▇▇▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
July 31, 2003
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE.......................................1
2. FEES AND WARRANT.....................................................1
3. CLOSING, DELIVERY AND PAYMENT........................................2
3.1 Closing.....................................................2
3.2 Delivery....................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................2
4.1 Organization, Good Standing and Qualification...............2
4.2 Subsidiaries................................................3
4.3 Capitalization; Voting Rights...............................3
4.4 Authorization; Binding Obligations..........................4
4.5 Liabilities.................................................4
4.6 Agreements; Action..........................................4
4.7 Obligations to Related Parties..............................5
4.8 Changes.....................................................5
4.9 Title to Properties and Assets; Liens, Etc..................6
4.10 Intellectual Property.......................................7
4.11 Compliance with Other Instruments...........................7
4.12 Litigation..................................................7
4.13 Tax Returns and Payments....................................8
4.14 Employees...................................................8
4.15 Registration Rights and Voting Rights.......................8
4.16 Compliance with Laws; Permits...............................9
4.17 Environmental and Safety Laws...............................9
4.18 Valid Offering..............................................9
4.19 Full Disclosure.............................................9
4.20 Insurance..................................................10
4.21 SEC Reports................................................10
4.22 No Market Manipulation.....................................10
4.23 Listing....................................................10
4.24 No Integrated Offering.....................................10
4.25 Stop Transfer..............................................10
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4.26 Dilution...................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................11
5.1 Requisite Power and Authority..............................11
5.2 Investment Representations.................................11
5.3 Purchaser Bears Economic Risk..............................11
5.4 Acquisition for Own Account................................12
5.5 Purchaser Can Protect Its Interest.........................12
5.6 Accredited Investor........................................12
5.7 Legends....................................................12
5.8 No Shorting................................................12
5.8 Volume Limitation..........................................12
6. COVENANTS OF THE COMPANY............................................13
6.1 Stop-Orders................................................13
6.2 Listing....................................................13
6.3 Market Regulations.........................................14
6.4 Reporting Requirements....................................14
6.5 Use of Funds...............................................14
6.6 Access to Facilities.......................................14
6.7 Taxes......................................................14
6.8 Insurance..................................................14
6.9 Intellectual Property......................................15
6.10 Properties.................................................15
6.11 Confidentiality............................................15
6.12 Required Approvals.........................................15
6.13 Reissuance of Securities...................................15
6.14 Opinion....................................................16
7. COVENANTS OF THE PURCHASER..........................................17
7.1 Confidentiality............................................16
8. COVENANTS OF THE COMPANY AND PURCHASERS
REGARDING INDEMNIFICATION..........................................16
8.1 Company Indemnification....................................16
8.2 Purchaser's Indemnification................................16
8.2 Procedures.................................................16
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9. CONVERSION OF CONVERTIBLE NOTE......................................17
9.1 Mechanics of Conversion....................................17
9.2 Maximum Conversion.........................................18
9.3 Optional Redemption..........................................
10. REGISTRATION RIGHTS.................................................19
10.1 Registration Rights Granted................................19
10.2 Registration Procedures....................................20
10.3 Provision of Documents.....................................21
10.4 Non-Registration Events....................................21
10.5 Expenses...................................................21
10.6 Indemnification and Contribution...........................22
11. OFFERING RESTRICTIONS...............................................24
12. SECURITY INTEREST...................................................24
13. MISCELLANEOUS.......................................................24
13.1 Governing Law..............................................24
13.2 Survival...................................................24
13.3 Successors and Assigns.....................................25
13.4 Entire Agreement...........................................25
13.5 Severability...............................................25
13.6 Amendment and Waiver.......................................25
13.7 Delays or Omissions........................................25
13.8 Notices....................................................25
13.9 Attorneys' Fees............................................26
13.10 Titles and Subtitles.......................................26
13.11 Counterparts...............................................26
13.12 Broker's Fees..............................................26
13.13 Construction...............................................26
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▇▇▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of July 31, 2003, by and between ▇▇▇▇▇▇, Inc., a Delaware corporation (the
"Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
convertible note in the aggregate principal amount of $2,000,000 (the "Note"),
which Note is convertible into shares of the Company's common stock, $0.01 par
value per share (the "Common Stock") at a fixed conversion price of $1.55 per
share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase
shares of the Company's Common Stock in connection with Purchaser's purchase of
the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $2,000,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock
in accordance with the terms of the Note and this Agreement. The Note
purchased on the Closing Date shall be known as the "Offering." A form of
the Note is annexed hereto as Exhibit A. The Note will have a Maturity Date
(as defined in the Note) twenty four (24) months from the date of issuance.
Collectively, the Note and Warrant (as defined in Section 2) and Common
Stock issuable in payment of the Note, upon conversion of the Note and upon
exercise of the Warrant are referred to as the "Securities."
2. FEES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase 140,000 shares of Common Stock in connection with the Offering
(the "Warrant") pursuant to Section 1 hereof. The Warrant must be delivered
on the Closing Date. A form of Warrant is annexed hereto as Exhibit B. All
the representations, covenants, warranties, undertakings, and
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indemnification, and other rights made or granted to or for the benefit of
the Purchaser by the Company are hereby also made and granted in respect of
the Warrant and shares of the Company's Common Stock issuable upon exercise
of the Warrant (the "Warrant Shares").
(b) Upon execution and delivery of this Agreement by the Company and
Purchaser, the Company shall pay to Laurus Capital Management, manager of
the Purchaser, (i) a closing payment in an amount equal to four (4%) of the
aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment".
(c) The Company shall reimburse the Purchaser for its reasonable legal fees
for services rendered to the Purchaser in preparation of this Agreement and
the Related Agreements, and expenses in connection with the Purchaser's due
diligence review of the Company and relevant matters. Amounts required to
be paid hereunder will be paid at the Closing and shall not exceed $39,500.
(d) The deposit of $15,000 made by the Company on or about July 22, 2003
shall be credited against the Closing Payment and legal fees. The balance
of the Closing Payment and legal fees shall be paid at the Closing out of
funds held pursuant to a Funds Escrow Agreement, of even date herewith
among the Company, Purchaser and an Escrow Agent (the "Funds Escrow
Agreement").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "Closing
Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement, in the form attached as
Exhibit C, at the Closing, subject to the terms and conditions hereof, the
Company will deliver to the Escrow Agent, among other things, a Note in the
form attached as Exhibit A representing the principal amount of $2,000,000
and a Common Stock Purchase Warrant in the form attached as Exhibit B in
the Purchaser's name representing 140,000 Warrant Shares and the Purchaser
will deliver to the Escrow Agent, among other things, $2,000,000, by
certified funds or wire transfer made payable to the order of the Escrow
Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the date
of this Agreement as set forth below which disclosures are supplemented by,
and subject to the Company's filings and other filings identifying the
Company as issuer under the Securities Exchange Act of 1934 (collectively,
the "Exchange Act Filings"), copies of which have been provided to the
Purchaser.
4.1 Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has the corporate power and authority to own
and operate its properties and assets, to execute and deliver this
Agreement, the Warrant to be issued in connection with this Agreement (in
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the case of the Company only), the Funds Escrow Agreement, the Security
Agreement and all other agreements referred to herein (collectively, the
"Related Agreements"), to issue and sell the Note and the shares of Common
Stock issuable upon conversion of the Note (the "Note Shares") (in the case
of the Company only), to issue and sell the Warrant and the Warrant Shares
(in the case of the Company only), and to carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as
presently conducted. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for
those jurisdictions in which failure to do so would not have a material
adverse effect on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company does not own
or control any equity security or other interest of any other corporation,
limited partnership or other business entity.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of June 30, 2003,
consists of 20,000,000 shares of Common Stock, par value $0.01 per
share, 13,937,738 shares of which are issued and outstanding and
10,000,000 shares preferred stock, par value $1.00 per share of which
235,000 shares are outstanding.
