EXHIBIT 10.13
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NOTE PURCHASE AGREEMENT
by and among
National Coal Corp., as Issuer and Seller
and
the parties named herein, as Purchasers
with respect to Seller's
8% Convertible Promissory Notes
August 31, 2004
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TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of 8% Convertible Promissory Note
Exhibit B Form of Articles of Amendment of the Articles of Incorporation
Exhibit C Form of Common Stock Purchase Warrant
Exhibit D Form of Note Investor Rights Agreement
Exhibit E Form of Opinion of Seller's Counsel
Exhibit F Form of Note Closing Escrow Agreement
Exhibit G Form of Management Lock-Up Agreement
Exhibit H Form of Subscription Notice
Exhibit I Form of Transfer Notice
Schedule 1 Purchasers and Principal Amount of Notes
Schedule 3 Disclosure Schedules
NOTE PURCHASE AGREEMENT (the "AGREEMENT") dated as of August 31, 2004,
by and among National Coal Corp., a Florida corporation (the "SELLER"), and each
of the persons listed on SCHEDULE 1 hereto (each is individually referred to as
a "PURCHASER" and collectively, the "PURCHASERS").
RECITALS:
WHEREAS, each of the Purchasers is willing to purchase from the Seller,
and the Seller desires to sell to the Purchasers, up to an aggregate of $3
million in principal amount of its 8% Convertible Promissory Notes (the
"NOTES"), convertible into shares of its Series A Cumulative Convertible
Preferred Stock, $15,000 liquidation preference per share, par value $0.0001 per
share (the "PREFERRED STOCK") and Common Stock Purchase Warrants (the
"WARRANTS") entitling the holders thereof to purchase shares of the Seller's
common stock, $0.0001 par value (the "COMMON STOCK"), as more fully set forth
herein.
NOW THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I - PURCHASE AND SALE
1.1 PURCHASE AND SALE.
(a) On the terms and subject to the conditions set forth in this
Agreement, at the Closing (as defined in Section 2.2), the Seller will sell and
each of the Purchasers will purchase the Notes in the principal amounts set
forth on SCHEDULE 1.
(b) The shares of Preferred Stock issuable upon conversion of the Notes
are referred to herein as the "NOTE CONVERSION SHARES", the Warrants issuable
upon conversion of the Notes are referred to herein as the "NOTE CONVERSION
WARRANTS", the shares of Common Stock issuable upon conversion of the Preferred
Stock are referred to herein as the "CONVERSION SHARES" and the shares of Common
Stock issuable upon exercise of the Warrants are referred to herein as the
"WARRANT SHARES".
1.2 TERMS OF THE NOTES, PREFERRED STOCK AND WARRANTS. The terms
and provisions of the Notes are set forth in the Form of 8% Convertible
Promissory Note attached hereto as EXHIBIT A. The terms and provisions of the
Preferred Stock are set forth in the form of Articles of Amendment to the
Articles of Incorporation providing for the designation, powers, rights and
preferences of Series A Cumulative Convertible Preferred Stock, attached hereto
as EXHIBIT B (the "ARTICLES OF AMENDMENT"). The terms and provisions of the
Warrants are more fully set forth in the form of Common Stock Purchase Warrant,
attached hereto as EXHIBIT C.
1.3 TRANSFERS; LEGENDS.
(a) (i) Except as required by federal securities laws and the
securities law of any state or other jurisdictions, the Notes, the Note
Conversion Shares, the Note Conversion Warrants, Conversion Shares, and Warrant
Shares (collectively, the "SECURITIES") may be transferred, in whole or in part,
by any of the Purchasers at any time. In the case of Notes or Preferred Stock,
such transfer may be effected by delivering written transfer instructions to the
Seller, and the Seller shall reflect such transfer on its books and records and
reissue certificates evidencing the Notes or Preferred Stock upon surrender of
certificates evidencing the Notes or Preferred Stock being transferred. Any such
transfer shall be made by a Purchaser in accordance with applicable law. Any
transferee shall agree to be bound by the terms of the Note Investor Rights
Agreement and this Agreement. The Seller shall reissue certificates evidencing
the Securities upon surrender of certificates evidencing the Securities being
transferred in accordance with this Section 1.3(a).
(ii) In connection with any transfer of Securities other than
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "SECURITIES ACT"), or to the Seller, the Seller may
require the transferor thereof to furnish to the Seller an opinion of counsel
selected by the transferor, such counsel and the form and substance of which
opinion shall be reasonably satisfactory to the Seller and Seller's counsel, to
the effect that such transfer does not require registration under the Securities
Act; PROVIDED, HOWEVER, that in the case of a transfer pursuant to Rule 144
under the Securities Act, no opinion shall be required if the transferor
provides the Seller with a customary seller's representation letter, and if such
sale is not pursuant to subsection (k) of Rule 144, a customary broker's
representation letter and Form 144. Notwithstanding the foregoing, the Seller
hereby consents to and agrees to register on the books of the Seller and with
any transfer agent for the securities of the Seller, without any such legal
opinion, any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser, provided that the transferee certifies to the Seller that it is an
"ACCREDITED INVESTOR" as defined in Rule 501(a) under the Securities Act and
that it is acquiring the Securities solely for investment purposes (subject to
the qualifications hereof) and not with a view to, or for, resale, distribution
or fractionalization thereof in whole or in part in violation of the Securities
Act.
(iii) An "AFFILIATE" means any Person (as such term is defined
below) that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser. A "PERSON" means any individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision of any thereof) or other entity of any kind.
(b) The certificates representing the Notes, Note Conversion Shares or
Warrants shall bear the following legend:
"THE SHARES REPRESENTED BY, OR ISSUABLE UPON CONVERSION OR EXERCISE OF
SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS
NOT REQUIRED."
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ARTICLE II - PURCHASE PRICE AND CLOSING
2.1 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE
PRICE") to be paid by the Purchasers to the Seller to acquire the Notes at the
Closing shall be the total of the amounts payable by each Purchaser,
respectively, set forth beside the name of each Purchaser on SCHEDULE 1 hereto.
The Purchase Price paid by each Purchaser shall be placed in escrow pending the
Closing as provided in Article 6.1(b) hereof.
2.2 THE CLOSING. The closing of the transactions contemplated
under this Agreement (the "CLOSING") will take place as promptly as practicable,
but no later than five (5) business days following satisfaction or waiver of the
conditions set forth in Article 6.1(a) and (b) and 6.2(a) (other than those
conditions which by their terms are not to be satisfied or waived until the
Closing), at the offices of ▇▇▇▇▇▇ and ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The date on which the Closing occurs is the "CLOSING DATE."
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchasers as follows:
3.1 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES. The Seller and
its Subsidiaries are corporations duly incorporated, validly existing and in
good standing under the laws of the state in which they are incorporated, and
have all corporate powers required to carry on their business as now conducted.
The Seller and its Subsidiaries are duly qualified to do business as a foreign
corporation and are in good standing in each jurisdiction where the character of
the property owned or leased by them or the nature of their activities makes
such qualification necessary, except for those jurisdictions where the failure
to be so qualified would not have a Material Adverse Effect on the Seller or any
of its Subsidiaries. For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" means, with respect to any person or entity, a material adverse effect
on its and its Subsidiaries' condition (financial or otherwise), business,
properties, assets, liabilities (including contingent liabilities), results of
operations or current prospects, taken as a whole. True and complete copies of
the Seller's Articles of Incorporation, as amended (the "ARTICLES"), and Bylaws,
as amended (the "BYLAWS"), as currently in effect and as will be in effect on
the Closing Date (collectively, the "ARTICLES AND BYLAWS"), have previously been
provided to the Purchasers. For purposes of this Agreement, the term
"SUBSIDIARY" or "Subsidiaries" means, with respect to any entity, any
corporation or other organization of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are directly or
indirectly owned by such entity or of which such entity is a partner or is,
directly or indirectly, the beneficial owner of 50% or more of any class of
equity securities or equivalent profit participation interests. The Seller has
no Subsidiaries other than National Coal Corporation, a Tennessee corporation
which is wholly-owned by the Seller.
3.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Seller of this Agreement, the Notes, the Note Escrow
Agreement (as defined below), the Articles of Amendment, the Note Investor
Rights Agreement, and each of the other documents executed pursuant to and in
connection with this Agreement (collectively, the "RELATED DOCUMENTS"), and the
consummation of the transactions contemplated hereby and thereby (including, but
not
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limited to, the sale and delivery of the Notes, the subsequent issuance of the
Note Conversion Shares and Note Conversion Warrants upon conversion of the
Notes, and the subsequent issuance of the Conversion Shares upon conversion of
the Preferred Stock and the Warrant Shares upon exercise of the Warrants) have
been duly authorized, and no additional corporate or stockholder action is
required for the approval thereof. The Note Conversion Shares, the Conversion
Shares and the Warrant Shares have been duly reserved for issuance by the
Seller. This Agreement and the Related Documents have been or, to the extent
contemplated hereby or by the Related Documents, will be duly executed and
delivered and constitute the legal, valid and binding agreement of the Seller,
enforceable against the Seller in accordance with their terms, except as may be
limited by bankruptcy, reorganization, insolvency, moratorium and similar laws
of general application relating to or affecting the enforcement of rights of
creditors, and except as enforceability of its obligations hereunder are subject
to general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.3 CHARTER, BYLAWS AND CORPORATE RECORDS. The minute books of the
Seller and its Subsidiaries contain complete and accurate records of all
meetings and other corporate actions of the board of directors, committees of
the board of directors, incorporators and stockholders of the Seller and its
Subsidiaries to the date hereof. All material corporate decisions and actions
have been validly made or taken. All corporate books, including without
limitation the share transfer register, comply with applicable laws and
regulations and have been regularly updated. Such books fully and correctly
reflect all the decisions of the stockholders.
