remedy. Therefore, the provisions hereof and the obligations of the parties
hereunder shall be enforceable in a court of equity, or other tribunal with
jurisdiction, by a decree of specific performance, and appropriate injunctive
relief may be applied for and granted in connection therewith. Such remedies
and all other remedies provided for in this Agreement shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which a party may have under this Agreement or otherwise.
SECTION 14. EXPENSES
(a) Whether or not the transactions herein contemplated are consummated,
the Company will pay (i) the costs and expenses of the preparation and
production of the Stock Exchange Agreements and the Series B Certificate of
Designations and the issuance of the Shares and the Conversion Shares and the
furnishing of all opinions by counsel for the Company, (ii) the fees and
expenses of Piper & Marbury L.L.P. in connection with the Stock Exchange
Agreements and the Series B Certificate of Designations and the transactions
contemplated hereby and thereby (whether or not a closing occurs hereunder and
if a closing occurs the Company will make such payment on the Closing Date),
(iii) the reasonable fees and expenses of counsel to the Eligible Holders in
connection with any amendments to or modifications or waivers of any provisions
of the Stock Exchange Agreements or the Series B Certificate of Designations or
in connection with any other agreements between the Exchanging Parties and the
Company after the date hereof, any of which are requested by the Company, (iv)
the fees and expenses of any investment banker, broker or finder retained by the
Company or its Affiliates (or that claims it was retained by the Company or its
Affiliates) and involved with the Stock Exchange Agreements or the Series B
Certificate of Designations or any of the transactions contemplated hereby or
thereby, and (v) the fees and expenses (including reasonable attorneys' fees and
expenses) of any holder of Shares or Conversion Shares in enforcing its rights
against the Company if the Company materially defaults in its obligations
hereunder or under the Series B Certificate of Designations. The obligations of
the Company under this Section 14 shall survive the Closing hereunder and any
termination of the Stock Exchange Agreements.
(b) In addition to all other sums due hereunder or provided for in this
Agreement, the Company shall pay to the Exchanging Party or its agents,
respectively, an amount sufficient to
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indemnify such persons (net of any taxes on any indemnity payments) against all
reasonable costs and expenses (including reasonable attorneys' fees and expenses
and reasonable costs of investigation) and damages and liabilities incurred by
the Exchanging Party or its agents pursuant to any investigation or proceeding
against any or all of the Company, the Exchanging Parties, or their agents,
arising out of or in connection with the Stock Exchange Agreements, the Shares
or the Conversion Shares (or any transaction contemplated hereby or thereby or
any other document or instrument executed herewith or therewith or pursuant
hereto or thereto), whether or not the transactions contemplated by this
Agreement are consummated, which investigation or proceeding requires the
participation of the Exchanging Party or its agents or is commenced or filed
against the Exchanging Party or its agents because of the Stock Exchange
Agreements, the Shares or the Conversion Shares or any of the transactions
contemplated hereby or thereby (or any other document or instrument executed
herewith or therewith or pursuant hereto or thereto), other than any
investigation or proceeding in which it is finally determined that there was
gross negligence or willful misconduct on the part of the Exchanging Party or
its agents which was not taken by them in reliance upon any of the Company's
representations, warranties, covenants or agreements in the Stock Exchange
Agreements or in any other documents or instruments contemplated hereby or
thereby or executed herewith or therewith or pursuant hereto or thereto, except
to the extent that any costs, expenses, damages or liabilities incurred by the
Exchanging Party is the direct result of its breach of any of its
representations, warranties, covenants or agreements in this Stock Exchange
Agreement or in any other documents or instruments contemplated hereby or
thereby or executed in connection herewith or therewith or pursuant hereto or
thereto. The Company shall assume the defense, and shall have its counsel
represent the Exchanging Party and such agents, in connection with
investigating, defending or preparing to defend any such action, suit, claim or
proceeding (including any inquiry or investigation); provided, however, that the
Exchanging Party, or any such agent, shall have the right (without releasing the
Company from any of its obligations hereunder) to employ its own counsel and
either to direct its own defense or to participate in the Company's defense, but
the fees and expenses of such counsel shall be at the expense of such person
unless (i) the employment of such counsel shall have been authorized in writing
by the Company in connection with such defense or (ii) the Company shall not
have provided its counsel to take charge of such defense or (iii) the Exchanging
Party, or such agent of the Exchanging Party, shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to the Company, then in any of such events
referred to in clauses (i), (ii) or (iii) such reasonable counsel fees and
expenses (but only for one counsel for the Exchanging Parties and their agents)
shall be borne by the Company. Any settlement of any such action, suit, claim or
proceeding shall require the consent of both the Company and such indemnified
person (neither of which shall unreasonably withhold its consent).