(b) Except as disclosed on Schedule 4.3, other than (i) the shares
reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the
Company of any of its securities. Neither the offer, issuance or sale
of any of the Note or Warrant, or the issuance of any of the Note
Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of
any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such
securities.
(c) All issued and outstanding shares of the Company's Common Stock (i)
have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares of
the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance
with the provisions of this Agreement and the Company's Charter, the
Securities will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
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4.4 Authorization; Binding Obligations. All corporate action on the part of the
Company, its officers and directors necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of
the Company hereunder at the Closing and, the authorization, sale, issuance
and delivery of the Note and Warrant has been taken or will be taken prior
to the Closing. The Agreement and the Related Agreements, when executed and
delivered and to the extent it is a party thereto, will be valid and
binding obligations of the Company enforceable in accordance with their
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies. The sale of the
Note and the subsequent conversion of the Note into Note Shares are not and
will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are
not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The Note and
the Warrant, when executed and delivered in accordance with the terms of
this Agreement, will be valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
4.5 Liabilities. Except as set forth in Schedule 4.5, the Company, to the best
of its knowledge, knows of no material contingent liabilities, except
current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed in
any Exchange Act Filings:
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments
to, the Company in excess of $50,000 (other than obligations of, or
payments to, the Company arising from purchase or sale agreements
entered into in the ordinary course of business), or (ii) the transfer
or license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the
purchase or sale of "off the shelf" or other standard products), or
(iii) provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of
proprietary rights (other than obligations of the Company arising from
purchase or sale agreements entered into in the ordinary course of
business).
(b) The Company has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000
or, in the case of indebtedness and/or liabilities individually less
than $50,000, in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person not in excess, individually or in the
aggregate, of $100,000, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary
course of business.
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(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and
proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7, there
are no obligations of the Company to officers, directors, stockholders or
employees of the Company other than (a) for payment of salary for services
rendered and for bonus payments, (b) reimbursement for reasonable expenses
incurred on behalf of the Company, (c) for other standard employee benefits
made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company) and (d) obligations listed in the Company's
financial statements or disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the
officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate, in
excess of $50,000 or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which
competes with the Company, other than passive investments in publicly
traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director
or stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated
between the Company and any such person. Except as set forth on Schedule
4.7, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation.
4.8 Changes. Since December 31, 2002, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
(a) Any change in the assets, liabilities, financial condition, prospects
or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has
had or is reasonably expected to have a material adverse effect on
such assets, liabilities, financial condition, prospects or operations
of the Company;
(b) Any resignation or termination of any officer, key employee or group
of employees of the Company;
(c) Any material change, except in the ordinary course of business, in the
contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
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(e) Any waiver by the Company of a valuable right or of a material debt
owed to it;
(f) Any direct or indirect material loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution of
the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or guaranteed by
the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a party
or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or
prospects of the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely
affect the business, assets, liabilities, financial condition,
prospects or operations of the Company; or
(n) Any arrangement or commitment by the Company to do any of the acts
described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule
4.9, the Company has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, (b) minor liens
and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the
Company, and (c) those that have otherwise arisen in the ordinary course of
business. All facilities, machinery, equipment, fixtures, vehicles and
other properties owned, leased or used by the Company are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company
is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
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4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes
necessary for its business as now conducted and to the Company's
knowledge as presently proposed to be conducted (the "Intellectual
Property"), without any known infringement of the rights of others.
There are no outstanding options, licenses or agreements of any kind
relating to the foregoing proprietary rights, nor is the Company bound
by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary
rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or
standard products.
(b) Except as set forth on Schedule 4.10(b), the Company has not received
any communications alleging that the Company has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor
is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company.
4.11 Compliance with Other Instruments. Except as set forth on Schedule 4.11,
the Company is not in violation or default of any term of its Charter or
Bylaws, or of any material provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is
bound or of any judgment, decree, order or writ. The execution, delivery
and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Note by
the Company and the other Securities by the Company each pursuant hereto,
will not, with or without the passage of time or giving of notice, result
in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture
or nonrenewal of any permit, license, authorization or approval applicable
to the Company, its business or operations or any of its assets or
properties.
4.12 Litigation. Except as set forth on Schedule 4.12, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge,
currently threatened against the Company that prevents the Company to enter
into this Agreement or the Related Agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the
assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company,
nor is the Company aware that there is any basis for any of the foregoing.
The Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.
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4.13 Tax Returns and Payments. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. Except as set forth
on Schedule 4.13, all taxes shown to be due and payable on such returns,
any assessments imposed, and to the Company's knowledge all other taxes due
and payable by the Company on or before the Closing, have been paid or will
be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, the Company has not been advised (a) that any of its
returns, federal, state or other, have been or are being audited as of the
date hereof, or (b) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes. The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided for.
4.14 Employees. Except as set forth on Schedule 4.14, the Company has no
collective bargaining agreements with any of its employees. There is no
labor union organizing activity pending or, to the Company's knowledge,
threatened with respect to the Company. Except as disclosed in the Exchange
Act Filings, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus
plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no
employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the
Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's
contracts with its independent contractors, will not result in any such
violation. The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any
nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties
to the Company. The Company has not received any notice alleging that any
such violation has occurred. Except for employees who have a current
effective employment agreement with the Company, no employee of the Company
has been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the Company.
The Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, the Company is presently
not under any obligation, and has not granted any rights, to register any
of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. To the Company's knowledge, no stockholder of
the Company has entered into any agreement with respect to the voting of
equity securities of the Company.
4.16 Compliance with Laws; Permits. Except as set forth on Schedule 4.16, to its
knowledge, the Company is not in violation in any material respect of any
applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect
of the conduct of its business or the ownership of its properties which
8
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company.
No governmental orders, permissions, consents, approvals or authorizations
are required to be obtained and no registrations or declarations are
required to be filed in connection with the execution and delivery of this
Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner.
The Company has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted
by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, except for any violations that,
individually or in the aggregate, have not had and would not reasonably be
expected materially and adversely affect the business, properties,
prospects or financial condition of the Company, and to its knowledge, no
material expenditures are or will be required in order to comply with any
such existing statute, law or regulation. No Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the
Company or, to the Company's knowledge, by any other person or entity on
any property owned, leased or used by the Company, except for any use,
storage or disposal that, individually or in the aggregate, have not had
and would not reasonably be expected materially and adversely affect the
business, properties, prospects or financial condition of the Company. For
the purposes of the preceding sentence, "Hazardous Materials" shall mean
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control
of hazardous wastes, or other activities involving hazardous substances,
including building materials, or (b) any petroleum products or nuclear
materials.
4.18 Valid Offering. Assuming the accuracy of the representations and warranties
of the Purchaser contained in this Agreement, the offer, sale and issuance
of the Securities will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements
of all applicable state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company
believes is reasonably necessary to make such investment decision. Neither
this Agreement, the exhibits and schedules hereto, the Related Agreements
nor any other document delivered by the Company to Purchaser or its
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement
of a material fact nor omit to state a material fact necessary in order to
make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company
9
were based on the Company's experience in the industry and on assumptions
of fact and opinion as to future events which the Company, at the date of
the issuance of such projections or estimates, believed to be reasonable
4.20 Insurance. The Company has general commercial, product liability, fire and
casualty insurance policies with coverage customary for companies similarly
situated to the Company in the same or similar business.