3.4 GOVERNMENTAL AUTHORIZATION. Except as otherwise specifically
contemplated in this Agreement and the Related Documents, and except for: (i)
the filings referenced in Section 5.11; (ii) the filing of the Articles of
Amendment; (iii) the filing of a Form D with respect to the Notes, Preferred
Stock and Warrants under Regulation D under the Securities Act; (iv) the filing
of the Registration Statement with the Commission; (v) the application(s) to
each trading market for the listing of the Conversion Shares and the Warrant
Shares for trading thereon; and (vi) any filings required under state securities
laws that are permitted to be made after the date hereof, the execution,
delivery and performance by the Seller of this Agreement and the Related
Documents, and the consummation of the transactions contemplated hereby and
thereby (including, but not limited to, the sale and delivery of the Notes and
the subsequent issuances of the Preferred Stock and Warrants upon conversion of
the Notes and the subsequent issuance of the Conversion Shares and Warrant
Shares upon conversion of the Preferred Stock or otherwise or exercise of the
Warrants, as applicable) by the Seller require no action (including, without
limitation, stockholder approval) by or in respect of, or filing with, any
governmental or regulatory body, agency, official or authority (including,
without limitation, Nasdaq).
3.5 NON-CONTRAVENTION. The execution, delivery and performance by
the Seller of this Agreement and the Related Documents, and the consummation by
the Seller of the transactions contemplated hereby and thereby (including the
issuance of the Note Conversion Shares, the Note Conversion Warrants, the
Conversion Shares and Warrant Shares) do not and will not (a) contravene or
conflict with the Articles (as amended by the Articles of Amendment) and Bylaws
of the Seller and its Subsidiaries or any material agreement to which the Seller
is a party or by which it is bound; (b) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or
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applicable to the Seller or its Subsidiaries; (c) constitute a default (or would
constitute a default with notice or lapse of time or both) under or give rise to
a right of termination, cancellation or acceleration or loss of any benefit
under any material agreement, contract or other instrument binding upon the
Seller or its Subsidiaries or under any material license, franchise, permit or
other similar authorization held by the Seller or its Subsidiaries; or (d)
result in the creation or imposition of any Lien (as defined below) on any asset
of the Seller or its Subsidiaries. For purposes of this Agreement, the term
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest, claim or encumbrance of any kind in respect of such asset.
3.6 SEC DOCUMENTS. The Seller is obligated under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") to file reports pursuant
to Sections 13 or 15(d) thereof (all such reports filed or required to be filed
by the Seller, including all exhibits thereto or incorporated therein by
reference, and all documents filed by the Seller under the Securities Act
hereinafter called the "SEC DOCUMENTS"). The Seller has filed all reports or
other documents required to be filed under the Exchange Act. All SEC Documents
filed by the Seller (i) were prepared in all material respects in accordance
with the requirements of the Exchange Act and (ii) did not at the time they were
filed (or, if amended or superseded by a filing prior to the date hereof, then
on the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Seller has previously delivered to the
Purchaser a correct and complete copy of each report which the Seller filed with
the Securities and Exchange Commission (the "SEC" or the "COMMISSION") under the
Exchange Act for any period ending on or after December 31, 2003 (the "Recent
REPORTS"). None of the information about the Seller or any of its Subsidiaries
which has been disclosed to the Purchasers herein or in the course of
discussions and negotiations with respect hereto which is not disclosed in the
Recent Reports is or was required to be so disclosed, and no material non-public
information has been disclosed to the Purchasers.
3.7 FINANCIAL STATEMENTS. Each of the Seller's (i) audited
consolidated balance sheet as of December 31, 2003, and the related consolidated
statements of operations, cash flows and changes in stockholders' deficiency
(including the related notes) for the period from its inception (January
30,2003) to December 31, 2003 and (ii) the Seller's unaudited consolidated
balance sheet and related consolidated statements of operations and cash flows
as of and for the three months ended March 31, 2004, as contained in the Recent
Reports (both of (i) and (ii), collectively, the "SELLER'S FINANCIAL STATEMENTS"
or the "FINANCIAL STATEMENTS") (x) present fairly in all material respects the
financial position of the Seller and its Subsidiaries on a consolidated basis as
of the dates thereof and the results of operations, cash flows and stockholders'
deficiency as of and for each of the periods then ended, except that the
unaudited financial statements are subject to normal year-end adjustments, and
(y) were prepared in accordance with United States generally accepted accounting
principals ("GAAP") applied on a consistent basis throughout the periods
involved, in each case, except as otherwise indicated in the notes thereto.
3.8 COMPLIANCE WITH LAW. The Seller and its Subsidiaries are in
compliance and have conducted their business so as to comply with all laws,
rules and regulations, judgments, decrees or orders of any court, administrative
agency, commission, regulatory authority or other governmental authority or
instrumentality, domestic or foreign, applicable to their operations, the
violation of which would cause a Material Adverse Affect. There are no judgments
or orders,
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injunctions, decrees, stipulations or awards (whether rendered by a court or
administrative agency or by arbitration), including any such actions relating to
affirmative action claims or claims of discrimination, against the Seller or its
Subsidiaries or against any of their properties or businesses.
3.9 NO DEFAULTS. The Seller and its Subsidiaries are not, nor have
they received notice that they would be with the passage of time, giving of
notice, or both, (i) in violation of any provision of their Articles and Bylaws
or (ii) in default or violation of any term, condition or provision of (A) any
judgment, decree, order, injunction or stipulation applicable to the Seller or
its Subsidiaries or (B) any material agreement, note, mortgage, indenture,
contract, lease or instrument, permit, concession, franchise or license to which
the Seller or its Subsidiaries are a party or by which the Seller or its
Subsidiaries or their properties or assets may be bound, and no circumstances
exist which would entitle any party to any material agreement, note, mortgage,
indenture, contract, lease or instrument to which such Seller or its
Subsidiaries are a party, to terminate such as a result of such Seller or its
Subsidiaries, having failed to meet any material provision thereof including,
but not limited to, meeting any applicable milestone under any material
agreement or contract; except in the case of clause (ii) as would not have a
Material Adverse Effect on the Seller or any of its Subsidiaries or any material
adverse effect on the transactions contemplated by this Agreement or by any of
the Related Documents.
3.10 LITIGATION. Except as disclosed in the Recent Reports or on
SCHEDULE 3.10, there is no action, suit, proceeding, judgment, claim or
investigation pending or, to the best knowledge of the Seller, threatened
against the Seller and its Subsidiaries which could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Seller or its Subsidiaries or which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
hereby, and there is no basis for the assertion of any of the foregoing.
3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 2003, the
Seller has conducted its business only in the ordinary course and there has not
occurred, except as set forth in the Recent Reports or any exhibit thereto or
incorporated by reference therein:
(a) Any event that could reasonably be expected to have a Material
Adverse Effect on the Seller or any of its Subsidiaries;
(b) Any amendments or changes in the Articles or Bylaws of the Seller
and its Subsidiaries, other than on account of the filing of the Articles of
Amendment;
(c) Any damage, destruction or loss, whether or not covered by
insurance, that would, individually or in the aggregate, have or would be
reasonably likely to have, a Material Adverse Effect on the Seller and its
Subsidiaries;
(d) Except as set forth on SCHEDULE 3.11(D), any
(i) incurrence, assumption or guarantee by the Seller or its
Subsidiaries of any debt for borrowed money other than for equipment
leases;
(ii) issuance or sale of any securities convertible into or
exchangeable for
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securities of the Seller other than to directors, employees and
consultants pursuant to existing equity compensation or stock purchase
plans of the Seller;
(iii) issuance or sale of options or other rights to acquire
from the Seller or its Subsidiaries, directly or indirectly, securities
of the Seller or any securities convertible into or exchangeable for
any such securities, other than options issued to directors, employees
and consultants in the ordinary course of business in accordance with
past practice;
(iv) issuance or sale of any stock, bond or other corporate
security;
(v) discharge or satisfaction of any material Lien, other than
current liabilities incurred since December 31, 2003 in the ordinary
course of business;
(vi) declaration or making any payment or distribution to
stockholders or purchase or redemption of any share of its capital
stock or other security;
(vii) sale, assignment or transfer of any of its intangible
assets except in the ordinary course of business, or cancellation of
any debt or claim except in the ordinary course of business;
(viii) waiver of any right of substantial value whether or not
in the ordinary course of business;
(ix) material change in officer compensation except in the
ordinary course of business and consistent with past practices; or
(x) other commitment (contingent or otherwise) to do any of
the foregoing.