(c) The Company agrees to pay, or to cause to be paid, all documentary,
stamp and other similar taxes levied under the laws of the United States of
America or any state or local taxing authority thereof or therein in connection
with the issuance and exchange of the Shares and the execution and delivery of
the Stock Exchange Agreements and any other documents or instruments
contemplated hereby or thereby and any modification of the Series B Certificate
of Designations or the Stock Exchange Agreements or any such other documents or
instruments and will hold the
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Exchanging Party harmless without limitation as to time against any and all
liabilities with respect to all such taxes.
(d) The obligations of the Company under this Section 14 shall survive the
Closing hereunder and any termination of the Stock Exchange Agreements.
SECTION 15. HOME OFFICE PAYMENTS
As long as the Exchanging Party or any institutional holder which is a
direct or indirect transferee (as a result of one or more transfers) from the
Exchanging Party shall be the holder of record of any Shares, the Company will
make all dividends, redemption payments, repurchase payments, liquidation
payments and other distributions by wire transfer to the Exchanging Party's or
such other holder's (or its nominee's) account at any bank or trust company in
the United States of America, notwithstanding any contrary provision herein or
in the Company's certificate of incorporation with respect to the place of
payment. The Exchanging Party has provided an address on Schedule I hereto for
payments by wire transfer, and such address may be changed for the Exchanging
Party or any subsequent holder by notice to the Company. All such payments
shall be made in U.S. dollars and in federal or other immediately available
funds.
SECTION 16. AMENDMENTS AND WAIVERS
(a) The terms and provisions of this Agreement may be amended, waived,
modified or terminated only with the written consent of the Majority
Shareholders; provided, however, that no such amendment, waiver, modification or
termination shall (i) change the provisions of Section 8 hereof in any material
respect, without the consent of the holders of all Shares or Conversion Shares
affected thereby or (ii) change the definition of Majority Shareholders or this
Section 16(a) without the written consent of the holders of all the Shares and
Conversion Shares then outstanding; and provided further that no such amendment,
waiver, modification or termination shall be effective with respect to a term or
provision of this Agreement unless it is also effective with respect to the
corresponding term or provision, if any, of each other Stock Exchange Agreement
and each Stock Purchase Agreement. The Exchanging Party acknowledges that by
operation hereof, the Majority Shareholders (which may not include the
Exchanging Party) will have the right and power to diminish or eliminate certain
rights of the Exchanging Party under this Agreement.
(b) The Company agrees that all holders of Shares and Conversion Shares
shall be notified by the Company in advance of any proposed amendment, waiver,
modification or termination, but failure to give such notice shall not in any
way affect the validity of any such amendment, waiver, modification or
termination. In addition, promptly after obtaining the written consent of the
holders as herein provided, the Company shall transmit a copy of any amendment,
waiver, modification or termination which has been adopted to all holders of
Shares and Conversion Shares then outstanding, but failure to transmit copies
shall not in any way affect the validity of any such amendment, waiver,
modification or termination.
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SECTION 17. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES;
REPLACEMENT
(a) Subject to Section 6 hereof, at any time at the request of any holder
of Shares to the Company at its address provided under Section 18 hereof, the
Company at its expense (except for any transfer tax arising out of the exchange)
will issue and deliver to or upon the order of the holder in exchange therefor a
new certificate or certificates therefor in such amount or amounts as such
holder may request in the aggregate representing the number of Shares
represented by such surrendered certificates, and registered in the name of such
holder or otherwise as such holder may direct.
(b) Any Share certificate which is converted into Conversion Shares in
whole or in part shall be canceled by the Company, and no new Share certificates
shall be issued in lieu of any Shares which have been converted into Conversion
Shares. The Company shall issue a new certificate with respect to any Shares
which were not converted into Conversion Shares and were represented by a
certificate which was converted in part.
(c) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Share certificate and, in the case of
any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory to the Company (unsecured in the case of an
institutional holder), or in the case of any such mutilation, upon surrender of
such Share certificate (which surrendered Share certificate shall be canceled by
the Company), the Company will issue a new Share certificate, of like tenor in
lieu of such lost, stolen, destroyed or mutilated Share certificate as if the
lost, stolen, destroyed or mutilated Share certificate were then surrendered for
exchange.
SECTION 18. NOTICES
All notices, requests, demands, consents and other communications hereunder
shall be in writing and shall be delivered by hand or shall be sent by telex or
telecopy (confirmed by registered, certified or overnight mail or courier,
postage and delivery charges prepaid), if to the Company at the address
indicated below, or if to the Exchanging Party at the address indicated on
Schedule I hereto, or at such other address as a party may from time to time
designate as its address in writing to the other party to this Agreement.
Whenever any notice is required to be given hereunder, such notice shall be
deemed given and such requirement satisfied only when such notice is delivered
or, if sent by telex or telecopier, when received.
a. If to the Company:
Energy BioSystems Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
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Attn: Vice President of Finance
With a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
(b) If to the Exchanging Party, at the
address of the Exchanging Party
set forth on Schedule I.