4.21 SEC Reports. The Company has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The Company
has furnished the Purchaser with copies of (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 2002, (ii) its quarterly report
on From 10-Q for the period ended March 31, 2003, and (iii) its other
filings including Forms 8-K and Definitive Proxy made in 2003
(collectively, the "SEC Reports"). Each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective
form and none of the SEC Reports, nor the financial statements (and the
notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
4.22 Listing. The Company's Common Stock is listed for trading on the OTCBB and
satisfies all requirements for the continuation of such listing. The
Company has not received any notice that its Common Stock will be delisted
from the OTCBB or that its Common Stock does not meet all requirements for
listing.
4.23 No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made
any offers or sales of any security or solicited any offers to buy any
security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions. Nor will the Company or any of its affiliates or subsidiaries
take any action or steps that would cause the offering of the Securities to
be so integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. The Company will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise
of the Warrant is binding upon the Company and enforceable regardless of
the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
10
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver
this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the
lawful execution and delivery of this Agreement and the Related Agreements
have been or will be effectively taken prior to the Closing. Upon their
execution and delivery, this Agreement and the Related Agreements will be
valid and binding obligations of Purchaser, enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) as limited by general principles
of equity that restrict the availability of equitable and legal remedies.
5.2 Investment Representations. Purchaser understands that the Securities are
being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the
Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act. The Purchaser has received or has had full access
to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Note and the Warrant to be
purchased by it under this Agreement and the Note Shares and the Warrant
Shares acquired by it upon the conversion of the Note and the exercise of
the Warrant, respectively. The Purchaser further has had an opportunity to
ask questions and receive answers from the Company regarding the Company's
business, management and financial affairs and the terms and conditions of
the Offering, the Note, the Warrant and the Securities and to obtain
additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which
the Purchaser had access.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the
merits and risks of its investment in the Company and has the capacity to
protect its own interests. Purchaser must bear the economic risk of this
investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Note and Warrant
and the Note Shares and the Warrant Shares for Purchaser's own account for
investment only, and not as a nominee or agent and not with a view towards
or for resale in connection with their distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by reason of
its, or of its management's, business and financial experience, Purchaser
has the capacity to evaluate the merits and risks of its investment in the
Note, the Warrant and the Securities and to protect its own interests in
11
connection with the transactions contemplated in this Agreement, and the
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the
Agreement or the Related Agreements.
5.6 Accredited Investor. Purchaser represents that it is an accredited investor
within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ▇▇▇▇▇▇, INC.THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC system
(as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇, INC.THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
12
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇,
INC.THAT SUCH REGISTRATION IS NOT REQUIRED."
5.8 No Shorting. The Purchaser or any of its affiliates and investment partners
will not and will not cause any person or entity, directly or indirectly,
to engage in "short sales" of the Company's Common Stock or any other
hedging strategies.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of
any securities of the Company, or of the suspension of the qualification of
the Common Stock of the Company for offering or sale in any jurisdiction,
or the initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Note and upon the exercise of
the Warrant on the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market, American Stock Exchange or New
York Stock Exchange (the "Principal Market") upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be
so listed. The Company will maintain the listing of its Common Stock on a
Principal Market, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of
the Securities to Purchaser and promptly provide copies thereof to
Purchaser.
6.4 Reporting Requirements. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds of the sale
of the Note and Warrant to finance the construction, installation and
maintenance of its traffic surveillance systems.
13
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon
reasonable notice and during normal business hours, at such person's
expense and accompanied by a representative of the Company, to (a) visit
and inspect any of the properties of the Company, (b) examine the corporate
and financial records of the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make copies
thereof or extracts therefrom and (c) discuss the affairs, finances and
accounts of any such corporations with the directors, officers and
independent accountants of the Company. Notwithstanding the foregoing, the
Company will not provide any material, non-public information to the
Purchaser unless the Purchaser signs a confidentiality agreement and
otherwise complies with Regulation FD, under the federal securities laws.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property
or business of the Company; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
6.8 Insurance. The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss
or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the
Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
business similarly situated as the Company and to the extent available on
commercially reasonable terms.
6.9 Intellectual Property. The Company shall maintain in full force and effect
its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good repair, working
order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions
and improvements thereto; and the Company will at all times comply with
each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be
expected to have a material adverse effect.
6.11 Confidentiality. The Company agrees that it will submit the text of any
public announcement using the name of the Purchaser to the Purchaser prior
to its dissemination, unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
Unless the Purchaser shall specify its objections in writing to the Company
14
within 24 hours of its receipt of such public announcement, the Purchaser
shall be deemed to have given its consent to the to the text of the public
announcement.
6.12 Required Approvals. For so long as 50% of the principal amount of the Note
is outstanding, the Company, without the prior written consent of the
Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way of amendment
to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement or any of the agreements
contemplated thereby; or
(d) materially alter or change the scope of the business of the Company.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7
above at such time as (a) the holder thereof is permitted to dispose of
such Securities pursuant to Rule 144(k) under the Securities Act, or (b)
upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act. The Company agrees to
cooperate with the Purchaser in connection with all resales pursuant to
Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided the Company and its counsel receive reasonably
requested representations from the selling Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the Purchaser an
opinion acceptable to the Purchaser from the Company's legal counsel. The
Company will provide, at the Company's expense, such other legal opinions
in the future as are reasonably necessary for the conversion of the Note
and exercise of the Warrant.
6.15 License. The Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable only upon the occurrence and during the continuance of
an Event of Default without payment of royalty or other compensation to the
Company) to use, transfer, license or sublicense any Intellectual Property
now owned, licensed to, or hereafter acquired by the Company, and wherever
the same may be located, and including in such license access to all media
in which any of the licensed items may be recorded or stored and to all
computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that
any such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this agreement and the payment
in full of all Obligations. The powers granted to Laurus pursuant to this
Section 6(15) shall (i) not be exercised by Laurus unless and until an
Event of Default shall have occurred and be continuing and (ii) shall be
used solely to support and maintain the Accounts of CrossingGuard, Inc.
obtained as collateral.
15
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose, and will
not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of
such requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any sales in the
shares of the Company's Common Stock while in possession of material,
non-public information regarding the Company.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
8.1 Company Indemnification. The Company agrees to indemnify, hold harmless,
reimburse and defend Purchaser, each of Purchaser's officers, directors,
agents, affiliates, control persons, and principal shareholders, against
any claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders,
at all times against any claim, cost, expense, liability, obligation, loss
or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon the Company which results, arises out of or is based upon (i)
any misrepresentation by Purchaser or breach of any warranty by Purchaser
in this Agreement or in any exhibits or schedules attached hereto or any
Related Agreement; or (ii) any breach or default in performance by
Purchaser of any covenant or undertaking to be performed by Purchaser
hereunder, or any other agreement entered into by the Company and Purchaser
relating hereto.
8.3 Procedures. The procedures and limitations set forth in Section 10.2 shall
apply to the indemnifications set forth in Sections 8.1 and 8.2 above.
16
9. CONVERSION OF CONVERTIBLE NOTE.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in
an effective registration statement or are otherwise exempt from
registration when sold: (i) Upon the conversion of the Note or part
thereof, the Company shall, at its own cost and expense, take all
necessary action (including the issuance of an opinion of counsel) to
assure that the Company's transfer agent shall issue shares of the
Company's Common Stock in the name of the Purchaser (or its nominee)
or such other persons as designated by the Purchaser in accordance
with Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion;
and (ii) The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the
Company's Common Stock and that after the Effective Date (as
hereinafter defined) the Note Shares issued will be freely
transferable subject to the prospectus delivery requirements of the
Securities Act and the provisions of this Agreement, and will not
contain a legend restricting the resale or transferability of the Note
Shares.