(e) Except as set forth on Schedule 3.11(e), any creation, sufferance
or assumption by the Seller or any of its Subsidiaries of any Lien on any asset
(other than Liens in connection with equipment leases) or any making of any
loan, advance or capital contribution to or investment in any Person in an
aggregate amount which exceeds $25,000 outstanding at any time;
(f) Any entry into, amendment of, relinquishment, termination or
non-renewal by the Seller or its Subsidiaries of any material contract, license,
lease, transaction, commitment or other right or obligation, other than in the
ordinary course of business; or
(g) Any transfer or grant of a right with respect to the trademarks,
trade names, service marks, trade secrets, copyrights or other intellectual
property rights owned or licensed by the Seller or its Subsidiaries, except as
among the Seller and its Subsidiaries.
3.12 NO UNDISCLOSED LIABILITIES. Except as set forth in the Recent
Reports, and except for liabilities and obligations incurred in the ordinary
course of business since December 31, 2003, as of the date hereof, (i) the
Seller and its Subsidiaries do not have any material liabilities or obligations
(absolute, accrued, contingent or otherwise) which, and (ii) there has not been
any aspect of the prior or current conduct of the business of the Seller or its
Subsidiaries which may form the basis for any material claim by any third party
which if asserted could result in any such
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material liabilities or obligations which, are not fully reflected, reserved
against or disclosed in the balance sheet of the Seller as at December 31, 2003.
3.13 TAXES. All tax returns and tax reports required to be filed
with respect to the income, operations, business or assets of the Seller and its
Subsidiaries have been timely filed (or appropriate extensions have been
obtained) with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed, and all of the
foregoing as filed are correct and complete and, in all material respects,
reflect accurately all liability for taxes of the Seller and its Subsidiaries
for the periods to which such returns relate, and all amounts shown as owing
thereon have been paid. All income, profits, franchise, sales, use, value added,
occupancy, property, excise, payroll, withholding, FICA, FUTA and other taxes
(including interest and penalties), if any, collectible or payable by the Seller
and its Subsidiaries or relating to or chargeable against any of its material
assets, revenues or income or relating to any employee, independent contractor,
creditor, stockholder or other third party through the Closing Date, were fully
collected and paid by such date if due by such date or provided for by adequate
reserves in the Financial Statements as of and for the periods ended December
31, 2003 (other than taxes accruing after such date) and all similar items due
through the Closing Date will have been fully paid by that date or provided for
by adequate reserves, whether or not any such taxes were reported or reflected
in any tax returns or filings. No taxation authority has sought to audit the
records of the Seller or any of its Subsidiaries for the purpose of verifying or
disputing any tax returns, reports or related information and disclosures
provided to such taxation authority, or for the Seller's or any of its
Subsidiaries' alleged failure to provide any such tax returns, reports or
related information and disclosure. No material claims or deficiencies have been
asserted against or inquiries raised with the Seller or any of its Subsidiaries
with respect to any taxes or other governmental charges or levies which have not
been paid or otherwise satisfied, including claims that, or inquiries whether,
the Seller or any of its Subsidiaries has not filed a tax return that it was
required to file, and, to the best of the Seller's knowledge, there exists no
reasonable basis for the making of any such claims or inquiries. Neither the
Seller nor any of its Subsidiaries has waived any restrictions on assessment or
collection of taxes or consented to the extension of any statute of limitations
relating to taxation.
3.14 INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. The
description of any interest held, directly or indirectly, by any officer,
director or other Affiliate of the Seller or its Subsidiaries (other than the
interests of the Seller and its Subsidiaries in such assets) in any property,
real or personal, tangible or intangible, used in or pertaining to Seller's
business, including any interest in the Intellectual Property (as defined in
Section 3.15 hereof), as set forth in the Recent Reports, is true and complete,
and no officer, director or other Affiliate of the Seller or its Subsidiaries
has any interest in any property, real or personal, tangible or intangible, used
in or pertaining to the Seller's business, including the Seller's Intellectual
Property, other than as set forth in the Recent Reports.
3.15 INTELLECTUAL PROPERTY. Other than as set forth in the Recent
Reports:
(a) the Seller or a Subsidiary thereof has the right to use or is the
sole and exclusive owner of all right, title and interest in and to all foreign
and domestic patents, patent rights, trademarks, service marks, trade names,
brands and copyrights (whether or not registered and, if applicable, including
pending applications for registration) owned, used or controlled by the
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Seller and its Subsidiaries (collectively, the "RIGHTS") and in and to each
material invention, software, trade secret, technology, product, composition,
formula, method of process used by the Seller or its Subsidiaries (the Rights
and such other items, the "INTELLECTUAL PROPERTY"), and, to the Seller's
knowledge, has the right to use the same, free and clear of any claim or
conflict with the rights of others;
(b) no royalties or fees (license or otherwise) are payable by the
Seller or its Subsidiaries to any Person by reason of the ownership or use of
any of the Intellectual Property except as set forth on SCHEDULE 3.15;
(c) there have been no claims made against the Seller or its
Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of any
of the Intellectual Property, and, to its knowledge, there are no reasonable
grounds for any such claims;
(d) neither the Seller nor its Subsidiaries have made any claim of any
violation or infringement by others of its rights in the Intellectual Property,
and to the best of the Seller's knowledge, no reasonable grounds for such claims
exist; and
(e) neither the Seller nor its Subsidiaries have received notice that
it is in conflict with or infringing upon the asserted rights of others in
connection with the Intellectual Property.
3.16 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than as set forth
in the Recent Reports, there is no agreement, judgment, injunction, order or
decree binding upon the Seller or its Subsidiaries which has or could reasonably
be expected to have the effect of prohibiting or materially impairing any
business practice of the Seller or its Subsidiaries, any acquisition of property
by the Seller or its Subsidiaries or the conduct of business by the Seller or
its Subsidiaries as currently conducted or as currently proposed to be conducted
by the Seller.
3.17 PREEMPTIVE RIGHTS. Except as set forth in SCHEDULE 3.17, none
of the stockholders of the Seller possess any preemptive rights in respect of
the Notes, the Note Conversion Shares, the Note Conversion Warrants or the
Conversion Shares or Warrant Shares to be issued to the Purchasers upon
conversion of the Preferred Stock or exercise of the Warrants, as applicable.
3.18 INSURANCE. The insurance policies providing insurance coverage
to the Seller or its Subsidiaries are adequate for the business conducted by the
Seller and its Subsidiaries and are sufficient for compliance by the Seller and
its Subsidiaries with all requirements of law and all material agreements to
which the Seller or its Subsidiaries are a party or by which any of their assets
are bound. All of such policies are in full force and effect and are valid and
enforceable in accordance with their terms, and the Seller and its Subsidiaries
have complied with all material terms and conditions of such policies, including
premium payments. None of the insurance carriers has indicated to the Seller or
its Subsidiaries an intention to cancel any such policy.
3.19 SUBSIDIARIES AND INVESTMENTS. Except as set forth in the
Recent Reports or on SCHEDULE 3.19, the Seller has no Subsidiaries or
Investments. For purposes of this Agreement, the term "INVESTMENTS" shall mean,
with respect to any Person, all advances, loans or extensions of credit to any
other Person, all purchases or commitments to purchase any stock, bonds, notes,
debentures or other securities of any other Person, and any other investment in
any other Person,
9
including partnerships or joint ventures (whether by capital contribution or
otherwise) or other similar arrangement (whether written or oral) with any
Person, including but not limited to arrangements in which (i) the Person shares
profits and losses, (ii) any such other Person has the right to obligate or bind
the Person to any third party, or (iii) the Person may be wholly or partially
liable for the debts or obligations of such partnership, joint venture or other
arrangement.
3.20 CAPITALIZATION. (a) The authorized capital stock of the Seller
consists of 80,000,000 shares of common stock, $0.0001 par value per share, of
which 44,290,216 shares are issued and outstanding as of the date hereof, and
10,000,000 shares of preferred stock, $0.0001 par value per share, issuable in
one or more classes or series, with such relative rights and preferences as the
Board of Directors may determine, none of which has been authorized for issuance
other than 1611 shares that have been designated Series A Cumulative Convertible
Preferred Stock, of which no shares are outstanding immediately prior to the
execution of this Agreement and the consummation of the transactions
contemplated by that certain Preferred Stock and Warrant Purchase Agreement,
dated as of the date hereof, among the Seller and each of the persons described
therein (the "PREFERRED STOCK PURCHASE AGREEMENT").
(b) All shares of the Seller's issued and outstanding capital stock
have been duly authorized, are validly issued and outstanding, and are fully
paid and nonassessable. No securities issued by the Seller from the date of its
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights. There are no dividends which have accrued or been
declared but are unpaid on the capital stock of the Seller. All taxes required
to be paid by Seller in connection with the issuance and any transfers of the
Seller's capital stock have been paid. All permits or authorizations required to
be obtained from or registrations required to be effected with any Person in
connection with any and all issuances of securities of the Seller from the date
of the Seller's incorporation to the date hereof have been obtained or effected,
and all securities of the Seller have been issued and are held in accordance
with the provisions of all applicable securities or other laws.