SECTION 19. MISCELLANEOUS
(a) The Stock Exchange Agreements (including all schedules and exhibits
thereto) and, upon the closing hereunder, the Series B Certificate of
Designations, together with any further agreements entered into by the
Exchanging Party and the Company at the closing hereunder, contain the entire
agreement between the Exchanging Party and the Company, and supersede any prior
oral or written agreements, commitments, terms or understandings regarding the
subject matter hereof.
(b) Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which may render any provision hereof
prohibited or unenforceable in any respect.
(c) If the Company fails to pay any amount required to be paid to a holder
of Shares or Conversion Shares or to a party under this Agreement (not including
dividends not declared by the Board of Directors), within thirty (30) days after
notice from such holder or such party demanding such payment (together with
reasonably detailed supporting information), then the Company agrees to pay such
holder or such party interest on any such overdue amount at a rate of 10% per
annum from the date of such notice from such holder or such party until such
overdue amount is paid in full.
(d) Unless otherwise expressly provided herein, any provision of this
Agreement relating to the consent, determination, decision or waiver of a holder
or holders of Shares or Conversion
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Shares means such holder's consent, determination, decision or waiver in such
holder's sole discretion.
(e) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, whether so expressed
or not; provided, that the Company may not assign any of its rights, duties or
obligations under this Agreement, except in connection with a transaction
permitted by Section 7.11 or with the Exchanging Party's written consent.
(f) In addition to any assignment by operation of law, the Exchanging
Party may assign, in whole or in part, any or all of its rights (and/or
obligations) under this Agreement to any permitted transferee of any or all of
its Shares or Conversion Shares, except as provided in Section 8.10, and (unless
such assignment expressly provides otherwise) any such assignment shall not
diminish the rights the Exchanging Party would otherwise have under this
Agreement or with respect to any remaining Shares or Conversion Shares held by
the Exchanging Party.
(g) No course of dealing and no delay on the part of any party hereto in
exercising any right, power, or remedy conferred by this Agreement shall operate
as a waiver thereof or otherwise prejudice such party's rights, powers and
remedies. No single or partial exercise of any rights, powers or remedies
conferred by this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(h) The headings and captions in this Agreement are for convenience of
reference only and shall not define, limit or otherwise affect any of the terms
or provisions hereof.
(i) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware (other than any conflict of laws rule which
might result in the application of the laws of any other jurisdiction).
(j) This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument,
and all signatures need not appear on any one counterpart.
(k) WAIVER OF JURY TRIAL. THE COMPANY AND THE EXCHANGING PARTY HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE SERIES B CERTIFICATE OF
DESIGNATIONS, THE SHARES OR THE CONVERSION SHARES, OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY AND THE EXCHANGING PARTY
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH
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KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS
OF) THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE SHARES OR THE
CONVERSION SHARES. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ENERGY BIOSYSTEMS CORPORATION
By /s/ ▇▇▇▇ ▇. ▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: President
Accepted and Agreed to as of
the date first above written by
the undersigned Exchanging Party:
(See Omnibus Signature Page)
By _____________________________
Name:
Title:
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SCHEDULE I
TO THE STOCK
EXCHANGE AGREEMENT
Number of Shares
of Series A Preferred
Name of Exchanging Party Number of Shares Received Stock Exchanged
------------------------ ------------------------- ---------------
(a) address for communications:
Attn:
(b) address for payments by wire
transfer:
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Attn:
(providing sufficient
information with such
wire transfer to identify
the source and application
of such funds)
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SCHEDULE II TO
THE STOCK
EXCHANGE AGREEMENT
Summary of Registration Rights
1. Piggyback registration rights granted by the Company pursuant to that
certain First Amendment to License and Technology Assistance Agreement,
dated June 25, 1992, between the Company and Institute of Gas Technology.
2. Demand and piggyback registration rights granted by the Company pursuant to
that certain Registration Agreement, dated January 30, 1992, by and among
the Company, The Travelers Indemnity Company, The Travelers Indemnity
Company of Rhode Island, The Phoenix Insurance Company and Gryphon Ventures
II, Limited Partnership.
3. Demand and piggyback registration rights granted by the Company pursuant to
that certain Registration Agreement, dated April 29, 1991, by and between
the Company and Gryphon Ventures II, Limited Partnership.
4. Registration rights granted by the Company to the holders of the Series A
Preferred Stock pursuant to those certain Stock Purchase Agreements dated
October 27, 1994.
5. Registration rights granted by the Company to the purchasers of Series B
Preferred Stock pursuant to those certain Stock Purchase Agreements dated
February 21, 1997.
Indebtedness
NONE.
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