(b) Purchaser will give notice of its decision to exercise its right to
convert the Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to
be converted to the Company (the "Notice of Conversion"). The
Purchaser will not be required to surrender the Note until the
Purchaser receives a credit to the account of the Purchaser's prime
broker through the DWAC system (as defined below), representing the
Note Shares or until the Note has been fully satisfied. Each date on
which a Notice of Conversion is telecopied or delivered to the Company
in accordance with the provisions hereof shall be deemed a "Conversion
Date." The Company will cause the transfer agent to transmit the
shares of the Company's Common Stock issuable upon conversion of the
Note (and a certificate representing the balance of the Note not so
converted, if requested by Purchaser) to the Purchaser by crediting
the account of the Purchaser's prime broker with the Depository Trust
Company ("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system, if available to the Company's transfer agent, within
three (3) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date").
The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the
event that the Company fails to direct its transfer agent to deliver
the Note Shares to the Purchaser via the DWAC system within the time
frame set forth in Section 9.1(b) above and the Note Shares are not
delivered to the Purchaser by the Delivery Date, as compensation to
the Purchaser for such loss, the Company agrees to pay late payments
to the Purchaser for late issuance of the Note Shares in the form
required pursuant to Section 9 hereof upon conversion of the Note in
the amount equal to the greater of (i) $500 per business day after the
Delivery Date or (ii) the Purchaser's actual damages from such delayed
delivery. Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of the Note
Shares beyond the Delivery Date is out of the control of the Company
and the Company is actively trying to cure the cause of the delay. The
Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual
17
damages, accompanied by reasonable documentation of the amount of such
damages. Such documentation shall show the number of shares of Common
Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon such
conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the
Note, for which such Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess
of the maximum permitted by applicable law. In the event that the rate
of interest or dividends required to be paid or other charges
hereunder exceed the maximum amount permitted by such law, any
payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
9.2 Maximum Conversion. The Purchaser shall not be entitled to convert on a
Conversion Date, nor shall the Company be permitted to require the
Purchaser to accept, that amount of a Note in connection with that number
of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of
this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Purchaser of more than 4.99% of the outstanding
shares of Common Stock of the Company on such Conversion Date. For the
purposes of the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. Upon an Event of Default under the Note, the
conversion limitation in this Section 9.2 shall become null and void.
10. REGISTRATION RIGHTS.
10.1 Registration Rights Granted. The Company hereby grants registration rights
to the Purchaser pursuant to a Registration Rights Agreement dated as of
even date herewith between the Company and the Purchaser.
10.2 Indemnification.
(a) In the event of a registration of any Registrable Securities under the
Securities Act pursuant to the Registration Rights Agreement, the
Company will indemnify and hold harmless the Purchaser, and its
officers, directors and each other person, if any, who controls the
Purchaser within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Purchaser, or such persons may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
18
Securities were registered under the Securities Act pursuant to the
Registration Rights Agreement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse the Purchaser, and each such person for any reasonable legal
or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by the Purchaser or any such person in writing
specifically for use in any such document.
(b) In the event of a registration of the Registrable Securities under the
Securities Act pursuant to the Registration Rights Agreement, the
Purchaser will indemnify and hold harmless the Company, and its
officers, directors and each other person, if any, who controls the
Company within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company
or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to the Registration
Rights Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the
Company and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided,
however, that the Purchaser will be liable in any such case if and
only to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished in writing to the Company by the Purchaser
specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than
under this Section 10.2(c) and shall only relieve it from any
liability which it may have to such indemnified party under this
Section 10.2(c) if and to the extent the indemnifying party is
prejudiced by such omission. 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 in and, to the extent it shall wish, to assume
and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 10.2(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof; if the indemnified party retains its own counsel,
then the indemnified party shall pay all fees, costs and expenses of
19
such counsel, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified
parties shall have the right to select one separate counsel and to
assume such legal defenses and otherwise to participate in the defense
of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the event
of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser,
makes a claim for indemnification pursuant to this Section 10.2 but it
is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.2 provides for indemnification in such case,
or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in
circumstances for which indemnification is provided under this Section
10.2; then, and in each such case, the Company and the Purchaser will
contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such
proportion so that the Purchaser is responsible only for the portion
represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public
offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the
Purchaser will not be required to contribute any amount in excess of
the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section
10 of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
20
11. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC Reports or
in the Exchange Act Filings, or stock or stock options granted to employees
or directors of the Company; or equity or debt issued in connection with an
acquisition of a business or assets by the Company; or the issuance by the
Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred
to as the "Excepted Issuances"), the Company will not issue any securities
with a continuously variable/floating conversion feature which are or could
be (by conversion or registration) free-trading securities (i.e. common
stock subject to a registration statement) prior to the full repayment or
conversion of the Note (the "Exclusion Period").
12. COLLATERAL.
12.1 The Company will direct all present and future Account Debtors of
CrossingGuard, Inc. and other persons obligated to make payments
constituting Accounts of CrossingGuard, Inc. to make such payments directly
to the lockbox maintained by the Company (the "Lockbox") with Commerce Bank
pursuant to the terms of the Lockbox Agreement dated July 31, 2003 or such
other financial institution accepted by the Purchaser in writing as may be
selected by the Company (the "Lockbox Bank"). On or prior to the Closing
Date, the Company shall and shall cause the Lockbox Bank to enter into all
such documentation acceptable to the Purchaser pursuant to which, among
other things, the Lockbox Bank agrees to: (a) sweep the Lockbox on a daily
basis and deposit all checks received therein to an account designated by
the Company in writing and (b) comply only with the instructions or other
directions of the Purchaser concerning the Lockbox. All of the
CrossingGuard Inc.'s invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of
any Account of the CrossingGuard, Inc. or any other amount constituting
Accounts shall conspicuously direct that all payments be made to the
Lockbox. Within thirty (30) days of closing, the Company shall provide
copies of all CrossingGuard Inc.'s invoices, account statements and other
written or oral communications directing, instructing, demanding or
requesting payment of any Account of the CrossingGuard, Inc., each clearly
directing Account Debtors to make all payments to the Lockbox, If,
notwithstanding the instructions to Account Debtors, CrossingGuard, Inc.
receives any payments, the CrossingGuard, Inc. shall immediately remit such
payments to the Lockbox in their original form with all necessary
endorsements. Until so remitted, CrossingGuard, Inc. shall hold all such
payments in trust for and as the property of the Purchaser and shall not
commingle such payments with any of its other funds or property.
12.2 At the Purchaser's election, (i) if an Event of Default set forth in
Sections 4.2 or 4.3 of the Note has occurred and is continuing for thirty
(30) days or (ii) if an Event of Default specified in Sections 4.1, 4.4,
4.5, 4.7 or 4.9 of the Note has occurred and is continuing beyond any
applicable grace period, the Purchaser may notify CrossingGuard Inc.'s
Account Debtors of the Purchaser's security interest in the Accounts,
collect them directly and charge the collection costs and expenses thereof
to the Company's account.
12.3 The Purchaser hereby agrees that if no Event of Default under the Note has
occurred and is continuing then all funds contained in the Lockbox will be
transferred daily to such account as shall be designated by CrossingGuard,
Inc. pursuant to that certain letter agreement dated as of July 31, 2003
among the CrossingGuard, Inc., Purchaser and Commerce Bank. Upon an Event
21
of Default that has occurred and is continuing beyond any applicable grace
period, the Purchaser may deliver written instructions to the Lockbox Bank
stating that an Even of Default has occurred and is continuing and
directing the Lockbox Bank to immediately cease wiring funds to accounts
designated by the Company and instead direct the Lockbox Bank to wire all
such funds into an account designated by the Purchaser.