3.21 OPTIONS, WARRANTS, RIGHTS. Except as set forth on SCHEDULE
3.21, there are no outstanding (a) securities, notes or instruments convertible
into or exercisable for any of the capital stock or other equity interests of
the Seller or its Subsidiaries; (b) options, warrants, subscriptions or other
rights to acquire capital stock or other equity interests of the Seller or its
Subsidiaries; or (c) commitments, agreements or understandings of any kind,
including employee benefit arrangements, relating to the issuance or repurchase
by the Seller or its Subsidiaries of any capital stock or other equity interests
of the Seller or its Subsidiaries, any such securities or instruments
convertible or exercisable for securities or any such options, warrants or
rights. Other than the rights of the Purchasers under the Preferred Stock and
the Warrants, and except as set forth on SCHEDULE 3.21, neither the Seller nor
the Subsidiaries have granted anti-dilution rights to any person or entity in
connection with any outstanding option, warrant, subscription or any other
instrument convertible or exercisable for the securities of the Seller or any of
its Subsidiaries. Other than the rights granted to the Purchasers under the Note
Investor Rights Agreement and other than the Investor Rights Agreement (as
defined in the Preferred Stock Purchase Agreement), there are no outstanding
rights which permit the holder thereof to cause the Seller or the Subsidiaries
to file a registration statement under the Securities Act or which permit the
holder thereof to include securities of the Seller or any of its Subsidiaries in
a
10
registration statement filed by the Seller or any of its Subsidiaries under the
Securities Act, and there are no outstanding agreements or other commitments
which otherwise relate to the registration of any securities of the Seller or
any of its Subsidiaries for sale or distribution in any jurisdiction, except as
set forth on SCHEDULE 3.21.
3.22 EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS.
Except as set forth in the Recent Reports or on SCHEDULE 3.22, there are no
employment, consulting, severance or indemnification arrangements, agreements,
or understandings between the Seller and any officer, director, consultant or
employee of the Seller or its Subsidiaries (the "EMPLOYMENT AGREEMENTS"). No
Employment Agreement provides for the acceleration or change in the award,
grant, vesting or determination of options, warrants, rights, severance
payments, or other contingent obligations of any nature whatsoever of the Seller
or its Subsidiaries in favor of any such parties in connection with the
transactions contemplated by this Agreement. Except as disclosed in the Recent
Reports or on SCHEDULE 3.22, the terms of employment or engagement of all
directors, officers, employees, agents, consultants and professional advisors of
the Seller and its Subsidiaries are such that their employment or engagement may
be terminated upon not more than two weeks' notice given at any time without
liability for payment of compensation or damages and the Seller and its
Subsidiaries have not entered into any agreement or arrangement for the
management of their business or any part thereof other than with their directors
or employees.
3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, nor
any Affiliate of the Seller, nor to the knowledge of the Seller, any agent or
employee of the Seller, any other Person acting on behalf of or associated with
the Seller, or any individual related to any of the foregoing Persons, acting
alone or together, has: (a) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other Person with whom the
Seller has done business directly or indirectly; or (b) directly or indirectly,
given or agreed to give any gift or similar benefit to any customer, supplier,
trading company, shipping company, governmental employee or other Person who is
or may be in a position to help or hinder the business of the Seller (or assist
the Seller in connection with any actual or proposed transaction) which (i) may
subject the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, may have
had an adverse effect on the Seller or (iii) if not continued in the future, may
adversely affect the assets, business, operations or prospects of the Seller or
subject the Seller to suit or penalty in any private or governmental litigation
or proceeding.
3.24 ENVIRONMENTAL MATTERS. Except as described in the Recent
Reports or on Schedule 3.24, none of the premises or any properties owned,
occupied or leased by the Seller or its Subsidiaries (the "PREMISES") has been
used by the Seller or the Subsidiaries or, to the Seller's knowledge, by any
other Person, to manufacture, treat, store, or dispose of any substance that has
been designated to be a "HAZARDOUS SUBSTANCE" under applicable Environmental
Laws (hereinafter defined) ("HAZARDOUS SUBSTANCES") in violation of any
applicable Environmental Laws. To its knowledge, the Seller and its Subsidiaries
have not disposed of, discharged, emitted or released any Hazardous Substances
which would require, under applicable Environmental Laws, remediation,
investigation or similar response activity. No Hazardous Substances are present
as a result of the actions of the Seller or its Subsidiaries or, to the Seller's
knowledge,
11
any other Person, in, on or under the Premises which would give rise to any
liability or clean-up obligations of the Seller or its Subsidiaries under
applicable Environmental Laws. The Seller and, to the Seller's knowledge, any
other Person for whose conduct it may be responsible pursuant to an agreement or
by operation of law, are in compliance with all laws, regulations and other
federal, state or local governmental requirements, and all applicable judgments,
orders, writs, notices, decrees, permits, licenses, approvals, consents or
injunctions in effect on the date of this Agreement relating to the generation,
management, handling, transportation, treatment, disposal, storage, delivery,
discharge, release or emission of any Hazardous Substance (the "ENVIRONMENTAL
LAWS"). Neither the Seller nor, to the Seller's knowledge, any other Person for
whose conduct it may be responsible pursuant to an agreement or by operation of
law has received any written complaint, notice, order, or citation of any
actual, threatened or alleged noncompliance with any of the Environmental Laws,
and there is no proceeding, suit or investigation pending or, to the Seller's
knowledge, threatened against the Seller or, to the Seller's knowledge, any such
Person with respect to any violation or alleged violation of the Environmental
Laws, and, to the knowledge of the Seller, there is no basis for the institution
of any such proceeding, suit or investigation.
3.25 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS. Except as
disclosed in the Recent Reports, the Seller holds all material authorizations,
consents, approvals, franchises, licenses and permits required under applicable
law or regulation for the operation of the business of the Seller and its
Subsidiaries as presently operated (the "GOVERNMENTAL AUTHORIZATIONS"). All the
Governmental Authorizations have been duly issued or obtained and are in full
force and effect, and the Seller and its Subsidiaries are in material compliance
with the terms of all the Governmental Authorizations. The Seller and its
Subsidiaries have not engaged in any activity that, to their knowledge, would
cause revocation or suspension of any such Governmental Authorizations. The
Seller has no knowledge of any facts which would cause the Seller to believe
that the Governmental Authorizations will not be renewed by the appropriate
governmental authorities in the ordinary course. Neither the execution, delivery
nor performance of this Agreement shall adversely affect the status of any of
the Governmental Authorizations.
3.26 BROKERS. Except as set forth on SCHEDULE 3.26, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this
Agreement, based upon any arrangement made by or on behalf of the Seller, which
would make any Purchaser liable for any fees or commissions.
3.27 SECURITIES LAWS. Neither the Seller nor its Subsidiaries nor
any agent acting on behalf of the Seller or its Subsidiaries has taken or will
take any action which might cause this Agreement or the Notes to violate the
Securities Act or the Exchange Act or any rules or regulations promulgated
thereunder, as in effect on the Closing Date. Assuming that all of the
representations and warranties of the Purchasers set forth in Article IV are
true, all offers and sales of capital stock, securities and notes of the Seller
were conducted and completed in compliance with the Securities Act. All shares
of capital stock and other securities issued by the Seller and its Subsidiaries
prior to the date hereof have been issued in transactions that were either
registered offerings or were exempt from the registration requirements under the
Securities Act and all applicable state securities or "BLUE SKY" laws and in
compliance with all applicable corporate laws.
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3.28 DISCLOSURE. No representation or warranty made by the Seller
in this Agreement, nor in any document, written information, financial
statement, certificate, schedule or exhibit prepared and furnished by the Seller
or the representatives of the Seller pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished.
3.29 POISON PILL. The Seller and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Seller's
Articles of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Seller fulfilling their obligations or
exercising their rights under this Agreement and the Related Documents,
including without limitation the Seller's issuance of the Securities and the
Purchasers' ownership of the Securities.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, for itself only, hereby severally and not jointly,
represents and warrants to the Seller as follows:
4.1 EXISTENCE AND POWER. The Purchaser, if not a natural person,
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of such Purchaser's organization. Such Purchaser has all powers
required to bind it to the representations, warranties and covenants set forth
herein.
4.2 AUTHORIZATION. The execution, delivery and performance by the
Purchaser of this Agreement, the Related Documents to which such Purchaser is a
party, and the consummation by the Purchaser of the transactions contemplated
hereby and thereby have been duly authorized, and no additional action is
required for the approval of this Agreement or the Related Documents. This
Agreement and the Related Documents to which the Purchaser is a party have been
or, to the extent contemplated hereby, will be duly executed and delivered and
constitute valid and binding agreements of the Purchaser, enforceable against
such Purchaser in accordance with their terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting the enforcement of rights of creditors and
except that enforceability of their obligations thereunder are subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3 INVESTMENT. The Purchaser is acquiring the securities
described herein for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with the intention of
distributing or reselling the same, provided, however, that by making the
representation herein, the Purchaser does not agree to hold any of the
securities for any minimum or other specific term and reserves the right to
dispose of the securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The Purchaser
is aware that none of the securities has been registered under the Securities
Act or
13
under applicable state securities or blue sky laws. The Purchaser is an
"ACCREDITED INVESTOR" as such term is defined in Rule 501 of Regulation D, as
promulgated under the Securities Act. The Purchaser is not, and is not required
to be, registered as a broker-dealer under Section 15 of the Exchange Act.