12.4 The Company hereby appoints the Purchaser, or any other person whom the
Purchaser may designate as the Company's attorney, with power to: (i)
endorse the Company's or CrossingGuard, Inc.'s name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security
that may come into the Purchaser's possession; (ii) sign the Company's or
CrossingGuard, Inc.'s name on any invoice or ▇▇▇▇ of lading relating to any
Accounts, drafts against Account Debtors, schedules and assignments of
Accounts, notices of assignment, financing statements and other public
records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any
Account by mail, telephone, telegraph or otherwise with Account Debtors;
(iv) do all things necessary to carry out this Agreement, any Related
Agreement and all related documents; and (v) on or after the occurrence and
continuation of an Event of Default, notify the post office authorities to
change the address for delivery of the Company's mail to an address
designated by the Purchaser, and to receive, open and dispose of all mail
addressed to the Company or CrossingGuard, Inc. The Company hereby ratifies
and approves all acts of the attorney. Neither the Purchaser, nor the
attorney will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable so long as the Purchaser has a security interest
and until all obligations from the Company to the Purchaser have been fully
satisfied. Notwithstanding the immediately foregoing, the Purchaser shall
not exercise any powers granted to it pursuant to this Section 12.4 unless
and until an Event of Default under the Note shall have occurred and be
continuing.
12.5 All terms used in this Agreement and defined in the Uniform Commercial Code
("UCC"), shall have the meaning given therein unless otherwise defined
herein. The terms below shall be defined as follows:
(a) Account Debtor" means any person who is or may be obligated with
respect to, or on account of, an Account of CrossingGuard, Inc..
(b) "Accounts" means all "accounts", as such term is defined in the UCC,
now owned or hereafter acquired by CrossingGuard, Inc., including: (a)
all accounts receivable, other receivables, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel
Paper or Instruments) (including any such obligations that may be
characterized as an account or contract right under the UCC); (b) all
of such person's rights in, to and under all purchase orders or
receipts for goods or services; (c) all of such person's rights to any
goods represented by any of the foregoing (including unpaid sellers'
rights of rescission, replevin, reclamation and stoppage in transit
and rights to returned, reclaimed or repossessed goods); (d) all
rights to payment due to such person for goods or other property sold,
leased, licensed, assigned or otherwise disposed of, for a policy of
insurance issued or to be issued, for a secondary obligation incurred
or to be incurred, for energy provided or to be provided, for the use
or hire of a vessel under a charter or other contract, arising out of
the use of a credit card or charge card, or for services rendered or
to be rendered by such person or in connection with any other
22
transaction (whether or not yet earned by performance on the part of
such person); and (e) all collateral security of any kind given by any
Account Debtor or any other person with respect to any of the
foregoing.
Delivery of Additional Collateral. The Company hereby agrees that it
shall execute and deliver, and it shall cause CrossingGuard, Inc. to
execute and deliver, as an assignment for security, all documents,
including but not limited to assignment of claims agreements, which
Purchaser shall reasonably request in respect of any Qualifying
Account . Qualifying Account shall mean each of: that certain
Agreement dated as of July 11, 2002 by and between the Company and the
City of Cerritos, California, that certain Traffic Signal Violation
Video-Monitoring System Services Agreement dated as of June 19, 2002
by and between the Company the Municipality of Fullerton California,
that certain Traffic Signal Violation Video-Monitoring System Services
Agreement dated as of _July 15, 2002 by and between the Company the
Municipality of Costa Mesa California, and that certain Traffic Signal
Violation Video-Monitoring System Services Agreement dated as of June
24, 2002 by and between the Company the City of Pasadena, California.
12.7 Assignment of Qualifying Accounts. The Company hereby represents and
warrants to Purchaser that is has taken all action necessary and advisable
to effect a valid and binding security interest in each of the Qualifying
Accounts to the Purchaser and further that such valid assignment is
sufficient to enable the Purchaser to realize the practical benefits under
this Agreement and all applicable law.
13. MISCELLANEOUS.
13.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall
be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals
executing this Agreement and other agreements on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by jury.
In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
13.2 Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate
or other instrument delivered by or on behalf of the Company pursuant
hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely
as of the date of such certificate or instrument.
23
13.3 Successors. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure
to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time.
13.4 Entire Agreement. This Agreement, the exhibits and schedules hereto, the
Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or
bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and
therein.
13.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
13.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser under
this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company under
this Agreement may be waived only with the written consent of the
Company.
13.7 Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to any party, upon any breach, default
or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring. All remedies, either under this
Agreement, the Note or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
13.8 Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by telephonically confirmed facsimile
if sent during normal business hours of the recipient, if not, then on the
next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day
after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All
communications shall be sent to the Company at the address as set forth on
the signature page hereof, to the Purchaser at the address set forth on
the signature page hereto for such Purchaser, with a copy in the case of
the Company to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and in the case of Purchaser to
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇,
facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address as the Company
or the Purchaser may designate by ten days advance written notice to the
other parties hereto.
24
13.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
13.10 Titles and Subtitles. The titles of the sections and subsections of the
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
13.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one
instrument.
13.12 Broker's Fees. The Company represents and warrants that, any agent,
broker, investment banker, person or firm acting on behalf of or under the
authority of the Company is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein will be paid by the Company. The
Company further agrees to indemnify the Purchaser for any claims, losses
or expenses incurred by it as a result of the representation in this
Section 13.12 being untrue. Purchaser represents and warrants that, no
agent, broker, investment banker, person or firm acting on behalf of or
under the authority of Purchaser is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein, except the Closing Payment.
Purchaser further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 13.12 being untrue
13.13 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
25
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
▇▇▇▇▇▇, INC. LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ Grin
---------------------------- ------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ Grin
Title: EVP - CFO Title: Partner
Address: ▇▇▇▇▇▇, Inc. Address: c/o Ironshore Corporate
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ Services Ltd.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇ ▇.▇., ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ South Church Street
Grand Cayman, Cayman Islands
26
LIST OF EXHIBITS
Form of Convertible Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
27
EXHIBIT A
---------
FORM OF CONVERTIBLE NOTE
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ▇▇▇▇▇▇, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, _____________, a Delaware corporation (hereinafter
called the "Borrower"), hereby promises to pay to _____________________________
(the "Holder") or its registered assigns or successors in interest, on order,
without demand, the sum of ___________ Dollars ($_____________), together with
any accrued and unpaid interest and fees on ________, 200__ (the "Maturity
Date"). Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the "Purchase Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 Interest Rate. Interest payable on this Note shall accrue at the "base
rate" or "prime rate" published in the Wall Street Journal from time to
time, plus one and one quarter percent (1.25%) (the "Contract Rate")
commencing on July 31, 2003 and be payable in arrears on the first day of
each consecutive calendar month thereafter, and on the Maturity Date,
accelerated or otherwise, due and payable as described below. In no event
shall the Contract Rate be less than five and one quarter percent (5.25%).
1.2 Principal. The Borrower shall make repayments of principal on the Note as
follows:
A-1
---------- ---------------------- ---------- ------------------------
Date Principal Payment Date Principal Payment
---------- ---------------------- ---------- ------------------------
Insert Payment Schedule
---------- ---------------------- ---------- ------------------------
ARTICLE II
BORROWER PAYMENT OPTIONS
2.1 Monthly Payments in Cash or Common Stock. The Borrower shall make monthly
payments of (i) accrued and unpaid interest on the aggregate principal of
the Note (plus any payments due and owing under the Purchase Agreement and
the Note not previously paid) and (ii) payments of principal according to
the schedule set forth in Section 1.2 hereof (collectively, the "Monthly
Amount") beginning on __________, 200__ and on the first day of each
consecutive calendar month thereafter (each a "Repayment Date"). Subject to
the terms hereof, the Corporation has the sole option to determine whether
to satisfy payment of the Monthly Amount in full on each Repayment Date
either in cash or in shares of Common Stock, or a combination of both. The
Corporation shall deliver to the Holder a written irrevocable notice in the
form of Exhibit B attached hereto electing to pay such Monthly Amount in
full on such Repayment Date in either cash or Common Stock, or a
combination of both ("Repayment Election Notice"). Such Repayment Election
Notice shall be delivered to the Holder at least ten (10) days prior to the
applicable Repayment Date (the date of such notice being hereinafter
referred to as the "Notice Date"). If such Repayment Election Notice is not
delivered within the prescribed period set forth in the preceding sentence,
then the repayment shall be made in cash. If the Corporation elects or is
required to repay all or a portion of the Monthly Amount in cash on a
Repayment Date, then, with respect to the portion of the Monthly Amount to
be paid in cash, on such Repayment Date the Corporation shall pay to the
A-2
Holder an amount equal to (x) 103% of the principal portion of the Monthly
Amount plus (y) any accrued and unpaid interest in satisfaction of such
obligation. If the Corporation repays all or a portion of the Monthly
Amount in shares of Common Stock, the number of such shares to be issued
for such Repayment Date shall be the number determined by dividing (x) the
portion of the Monthly Amount to be paid in shares of Common Stock, by (y)
(100% of the average closing price for the three trading days immediately
prior to closing) $1.55 (the "Fixed Conversion Price"). .
2.2 No Effective Registration. Notwithstanding anything to the contrary herein,
the Corporation shall be prohibited from exercising its right to repay the
Monthly Amount in shares of Common Stock (and must deliver cash in respect
thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receives such shares there fails to
exist an effective registration statement or an Event of Default hereunder
exists or occurs, unless otherwise waived in writing by the Holder in whole
or in part at the Holder's option.
2.3 Common Stock Payment Restrictions. Notwithstanding anything to the contrary
herein, if the volume weighted average price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for any of the 10
trading days preceding a Repayment Date was less than 120% of the Fixed
Conversion Price, and the Corporation has elected to pay all or a portion
of the Monthly Amount in shares of Common Stock, then, instead of the
Company delivering the required number of shares of Common Stock on the
Repayment Date, the Holder and the Company may mutually agree to convert an
amount equal to what the Company elected to pay in shares of Common Stock
at a conversion price equal to 87% of the volume weighted average price of
the three (3) lowest days during the twenty (20) trading days immediately
preceding the Conversion Date. Any part of the Monthly Amount not converted
into shares of Common Stock by the following Repayment Date shall be paid
by the Company in cash on such following Repayment Date. Any such cash
payments not made on or before such repayment Date shall be added to the
next succeeding Monthly Amount. At any time during the relevant month or
mutual agreement per above is not attained, the Company shall pay the
Monthly Amount, or the unconverted part thereof, in cash and the conversion
price set forth in this Section 2.3 shall no longer be applicable.
2.4 Optional Prepayments in Common Stock. In the event that the Common Stock
trades on the Principal Market at a volume weighted average price greater
than 120% of the Fixed Conversion Price for a period of at least ten (10)
consecutive trading days, then the Borrower may, at its sole option,
provide the Holder written notice ("Call Notice") requiring the conversion
at the Fixed Conversion Price of all or a portion of the Note held by the
Holder (subject to the limitation provided for in Section 3.3) as of the
date set forth in such Call Notice (the "Call Date"). The Call Date shall
be at least twenty (20) trading days following the date of the Call Notice,
A-3
provided a registration statement covering resales of that number of
Conversion Shares provided for in the Call Notice has been declared
effective and is available for use. The number of Conversion Shares to be
issued in connection with any such conversion pursuant to a particular Call
Notice pursuant to this Section 3.9 shall not exceed 25% of the aggregate
dollar trading volume of the Common Stock for the twenty (20) trading days
immediately preceding the Call Date. If the price of the Common Stock falls
below 120% of the Conversion Price during the twenty (20) trading day
period preceding the Call Date, then the Holder will no longer be required
to convert the Note pursuant to such Call Notice. The Company shall not be
permitted to give the Holder more than one notice during any 20-day period.
2.5 Optional Redemption. The Company will have the option of redeeming the Note
("Optional Redemption") by paying to the Purchaser a sum of money equal to
one hundred fifteen percent (115%) of the principal amount of the Note
together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Purchaser arising under this Agreement,
Note or any other document delivered herewith ("Redemption Amount")
outstanding on the day notice of redemption ("Notice of Redemption") is
given to a Purchaser ("Redemption Date"). . A Notice of Redemption may not
be given in connection with any portion of Note for which notice of
conversion has been given by the Purchaser at any time before receipt of a
Notice of Redemption. The Redemption Amount must be paid in good funds to
the Purchaser no later than the seventh (7th) business day after the
Redemption Date ("Optional Redemption Payment Date"). In the event the
Company fails to pay the Redemption Amount by the Optional Redemption
Payment Date, then such Redemption Notice will be null and void. A Notice
of Redemption may be given by the Company, provided no Event of Default, as
described in the Note shall have occurred or be continuing.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights . If the closing price of the Common Stock is
greater than the Fixed Conversion Price, and the registration statement
required by Section 10 of the Purchase Agreement has been declared
effective by the Securities Exchange Commission, the Holder shall have the
right, but not the obligation to convert the principal portion of this Note
and/or interest due and payable into fully paid and nonassessable shares of
common stock of the Borrower as such stock exists on the date of issuance
of this Note.
3.2 Conversion Mechanics. (a) The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that
A-4
portion of the principal and interest and fees of the Note to be converted,
if any, by the Fixed Conversion Price as of the Conversion Date. In the
event of any conversions of outstanding principal amount under this Note in
part pursuant to this Article III, such conversions shall be deemed to
constitute conversions of outstanding principal amount applying to Monthly
Amounts for the Repayment Dates in chronological order.
By way of example, if the original principal amount of this Note is
$2,000,000 and the Holder converted $100,000 of such original principal
amount prior to the first Repayment Date, then (1) the principal amount of
the Monthly Amount due on the first Repayment Date would equal $0, (2) the
principal amount of the Monthly Amount due on the second Repayment Date
would equal $0 and (3) the principal amount of the Monthly Amount due on
the third Repayment Date would be $40,000. The Borrower shall deliver a
Notice of Conversion as described in Section 9 of the Securities Purchase
Agreement entered into between the Borrower and the Holder relating to this
Note (the "Purchase Agreement") of the Holder's written request for
conversion (the date of giving such notice of conversion being a
"Conversion Date").
(b) The Fixed Conversion Price and number and kind of shares or other
securities to be issued upon conversion is subject to adjustment from
time to time upon the occurrence of certain events, as follows:
A. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number
of shares of Common Stock, or if a dividend is paid on the Common
Stock in shares of Common Stock, the Fixed Conversion Price or
the Conversion Price, as the case may be, shall be
proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such
event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
B. During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common
Stock upon the full conversion of this Note. The Borrower
represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
A-5
3.3 Issuance of New Note. This Note may be converted by the Borrower or Holder
in whole or in part as described herein and Section 9 of the Purchase
Agreement. Upon partial conversion of this Note, a new Note containing the
same date and provisions of this Note shall, at the request of the Holder
and upon the cancellation of this Note, be issued by the Borrower to the
Holder for the principal balance of this Note and interest which shall not
have been converted or paid. The Borrower will pay no costs, fees or any
other consideration to the Holder for the production and issuance of a new
Note.
ARTICLE IV
EVENTS OF DEFAULT
If an Event of Default occurs and is continuing, the Borrower's rights
under Article II shall immediately cease and be of no further effect until such
time as the Event of Default has been cured or waived by the Holder. Upon the
occurrence and continuance of an Event of Default beyond any applicable grace
period, the Holder may make all sums of principal, interest and other fees then
remaining unpaid hereon and all other amounts payable hereunder due and payable
within five (5) days of written notice from Holder to Borrower (each period
being a "Default Notice Period") of an Event of Default (as defined below). In
the event of such an acceleration, the amount due and owing to the Holder shall
be 130% of the outstanding principal amount of the Note (plus accrued and unpaid
interest and fees, if any) (the "Acceleration Rate") until such Event of Default
shall have been cured or waived in writing by the Holder, if applicable. If
during the Default Notice Period, Borrower cures the Event of Default (other
than a payment default described in section 4.1 below), the Event of Default
will no longer exist and any rights Holder had pertaining to or arising from the
Event of Default will no longer exist.