4.4 RELIANCE ON EXEMPTIONS. The Purchaser understands that the
Notes are being offered and sold to such Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Seller is relying upon the truth and accuracy of,
and such Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the securities.
4.5 EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. The Purchaser is able to bear
the economic risk of an investment in the securities and, at the present time,
is able to afford a complete loss of such investment.
4.6 GENERAL SOLICITATION. The Purchaser is not purchasing the
securities as a result of any advertisement, article, notice or other
communication regarding the securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
ARTICLE V - COVENANTS OF THE SELLER AND PURCHASERS
5.1 INSURANCE. The Seller and its Subsidiaries shall, from time to
time upon the written request of the Purchasers, promptly furnish or cause to be
furnished to the Purchasers evidence, in form and substance reasonably
satisfactory to the Purchasers, of the maintenance of all insurance maintained
by it for loss or damage by fire and other hazards, damage or injury to persons
and property and under workmen's compensation laws.
5.2 REPORTING OBLIGATIONS. So long as any of the Notes, Note
Conversion Shares or Note Conversion Warrants are outstanding, and, with respect
to the Note Conversion Warrants so long as any Note Conversion Warrant has not
been exercised and has not expired by its terms, the Seller shall furnish to the
Purchasers, or any other persons who hold any of the Notes, Note Conversion
Shares or Note Conversion Warrants (provided that such subsequent holders give
notice to the Seller that they hold Notes, Note Conversion Shares or Note
Conversion Warrants and furnish their addresses) promptly upon their becoming
available one copy of (A) each report, notice or proxy statement sent by the
Seller to its stockholders generally, and of each regular or periodic report
(pursuant to the Exchange Act) and (B) any registration statement, prospectus or
written communication pursuant to the Securities Act relating to the issuance or
registration of Conversion Shares and the Warrant Shares and filed by the Seller
with the Commission or any securities market or exchange on which shares of
Common Stock are listed; provided, however, that the Seller shall have no
obligation to deliver periodic reports (pursuant to the Exchange Act) under this
Section 5.2 to the extent such reports are publicly available.
14
The Purchasers are hereby authorized to deliver a copy of any financial
statement or any other information relating to the business, operations or
financial condition of the Seller which may have been furnished to the
Purchasers hereunder, to any regulatory body or agency having jurisdiction over
the Purchasers or to any Person which shall, or shall have right or obligation
to succeed to all or any part of the Purchasers' interest in the Seller or this
Agreement.
5.3 INVESTIGATION. The representations, warranties, covenants and
agreements set forth in this Agreement shall not be affected or diminished in
any way by any investigation (or failure to investigate) at any time by or on
behalf of the party for whose benefit such representations, warranties,
covenants and agreements were made. Without limiting the generality of the
foregoing, the inability or failure of the Purchasers to discover any breach,
default or misrepresentation by the Seller under this Agreement or the Related
Documents (including under any certificate furnished pursuant to this
Agreement), notwithstanding the exercise by the Purchasers or other holders of
the Notes, Note Conversion Shares or Note Conversion Warrants of their rights
hereunder to conduct an investigation shall not in any way diminish any
liability hereunder.
5.4 FURTHER ASSURANCES. The Seller shall, at its cost and expense,
upon written request of the Purchasers, duly execute and deliver, or cause to be
duly executed and delivered, to the Purchasers such further instruments and do
and cause to be done such further acts as may be necessary, advisable or proper,
in the absolute discretion of the Purchasers, to carry out more effectually the
provisions and purposes of this Agreement. The parties shall use their best
efforts to timely satisfy each of the conditions described in Article VI of this
Agreement.
5.5 USE OF PROCEEDS. The Seller covenants and agrees that the
proceeds of the Purchase Price may only be used by the Seller for (i) the
immediate repayment of $2.775 million principal amount plus accrued interest of
outstanding senior secured promissory notes due in April 2005 and May 2005, (ii)
the immediate repayment of up to an additional $500,000 of indebtedness
(exclusive of trade debt), and (iii) for working capital and general corporate
purposes; under no circumstances shall any portion of the proceeds be applied
to:
(i) accelerated repayment of debt existing on the date hereof
(except as provided above);
(ii) the payment of dividends or other distributions on any
capital stock of the Seller other than the Preferred Stock;
(iii) increased executive compensation or loans to officers,
employees, stockholders or directors, unless approved by a
disinterested majority of the Board of Directors;
(iv) the purchase of debt or equity securities of any person,
including the Seller and its Subsidiaries, except in connection with
investment of excess cash in high quality (A1/P1 or better) money
market instruments having maturities of one year or less; or
(v) any expenditure not directly related to the business of
the Seller.
5.6 CORPORATE EXISTENCE. So long as a Purchaser owns Notes, Note
Conversion
15
Shares, Note Conversion Warrants, Conversion Shares or Warrant Shares, the
Seller shall preserve and maintain and cause its Subsidiaries to preserve and
maintain their corporate existence and good standing in the jurisdiction of
their incorporation and the rights, privileges and franchises of the Seller and
its Subsidiaries (except, in each case, in the event of a merger or
consolidation in which the Seller or its Subsidiaries, as applicable, is not the
surviving entity) in each case where failure to so preserve or maintain could
have a Material Adverse Effect on the financial condition, business or
operations of the Seller and its Subsidiaries taken as a whole.
5.7 LICENSES. So long as a Purchaser owns Notes, Note Conversions
Shares, Note Conversion Warrants, Conversion Shares or Warrant Shares, the
Seller shall, and shall cause its Subsidiaries to, maintain at all times all
material licenses or permits necessary to the conduct of its business and as
required by any governmental agency or instrumentality thereof.
5.8 LIKE TREATMENT OF PURCHASERS AND HOLDERS. Neither the Seller
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for redemption, conversion or exercise of the Notes, Note Conversion
Shares or Note Conversion Warrants, or otherwise, to any Purchaser or holder of
Notes, Note Conversion Shares or Note Conversion Warrants, for or as an
inducement to, or in connection with the solicitation of, any consent, waiver or
amendment to any terms or provisions of this Agreement or the Related Documents,
unless such consideration is required to be paid to all Purchasers or holders of
Notes, Note Conversion Shares or Note Conversion Warrants bound by such consent,
waiver or amendment. The Seller shall not, directly or indirectly, redeem any
Notes, Note Conversion Shares or Note Conversion Warrants unless such offer of
redemption is made pro rata to all Purchasers or holders of Notes, Note
Conversion Shares, and Note Conversion Warrants, as the case may be, on
identical terms.
5.9 TAXES AND CLAIMS. The Seller and its Subsidiaries shall duly
pay and discharge (a) all material taxes, assessments and governmental charges
upon or against the Seller or its properties or assets prior to the date on
which penalties attach thereto, unless and to the extent that such taxes are
being diligently contested in good faith and by appropriate proceedings, and
appropriate reserves therefor have been established, and (b) all material lawful
claims, whether for labor, materials, supplies, services or anything else which
might or could, if unpaid, become a lien or charge upon the properties or assets
of the Seller or its Subsidiaries unless and to the extent only that the same
are being diligently contested in good faith and by appropriate proceedings and
appropriate reserves therefor have been established.
5.10 PERFORM COVENANTS. The Seller shall (a) make full and timely
payment of any and all payments on the Notes and Note Conversion Shares, and all
other obligations of the Seller to the Purchasers in connection therewith,
whether now existing or hereafter arising, and (b) duly comply with all the
terms and covenants contained herein and in each of the instruments and
documents given to the Purchasers in connection with or pursuant to this
Agreement, all at the times and places and in the manner set forth herein or
therein.
5.11 ADDITIONAL COVENANTS.
(a) Except for transactions approved by a majority of the disinterested
directors of the Board of Directors, neither the Seller nor any of its
Subsidiaries shall enter into any transaction
16
with any director, officer, employee or holder of more than 5% of the
outstanding capital stock of any class or series of capital stock of the Seller
or any of its Subsidiaries, member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof, with
the exception of transactions which are consummated upon terms that are no less
favorable than would be available if such transaction had been effected at
arms-length, in the reasonable judgment of the Board of Directors.
(b) The Seller shall timely prepare and file with the Securities and
Exchange Commission the form of notice of the sale of securities pursuant to the
requirements of Regulation D regarding the sale of the Notes under this
Agreement.
(c) The Seller shall timely prepare and file such applications,
consents to service of process (but not including a general consent to service
of process) and similar documents and take such other steps and perform such
further acts as shall be required by the state securities law requirements of
each jurisdiction where a Purchaser resides as indicated on SCHEDULE 1 with
respect to the sale of the Notes under this Agreement.
(d) State Securities Law Compliance --Resale. Beginning no later than
60 days following the date of this Agreement and continuing until either (i) the
purchasers have sold all of their Registrable Securities under a registration
statement pursuant to the Note Investor Rights Agreement or (ii) the Common
Stock becomes a "covered security" under Section 18(b)(1)(A) of the Securities
Act, the Seller shall maintain within either ▇▇▇▇▇'▇ Industrial Manual or
Standard and Poor's Standard Corporation Descriptions (or any successors to
these manuals which are similarly qualified as "recognized securities manuals"
under state Blue Sky laws) an updated listing containing (i) the names of the
officers and directors of the Seller, (ii) a balance sheet of the Seller as of a
date that is at no time older than eighteen months and (iii) a profit and loss
statement of the Seller for either the preceding fiscal year or the most recent
year of operations.
5.12 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Seller shall (i) on
or promptly after the Closing Date, issue a press release acceptable to SDS
Capital Partners SPC, Ltd. disclosing the transactions contemplated hereby, and
(ii) after the Closing Date, file with the Commission a Report on Form 8-K
disclosing the transactions contemplated hereby. Except as provided in the
preceding sentence, neither the Seller nor the Purchasers shall make any press
release or other publicity about the terms of this Agreement or the transactions
contemplated hereby without the prior approval of the other unless otherwise
required by law or the rules of the Commission or Nasdaq.
5.13 PRODUCTION PURCHASE COMMITMENTS. Beginning no later than
October 1, 2004, and as long as any Preferred Stock, Notes or Note Conversion
Shares remain outstanding, the Seller shall maintain long term purchase
commitments of three years or longer from third parties for at least 70% of the
Seller's monthly tonnage. Within 45 days following the commencement of coal
extraction from any New Mine and as long as at least 25% of the shares of
Preferred Stock originally issued pursuant to this Agreement remain outstanding,
the Seller shall have secured, and thereafter shall maintain, long term purchase
commitments of three years or longer from third parties for at least 75% of the
monthly tonnage for such Permitted Mine. "New Mine"
17
shall mean any surface mine or deep mine at which the Seller first commences
coal extraction following the Closing Date.
5.14 BOOKED PURCHASE COMMITMENTS. No later than March 31, 2005, and
as long as at least 25% of (x) the Note Conversion Shares (or Note Conversion
Shares issuable upon conversion of Notes then outstanding) plus (y) the total
amount of Preferred Stock issued pursuant to the Preferred Stock Purchase
Agreement remain outstanding, the Seller shall have secured purchase commitments
from third parties either (a) for the purchase of no less than 2 million tons of
coal or (b) for the purchase of an amount of coal with a total purchase price
not less than $100 million, in either case, such purchases committed to be
completed (delivery made and paid in full) no later than March 31, 2008.
5.15 CORPORATE GOVERNANCE. No later than the 90th day following the
Closing Date, the Seller shall be in full compliance with the corporate
governance requirements applicable to companies listed on either the Nasdaq
Small Cap Market, the Nasdaq National Market or the American Stock Exchange
(each, a "QUALIFIED Exchange"), including, without limitation, the requirements
that the Board of Directors have at least three independent members (the
"INDEPENDENT DIRECTORS"), a compliant audit committee and a compliant
compensation committee.
5.16 LISTING OF COMMON STOCK. The Seller shall use its best efforts
to list its Common Stock on a Qualified Exchange within one year of the Closing
Date.
5.17 REPAYMENT OF BRIDGE DEBT. Immediately following the Closing,
the Seller shall pay in full $2.775 million principal amount and accrued
interest on its outstanding senior secured promissory notes due in April 2005
and May 2005 and shall as soon as practicable thereafter deliver to the Escrow
Agent for further delivery to the Purchasers written confirmation from the
lenders that such principal and interest has been repaid in full.
5.18 OPTION EXERCISE. In connection with (a) the exercise by the
Purchasers of the Options (as defined below) and (b) the transfer pursuant to
the Options of the shares of Common Stock to the Purchasers and issuance of
certificates representing such shares to the Purchasers, and to the extent
required by the Seller's transfer agent for the Common Stock (the "Transfer
Agent"), the Seller shall use its best efforts, at the Seller's cost and
expense, to cause a written opinion of counsel to be delivered to the Transfer
Agent, which opinion and counsel shall be reasonably acceptable to the Transfer
Agent to the effect that such transfer may be made without registration under
the Securities Act and covering such other matters as the Transfer Agent may
require. In addition, the Seller shall, at the Seller's cost and expense, upon
written request of the Purchasers, duly execute and deliver, or cause to be duly
executed and delivered, to the Purchasers or the Transfer Agent such further
instruments and do and cause to be done such further acts as may be necessary,
advisable or proper, in the sole discretion of the Purchasers, to effect the
transfer of the shares of Common Stock to the Purchasers upon exercise of the
Options and to ensure that such transfer complies with all applicable state and
federal securities laws.
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ARTICLE VI - CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING.
The obligations of a Purchaser to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing, of each of the following conditions, any of which may be waived,
in writing, by a Purchaser:
(a) The Seller shall deliver or cause to be delivered to the Escrow
Agent, for further delivery to each of the Purchasers at the Closing pursuant to
the terms of the Note Escrow Agreement, the following:
1. One or more certificates evidencing the Notes, registered
in the name of such Purchaser, in such denominations as is indicated on
SCHEDULE 1 for such Purchaser.
2. The Note Investor Rights Agreement, in the form attached
hereto as EXHIBIT D (the "NOTE INVESTOR RIGHTS AGREEMENT"), duly
executed by the Seller.
3. A legal opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Markiles, LLP
("SELLER'S COUNSEL"), counsel to the Seller, in the form attached
hereto as EXHIBIT E.
4. A certificate of the Secretary of the Seller (the
"SECRETARY'S CERTIFICATE"), in form and substance satisfactory to the
Purchasers, certifying as follows:
(i) that the Articles of Amendment authorizing the
Preferred Stock has been duly filed in the office of the
Secretary of State of the State of Florida, and that attached
to the Secretary's Certificate is true and complete copy of
the Articles of Incorporation of the Seller, as amended, and
the Articles of Amendment;
(ii) that a true copy of the Bylaws of the Seller, as
amended to the Closing Date, is attached to the Secretary's
Certificate;
(iii) that attached thereto are true and complete
copies of the resolutions of the Board of Directors of the
Seller authorizing the execution, delivery and performance of
this Agreement and the Related Documents, instruments and
certificates required to be executed by it in connection
herewith and approving the consummation of the transactions in
the manner contemplated hereby including, but not limited to,
the authorization and issuance of the Notes, the Note
Conversion Shares and the Note Conversion Warrants;
(iv) the names and true signatures of the officers of
the Seller signing this Agreement and all other documents to
be delivered in connection with this Agreement;
(v) such other matters as required by this Agreement;
and
(vi) such other matters as the Purchasers may
reasonably request.
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5. A wire transfer representing the Purchasers' reasonable
legal fees and other expenses as described in Section 9.2 hereof; such
fee may, at the election of the Purchasers, be paid out of the funds
due from the Purchasers at the Closing.
6. Proof of due filing with the Secretary of State of the
State of Florida of the Articles of Amendment authorizing the Preferred
Stock.
7. Such other documents as the Purchasers shall reasonably
request.
(b) The Seller shall have entered into a Note Closing Escrow Agreement
with ▇▇▇▇▇▇ and ▇▇▇▇ LLP (the "ESCROW AGENT") in the form attached hereto as
EXHIBIT F (the "NOTE ESCROW AGREEMENT").
(c) ▇▇▇ ▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have each entered into a nine month
Management Lock-Up Agreement in the form attached hereto as EXHIBIT G, and
copies thereof shall have been delivered to the Escrow Agent for further
delivery to each of the Purchasers at the Closing pursuant to the terms of the
Note Escrow Agreement.
(d) Seller shall have applied to each U.S. securities exchange,
interdealer quotation system and other trading market where its Common Stock is
currently listed or qualified for trading or quotation for the listing or
qualification of the Conversion Shares and the Warrant Shares for trading or
quotation thereon in the time and manner required thereby.
(e) Each of the Purchasers shall have been assigned, pursuant to an
assignment dated as of the Closing Date (the "ASSIGNMENT"), the right to
purchase, at a purchase price of $0.55 per share (the "OPTIONS"), the number of
shares (300,000 shares in the aggregate) of restricted Common Stock pursuant to
that certain Stock Option Agreement, dated as of June 30, 2004, by and between
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, as optionors, and ▇▇▇ ▇▇▇, as optionee, as
amended, (the "STOCK OPTION AGREEMENT") as is indicated next to such Purchaser's
name in the Assignment. A duly executed copy of the Assignment shall have been
delivered to the Escrow Agent for further delivery to such Purchasers and for
further delivery to the escrow agent for the Stock Option Agreement (the "OPTION
ESCROW AGENT"). Each such Purchaser shall have delivered to the Escrow Agent,
for further delivery to the Option Escrow Agent, a duly executed exercise notice
(the "EXERCISE NOTICE") exercising all of the Options assigned to such Purchaser
pursuant to the Assignment along with a wire transfer, in immediately available
funds, of the exercise price for such Options.
(f) The closing of the transactions contemplated by the Preferred Stock
Purchase Agreement shall have been consummated.