If after the Default Notice Period the Borrower has not repaid in full
amount then due hereunder, then, and only then, the conversion price hereunder
shall be reduced and shall be equal to the lower of (i) the Fixed Conversion
Price; or (ii) seventy percent (70%) of the average of the three lowest closing
prices for the Common Stock on the Principal Market, for the thirty (30) trading
days prior to but not including the Conversion Date until such Event of Default
shall have been cured or waived in writing by the Holder. The "Principal Market"
shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market System, American Stock Exchange, or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock, or any securities exchange or other securities
market on which the Common Stock is then being listed or traded.
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The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails to pay
any installment of principal, interest or other fees hereon or on any other
promissory note issued pursuant to the Purchase Agreement and this Note,
when due and such failure continues for a period of fourteen (14) business
days after the due date.
4.2 Breach of Covenant. The Borrower breaches any material covenant or other
term or condition of this Note or the Purchase Agreement in any material
respect and such breach, if subject to cure, continues for a period of
twenty (20) days after written notice to the Borrower from the Holder.
4.3 Breach of Representations and Warranties. Any material representation or
warranty of the Borrower made herein, in the Purchase Agreement, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading and shall not be cured
for a period of twenty (20) business days after written notice thereof is
received by the Borrower from the Holder.
4.4 Bankruptcy, Receiver or Trustee. Pledgor shall (i) apply for, consent to,
or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or other fiduciary of itself or of
all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (iv) be
adjudicated a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi)
acquiesce to, or fail to have dismissed, within ninety (90) days, any
petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing..
4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its property or other
assets for more than $500,000, and shall remain unvacated, unbonded or
unstayed for a period of ninety (90) days.
4.6 Intentionally omitted.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading suspension
of the Common Stock for 5 consecutive days or 5 days during a period of 10
consecutive days, excluding in all cases a suspension of all trading on a
Principal Market, provided that the Borrower shall not have been able to
cure such trading suspension within 30 days of the notice thereof or list
the Common Stock on another Principal Market within 60 days of such notice.
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4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower's failure
to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Purchase Agreement, or if
required a replacement Note when due and such failure continues for a
period of seven (7) business days after the due date.
4.9 Intentionally omitted.
DEFAULT RELATED PROVISIONS
4.10 Payment Grace Period. The Borrower shall have a three (3) business day
grace period to pay any monetary amounts due under this Note or the
Purchase Agreement, after which grace period a default interest rate of
five percent (5%) per annum above the then applicable interest rate
hereunder shall apply to the monetary amounts due.
4.11 Conversion Privileges. The conversion privileges set forth in Article III
shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
of any such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall be in
writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by telephonically confirmed facsimile
if sent during normal business hours of the recipient, if not, then on the
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next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day
after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Borrower at the address as set forth on the signature
page to the Purchase Agreement executed in connection herewith, with a copy
to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇, and to the Holder at the address set forth
on the signature page to the Purchase Agreement for such Holder, with a
copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address
as the Borrower or the Holder may designate by ten days advance written
notice to the other parties hereto. A Notice of Conversion shall be deemed
given when made to the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder after written
notice to Borrower.
5.5 Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought
only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individual signing this Note on
behalf of the Borrower agree to submit to the jurisdiction of such courts.
The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this Note is invalid or unenforceable under any applicable statute or rule
of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or
unenforceability of any other provision of this Note.
5.6 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted
by such law, any payments in excess of such maximum shall be credited
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against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 Security Interest. The holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in a
Security Agreement.
5.8 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Note to favor any party
against the other.
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IN WITNESS WHEREOF, each Borrower has caused this Note to be signed in its
name effective as of this 31st day of July, 2003.
BORROWER
By:________________________________
NAME
TITLE
WITNESS:
-------------------------------
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal due on the
Note issued by ▇▇▇▇▇▇, INC. on July ___, 2003 into Shares of Common Stock of
▇▇▇▇▇▇, INC. (the "Company") according to the conditions set forth in such Note,
as of the date written below.
Date of Conversion:_____________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
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EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.1 of the Note of ▇▇▇▇▇▇, Inc. issued on July __,
2003, we hereby notify you that we are irrevocably electing to repay the
outstanding Monthly Amount (as defined in the Note) due on the Repayment Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three
(3) trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment
Date, and in part in shares of the Company's Common Stock
(in the amount of ______ shares) within three (3) trading
days following such Repayment Date.
▇▇▇▇▇▇, Inc.
By:
--------------------------------------
Name:
Title:
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EXHIBIT B
Form of warrant
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO _____________ THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase __________ Shares of Common Stock of _________________
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2003-1 Issue Date: ______, 200__
_____________, a corporation organized under the laws of the State of
________ (the "Company"), hereby certifies that, for value received,
_____________________, or assigns (the "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company from and after the Issue
Date of this Warrant and at any time or from time to time before 5:00 p.m., New
York time, through five (5) years after such date (the "Expiration Date"), up to
_______ fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.01 par value per share, of the Company, at the Purchase Price (as
defined below). The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include _____________ and any corporation
which shall succeed or assume the obligations of _____________
hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.01
par value per share, as authorized on the date of the Securities
Purchase Agreement referred to in Section 9 hereof, and (b) any other
securities into which or for which any of the securities described in
(a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of the Warrant at any time
shall be entitled to receive, or shall have received, on the exercise
of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for
or in replacement of Common Stock or Other Securities pursuant to
Section 4 or otherwise.
The term "Purchase Price" shall be
a. ______ shares at 115% of the Fixed Conversion Price per share.
b. ______ shares at 125% of the Fixed Conversion Price per share.
c. ______ shares at 145% of the Fixed Conversion Price per share.
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1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the date hereof
through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part
in accordance with subsection 1.3, shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the holder hereof
by delivery of an original or fax copy of the form of subscription attached
as Exhibit A hereto (the "Subscription Form") duly executed by such Holder,
to the Company at its principal office or at the office of its warrant
agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer, or by certified or official bank check payable to the order of
the Company, in the amount obtained by multiplying the number of shares of
Common Stock for which this Warrant is then exercisable by the Purchase
Price (as hereinafter defined) then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not for a
fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying
(a) the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such
partial exercise, the Company, at its expense, will forthwith issue and
deliver to or upon the order of the holder hereof a new Warrant of like
tenor, in the name of the holder hereof or as such holder (upon payment by
such holder of any applicable transfer taxes) may request, the number of
shares of Common Stock for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is quoted on
the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap
Market, then the average closing or last sale price, respectively,
reported for the ten business days immediately preceding the
Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or on the
NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded on the NASD OTC Bulletin Board, then the mean of the average of
the closing bid and asked prices reported for the ten business days
immediately preceding the Determination Date.
(c) If the Company's Common Stock is not publicly traded, then as the
Holder and the Company agree or in the absence of agreement by
arbitration in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen from
a panel of persons qualified by education and training to pass on the
matter to be decided.
1.5. Company Acknowledgment. The Company will, at the time of the exercise of
the Warrant, upon the request of the holder hereof acknowledge in writing
its continuing obligation to afford to such holder any rights to which such
holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust company
shall have been appointed as trustee for the Company pursuant to Subsection
3.2, such bank or trust company shall have all the powers and duties of a
B-2
warrant agent (as hereinafter described) and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as
the case may be, on exercise of this Warrant pursuant to this Section 1.