6.2 CONDITIONS TO OBLIGATIONS OF THE SELLER TO EFFECT THE CLOSING.
The obligations of the Seller to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by the Seller:
(a) Each of the Purchasers shall deliver or cause to be delivered to
the Escrow Agent, for further delivery to the Seller at the Closing pursuant to
the terms of the Note Escrow Agreement, (i) payment of the portion of the
Purchase Price set forth opposite each Purchaser's
20
name on SCHEDULE 1, in cash by wire transfer of immediately available funds to
an account designated in writing by the Escrow Agent prior to the date hereof;
(ii) an executed copy of this Agreement; (iii) an executed copy of the Note
Investor Rights Agreement; and (iv) such other documents as the Seller shall
reasonably request.
ARTICLE VII - INDEMNIFICATION, TERMINATION AND DAMAGES
7.1 SURVIVAL OF REPRESENTATIONS. Except as otherwise provided
herein, the representations and warranties of the Seller and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing Date and shall continue in full force
and effect for a period of three (3) years from the Closing Date; provided,
however, that the Seller's warranties and representations under Sections 3.13
(Taxes), 3.19 (Subsidiaries and Investments), 3.20 (Capitalization), and 3.21
(Options, Warrants, Rights), shall survive the Closing Date and continue in full
force and effect until the expiration of all applicable statutes of limitation;
and further provided that the Seller's warranties and representations under
Section 3.24 (Environmental Matters) shall survive the Closing Date and continue
in full force and effect for a period of six (6) years from the Closing Date.
The Seller's and the Purchasers' warranties and representations shall in no way
be affected or diminished in any way by any investigation of the subject matter
thereof made by or on behalf of the Seller or the Purchasers.
7.2 INDEMNIFICATION.
(a) The Seller agrees to indemnify and hold harmless the Purchasers,
their Affiliates, each of their officers, directors, partners, employees and
agents and their respective successors and assigns, from and against any losses,
damages, or expenses which are caused by or arise out of (i) any breach or
default in the performance by the Seller of any covenant or agreement made by
the Seller in this Agreement or in any of the Related Documents; (ii) any breach
of warranty or representation made by the Seller in this Agreement or in any of
the Related Documents; or (iii) any and all third party actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing.
(b) The Purchasers, severally and not jointly, agree to indemnify and
hold harmless the Seller, its Affiliates, each of their officers, directors,
partners, employees and agents and their respective successors and assigns, from
and against any losses, damages, or expenses which are caused by or arise out of
(i) any breach or default in the performance by the Purchasers of any covenant
or agreement made by the Purchasers in this Agreement or in any of the Related
Documents; (ii) any breach of warranty or representation made by the Purchasers
in this Agreement or in any of the Related Documents; and (iii) any and all
third party actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees and expenses) incident to any of the
foregoing; provided, however, that a Purchaser's liability under this Section
7.2(b) shall not exceed the Purchase Price paid by such Purchaser hereunder.
7.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "INDEMNIFYING PARTY" and the other party or parties
claiming indemnity is referred to as the "INDEMNIFIED PARTY". An Indemnified
Party under this Agreement shall, with respect to claims
21
asserted against such party by any third party, give written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within sixty (60) business days of the receipt of
any written claim from any such third party, but not later than twenty (20) days
prior to the date any answer or responsive pleading is due, and with respect to
other matters for which the Indemnified Party may seek indemnification, give
prompt written notice to the Indemnifying Party of any liability which might
give rise to a claim for indemnity; provided, however, that any failure to give
such notice will not waive any rights of the Indemnified Party except to the
extent the rights of the Indemnifying Party are materially prejudiced.
The Indemnifying Party shall have the right, at its election, to take
over the defense or settlement of such claim by giving written notice to the
Indemnified Party at least fifteen (15) days prior to the time when an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such claim
through counsel of its choosing (subject to the Indemnified Party's approval of
such counsel, which approval shall not be unreasonably withheld), shall be
solely responsible for the expenses of such defense and shall be bound by the
results of its defense or settlement of the claim. The Indemnifying Party shall
not settle any such claim without prior notice to and consultation with the
Indemnified Party, and no such settlement involving any equitable relief or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not be
unreasonably withheld). So long as the Indemnifying Party is diligently
contesting any such claim in good faith, the Indemnified Party may pay or settle
such claim only at its own expense and the Indemnifying Party will not be
responsible for the fees of separate legal counsel to the Indemnified Party,
unless the named parties to any proceeding include both parties or
representation of both parties by the same counsel would be inappropriate due to
conflicts of interest or otherwise. If the Indemnifying Party does not make such
election, or having made such election does not, in the reasonable opinion of
the Indemnified Party proceed diligently to defend such claim, then the
Indemnified Party may (after written notice to the Indemnifying Party), at the
expense of the Indemnifying Party, elect to take over the defense of and proceed
to handle such claim in its discretion and the Indemnifying Party shall be bound
by any defense or settlement that the Indemnified Party may make in good faith
with respect to such claim. In connection therewith, the Indemnifying Party will
fully cooperate with the Indemnified Party should the Indemnified Party elect to
take over the defense of any such claim. The parties agree to cooperate in
defending such third party claims and the Indemnified Party shall provide such
cooperation and such access to its books, records and properties as the
Indemnifying Party shall reasonably request with respect to any matter for which
indemnification is sought hereunder; and the parties hereto agree to cooperate
with each other in order to ensure the proper and adequate defense thereof.
With regard to claims of third parties for which indemnification is
payable hereunder, such indemnification shall be paid by the Indemnifying Party
upon the earlier to occur of: (i) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if
earlier, five (5) days prior to the date that the judgment creditor has the
right to execute the judgment; (ii) the entry of an unappealable judgment or
final appellate decision against the Indemnified Party; or (iii) a settlement of
the claim. Notwithstanding the foregoing, the reasonable expenses of counsel to
the Indemnified Party shall be reimbursed on a current
22
basis by the Indemnifying Party. With regard to other claims for which
indemnification is payable hereunder, such indemnification shall be paid
promptly by the Indemnifying Party upon demand by the Indemnified Party.
ARTICLE VIII - ADDITIONAL PURCHASE RIGHT
8.1 ADDITIONAL PURCHASE RIGHT. Each Purchaser or its assigns shall
have the right (the "ADDITIONAL PURCHASE RIGHT"), during the Additional Purchase
Period (as defined below), to purchase from the Seller, up to the number of
shares of additional Preferred Stock as indicated next to such Purchaser's name
on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock
Subject to Additional Purchase Right", in whole or in part, at a purchase price
of $15,000 per share, all on and subject to the terms and conditions set forth
in this Article VIII. Upon the purchase of any shares of Preferred Stock
pursuant to the Additional Purchase Right, the Purchaser or its assigns shall
receive additional Warrants to purchase that number of shares of Common Stock as
is equal to 20% of the number of shares of Common Stock into which such
additional shares of Preferred Stock are convertible.
8.2 EXERCISE OF ADDITIONAL PURCHASE RIGHT.
(a) From and after the Closing Date, provided that the
Purchaser has converted all of its Notes into Conversion Shares, and
until 5:00 P.M., New York time, on the date that is 90 days after the
Effective Date, as such term is defined in the Note Investor Rights
Agreement (the "EXPIRATION DATE" and such period, the "ADDITIONAL
PURCHASE PERIOD"), the Purchaser or its assigns may elect to purchase
all or any part of the number of additional shares of Preferred Stock
as indicated next to such Purchaser's name on SCHEDULE 1 hereto under
the heading "Number of Shares of Preferred Stock Subject to Additional
Purchase Right" (together with the applicable number of Warrants).
(b) In order to exercise the Additional Purchase Right, in
whole or in part, the Purchaser shall deliver to the Seller at the
address indicated in Section 9.3, (i) a written notice of the
Purchaser's election to exercise its Additional Purchase Right, which
notice shall specify the number of additional shares of Preferred Stock
to be purchased and (ii) payment of the purchase price. Such notice
shall be substantially in the form of the subscription form attached as
EXHIBIT H hereto, duly executed by the Purchaser or its agent or
attorney. Upon receipt thereof, the Seller shall, as promptly as
practicable, and in any event within three Business Days thereafter,
execute or cause to be executed and deliver or cause to be delivered to
the Purchaser a certificate or certificates representing the aggregate
number of shares of additional Preferred Stock purchased pursuant to
the Additional Purchase Right along with a certificate or certificates
representing the Warrants to be received together with such Preferred
Stock. The stock and Warrant certificate or certificates so delivered
shall be, to the extent possible, in such denomination or denominations
as the Purchaser shall request in the notice and shall be registered in
the name of the Purchaser or such other name as shall be designated in
the notice. The Additional Purchase Right shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have
been issued, and the Purchaser or any other person so designated to be
named therein shall be deemed to have become a holder of record of such
shares and Warrants for all purposes, as of the date when the notice,
23
together with the payment of the purchase price, is received by the
Seller as described above. If the Additional Purchase Right shall have
been exercised in part, the Purchaser shall retain the right to
purchase that number of shares of additional Preferred Stock as
indicated next to such Purchaser's name on SCHEDULE 1 hereto under the
heading "Number of Shares of Preferred Stock Subject to Additional
Purchase Right" less the number of shares of additional Preferred Stock
previously purchased pursuant to this Article VIII (together with the
applicable number of Warrants).