2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees that
the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in
any event within 7 days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in
the name of and delivered to the holder hereof, or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct in
compliance with applicable Securities Laws, a certificate or certificates
for the number of duly and validly issued, fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which
such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with
any other stock or other securities and property (including cash, where
applicable) to which such holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
2.2. Payment of Purchase Price.
(a) Payment may be made either in (i) cash or by certified or official
bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of the Warrant, Common
Stock and/or Common Stock receivable upon exercise of the Warrant in
accordance with Section (b) below, or (iii) by a combination of any of
the foregoing methods, for the number of Common Shares specified in
such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to
the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock
(or Other Securities) determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if the Fair
Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash, the holder may elect to receive
shares equal to the value (as determined below) of this Warrant (or
the portion thereof being cancelled) by surrender of this Warrant at
the principal office of the Company together with the properly
endorsed Subscription Form in which event the Company shall issue to
the holder a number of shares of Common Stock computed using the
following formula:
X=Y (A-B)
---
A
Where X= the number of shares of Common Stock to be issued to
the holder
Y= the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
exercised (at the date of such calculation)
A= the Fair Market Value of one share of the Company's
Common Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such
calculation)
B-3
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any time or from
time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in
each such case, as a condition to the consummation of such a transaction,
proper and adequate provision shall be made by the Company whereby the
holder of this Warrant, upon the exercise hereof as provided in Section 1
at any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and
other securities and property (including cash) to which such holder would
have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this
Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Section 4.
3.2. Continuation of Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may
be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms
of this Warrant as provided in Section 4.
4. Extraordinary Events Regarding Common Stock. In the event that the Company
shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares
of the Common Stock into a smaller number of shares of the Common Stock,
then, in each such event, the Purchase Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then Purchase Price
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Purchase Price then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 4. The number
of shares of Common Stock that the holder of this Warrant shall thereafter,
on the exercise hereof as provided in Section 1, be entitled to receive
shall be increased or decreased to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Purchase Price that would otherwise (but for
the provisions of this Section 4) be in effect, and (b) the denominator is
the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable
on the exercise of the Warrant, the Company at its expense will promptly
cause its Chief Financial Officer or other appropriate designee to compute
such adjustment or readjustment in accordance with the terms of the Warrant
and prepare a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or
receivable by the Company for any additional shares of Common Stock (or
Other Securities) issued or sold or deemed to have been issued or sold, (b)
the number of shares of Common Stock (or Other Securities) outstanding or
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deemed to be outstanding, and (c) the Purchase Price and the number of
shares of Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as adjusted
or readjusted as provided in this Warrant. The Company will forthwith mail
a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrant, all shares
of Common Stock (or Other Securities) from time to time issuable on the
exercise of the Warrant. This Warrant entitles the holder hereof to receive
copies of all financial and other information distributed or required to be
distributed to the holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect
to any or all of the Shares. On the surrender for exchange of this Warrant,
with the Transferor's endorsement in the form of Exhibit B attached hereto
(the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable
Securities Laws, which shall include, without limitation, a legal opinion
from the Transferor's counsel that such transfer is exempt from the
registration requirements of federal securities laws, the Company at its
expense but with payment by the Transferor of any applicable transfer
taxes) will issue and deliver to or on the order of the Transferor thereof
a new Warrant of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock called for on the face or faces of the
Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of this Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been granted certain
registration rights by the Company. These registration rights are set forth
in a Securities Purchase Agreement entered into by the Company and the
Holder.
10. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant
on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates on an
exercise date, and (ii) the number of shares of Common Stock issuable upon
the exercise of this Warrant with respect to which the determination of
this proviso is being made on an exercise date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock of the Company on such date. For the
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.9%.
The restriction described in this paragraph is automatically null and void
upon an Event of Default under the Note..
11. Warrant Agent. The Company may, by written notice to the each holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
B-5
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
12. Transfer on the Company's Books. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
13. Notices, etc. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such holder or, until any such holder
furnishes to the Company an address, then to, and at the address of, the
last holder of this Warrant who has so furnished an address to the Company.
14. Voluntary Adjustment by the Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of
the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be governed by and construed in
accordance with the laws of State of New York without regard to principles
of conflicts of laws. Any action brought concerning the transactions
contemplated by this Warrant shall be brought only in the state courts of
New York or in the federal courts located in the state of New York. The
individuals executing this Warrant on behalf of the Company agree to submit
to the jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Warrant
is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Warrant. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any
of the terms hereof. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision. The Company acknowledges that legal counsel participated in the
preparation of this Warrant and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Warrant to favor any
party against the other party.
[THIS SPACE INTENTIONALLY LEFT BLANK]
B-6
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
COMPANY
By:_____________________________________
NAME
TITLE
Witness:
------------------------------
B-7
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: COMPANY
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ____________________ whose address is
__________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________ _______________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
_______________________________________
(Address)
B-8
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of ▇▇▇▇▇▇, Inc. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of ▇▇▇▇▇▇, Inc.
with full power of substitution in the premises.
================================== ================== =================
Transferees Percentage Number
-----------
Transferred Transferred
---------------------------------- ------------------ -----------------
---------------------------------- ------------------ -----------------
---------------------------------- ------------------ -----------------
---------------------------------- ------------------ -----------------
---------------------------------- ------------------ -----------------
---------------------------------- ------------------ -----------------
================================== ================== =================
Dated:
-----------------, ---- ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
------------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED:
[TRANSFEREE]
------------------------------- ------------------------------------
(Name) (address)
------------------------------------
B-9
EXHIBIT C
FORM OF OPINION
1. Each of the Company and its subsidiaries is a corporation validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted.
2. Each of the Company and its subsidiaries has the requisite corporate power
and authority to execute, deliver and perform its obligations under the
Agreement and Related Agreements. All corporate action on the part of the
Company, it s subsidiaries and their officers, directors and stockholders
necessary for (i) the authorization of the Agreement and Related Agreements
to which each is a party, and the performance of all obligations of the
Company thereunder at the Closing, and (ii) the authorization, sale,
issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements has been taken. The Note Shares and the Warrant Shares,
when issued pursuant to and in accordance with the terms of the Agreement
and the Related Agreemennts and upon delivery, shall be validly issued and
outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Note or the
Related Agreements by the Company and each of its subsidiaries and the
consummation of the transactions contemplated by any thereof, will not,
with or without the giving of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the; or
(b) To such counsel's knowledge, violate any judgment, decree, order or
award of any court binding upon the Company or its subsidiaries.
4. The Agreement and Related Agreements to which each is a party constitute
and the Note, upon their issuance will constitute, valid and binding
obligations of the Company, and are enforceable against each the Company
and its subsidiaries, respectively in accordance with their respective
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies.
5. The sale of the Note and the subsequent conversion of the Note into Note
Shares are not subject to any preemptive rights or, to such counsel's
knowledge, rights of first refusal that have not been properly waived or
complied with. The sale of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not subject to any preemptive rights or, to
such counsel's knowledge, rights of first refusal that have not been
properly waived or complied with.
C-1
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the
Securities Act. To the best of such counsel's knowledge, neither the
Company, nor any of its subsidiaries, affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy and security under
circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for
purposes of the Securities Act which would prevent the Company from selling
the Securities pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation pending or, to such
counsel's knowledge, currently threatened against the Company or any of its
subsidiaries that prevents the right of the Company or any of its
subsidiaries to enter into this Agreement or any of the Related Agreements,
or to consummate the transactions contemplated thereby. To the best of such
counsel's knowledge, neither the Company nor any of its subsidiaries is a
party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company or any
of its subsidiaries currently pending or which the Company or any of its
subsidiaries intends to initiate.
C-2