(c) If the Seller intentionally and willfully fails to deliver
to the holder such certificate or certificates pursuant to this Section
8.2 in accordance herewith, prior to the seventh trading day after the
receipt by the Seller of (i) a written notice of Purchaser's election
to exercise its Additional Purchase Right pursuant to Section 8.2(b)
(such date of receipt, the "DATE OF RECEIPT"), the Seller shall pay to
such Purchaser, in cash, on a per diem basis, an amount equal to 2% of
the purchase price of the undelivered Preferred Stock and Warrants per
month (or portion thereof) until such delivery takes place.
(d) Payment of the purchase price for the additional Preferred
Stock may be made at the option of the Purchaser by: (i) certified or
official bank check payable to the order of the Seller or (ii) wire
transfer to the account of the Seller. All shares of Preferred Stock
and all Warrants issuable upon the exercise of the Additional Purchase
Right pursuant to the terms hereof shall be validly issued and, upon
payment of the purchase price therefor, shall be fully paid and
nonassessable and not subject to any preemptive rights, and any
purchaser of shares of Preferred Stock and Warrants pursuant to this
Article VIII shall have all of the rights of a Purchaser and holder of
Note Conversion Shares and Note Conversion Warrants under this
Agreement, the Note Investor Rights Agreement and the Articles of
Incorporation as amended by the Articles of Amendment, in each case,
with respect to such additional shares of Preferred Stock and such
additional Warrants.
8.3 ADJUSTMENTS. For avoidance of doubt, any and all adjustments
to the Conversion Value (as defined in the Articles of Incorporation as Amended
by the Articles of Amendment) of the Preferred Stock or the Current Warrant
Price (as defined in the Warrant) or number of Warrant Shares issuable upon
exercise of the Warrants, in each case, originally issued pursuant to the
Preferred Stock Purchase Agreement that may have been made prior to the issuance
of additional shares of Preferred Stock and Warrants issued pursuant to this
Article VIII shall be deemed to apply to any such additional shares of Preferred
Stock and Warrants. In addition, the amounts set forth in this Article VIII
shall be subject to adjustment for any stock splits, dividends, distributions
and the like.
8.4 TRANSFER. The Additional Purchase Right pursuant to this
Article VIII shall be freely transferable, subject to compliance with all
applicable laws, including, but not limited to the Securities Act. The Seller
may require, as a condition of allowing such transfer (i) that the Purchaser or
transferee of the Additional Purchase Right as the case may be, furnish to the
Seller a written opinion of counsel that is reasonably acceptable to the Seller
to the effect that such transfer may be made without registration under the
Securities Act, (ii) that the Purchaser or transferee execute and deliver to the
Seller a customary investor representation letter, (iii) that the transferee be
an "accredited investor" as defined in Rule 501(a) promulgated under the
24
Securities Act and (iv) that the Purchaser deliver to the Seller a written
assignment of the Additional Purchase Right substantially in the form of EXHIBIT
I hereto duly executed by the Purchaser or its agent or attorney.
Notwithstanding the foregoing, without the prior written consent of the Seller,
no transfer of Additional Purchase Rights shall be made where the number of
shares of Preferred Stock purchasable pursuant to such Additional Purchase
Rights is less than 5% of the total number of shares of Preferred Stock
purchasable by all Purchasers pursuant to their Additional Purchase Rights as of
the Closing Date unless the amount of Additional Purchase Rights proposed to be
transferred are all of the Additional Purchase Rights then owned by the
transferring Purchaser.
ARTICLE IX - MISCELLANEOUS
9.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement, and further agrees to take promptly, or cause to
be taken, all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable law to consummate and make
effective the transactions contemplated hereby, to obtain all necessary waivers,
consents and approvals, to effect all necessary registrations and filings, and
to remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement.
9.2 FEES AND EXPENSES. The Seller shall be responsible for the
payment of up to an aggregate of $45,000 of the reasonable legal fees and other
third-party expenses of SDS Capital Partners SPC, Ltd. relating to the
preparation and negotiation of this Agreement and the Related Documents and the
consummation of the transactions contemplated herein and therein, unless
otherwise agreed by the Seller in writing. This Section 9.2 shall not apply to
registration expenses under the Note Investor Rights Agreement, which shall be
payable as provided therein.
9.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 5:00 p.m. (New York City
time) on a business day, (b) the next business day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a business day
or later than 5:00 p.m. (New York City time) on any business day, or (c) the
business day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service such as Federal Express. The address for
such notices and communications shall be as follows:
25
If to the Purchasers at each Purchaser's address set forth under its
name on SCHEDULE 1 attached hereto, or with respect to the Seller, addressed to:
National Coal Corp.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Seller shall be sent to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
& Markiles, LLP, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇. Copies of notices to any Purchaser shall be sent
to the addresses, if any, listed on SCHEDULE 1 attached hereto.
Unless otherwise stated above, such communications shall be effective
when they are received by the addressee thereof in conformity with this Section.
Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.
9.4 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and enforced in accordance with the laws of the State of New York without
reference to the conflicts of laws principles thereof.
9.5 JURISDICTION AND VENUE. This Agreement shall be subject to the
exclusive jurisdiction of the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ of New
York and if such court does not have proper jurisdiction, the State Courts of
New York County, New York. The parties to this Agreement agree that any breach
of any term or condition of this Agreement shall be deemed to be a breach
occurring in the State of New York by virtue of a failure to perform an act
required to be performed in the State of New York and irrevocably and expressly
agree to submit to the jurisdiction of the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ of New York and if such court does not have proper jurisdiction, the
State Courts of New York County, New York for the purpose of resolving any
disputes among the parties relating to this Agreement or the transactions
contemplated hereby. The parties irrevocably waive, to the fullest extent
permitted by law, any objection which they may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement, or any judgment entered by any court in respect hereof brought
in New York County, New York, and further irrevocably waive any claim that any
suit, action or proceeding brought in ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
of New York and if such court does not have proper jurisdiction, the State
Courts of New York County, New York has been brought in an inconvenient forum.
Each of the parties hereto consents to process being served in any such suit,
action or proceeding, by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in
this Section 9.5 shall affect or limit any right to serve process in any other
manner permitted by law.
26
9.6 SUCCESSORS AND ASSIGNS. This Agreement is personal to each of
the parties and may not be assigned without the written consent of the other
parties; provided, however, that any of the Purchasers shall be permitted to
assign this Agreement to any Person to whom it assigns or transfers securities
or rights issued or issuable pursuant to this Agreement. Any assignee must be an
"ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities
Act.
9.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
9.8 ENTIRE AGREEMENT. This Agreement and the other agreements and
instruments referenced herein constitute the entire understanding and agreement
of the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings.
9.9 OTHER REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party shall be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law, or in
equity on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
9.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the Seller and the holders of greater
than 50% of (a) the principal amount of the Notes then outstanding plus (b) the
liquidation preference of Note Conversion Shares then outstanding (a "PURCHASER
MAJORITY"), and such waiver or amendment, as the case may be, shall be binding
upon all Purchasers. The waiver by a party of any breach hereof or default in
the performance hereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default. This Agreement may not be amended
or supplemented by any party hereto except pursuant to a written amendment
executed by the Seller and the holders of a Purchaser Majority. No amendment
shall be effected to impact a holder of Notes or Note Conversion Shares in a
disproportionately adverse fashion without the consent of such individual holder
of Notes or Note Conversion Shares. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
this Agreement or any of the Related Documents unless the same consideration is
also offered to all of the parties to this Agreement or the Related Documents.
9.11 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
9.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. For purposes of this
Agreement, the term "KNOWLEDGE," when used in reference to a corporation means
the knowledge of the directors and executive officers of such corporation
(including, if applicable, any person designated as a chief scientific, medical
or technical officer) assuming such persons shall have made inquiry that is
customary and appropriate under the circumstances to which reference is made,
and when used in reference to an individual means the knowledge of such
individual assuming the individual shall have made inquiry that is customary and
appropriate under the circumstances to which
27
reference is made.
9.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.
9.14 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
9.15 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
9.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under this Agreement or any Related Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under any such agreement. Nothing contained herein or in
any Related Documents, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by such agreement. Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the other
Related Documents, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose. Each Purchaser
represents that it has been represented by its own separate legal counsel in its
review and negotiation of this Agreement and the Related Documents. For reasons
of administrative convenience only, the Purchasers acknowledge and agree that
they and their respective counsel have chosen to communicate with the Seller
through ▇▇▇▇▇▇ and ▇▇▇▇ LLP, but ▇▇▇▇▇▇ and ▇▇▇▇ LLP does not represent any of
the Purchasers in this transaction other than SDS Capital Partners SPC, Ltd.
[Signature Page Follows]
28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SELLER:
NATIONAL COAL CORP.
By: ▇▇▇ ▇. ▇▇▇
-----------------------------------------
Name: ▇▇▇ ▇. ▇▇▇
Title: Chief Executive Officer
29
OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
NOTE PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Note Purchase Agreement to
which this signature page is attached, which, together with all counterparts of
the Agreement and signature pages of the other parties named in said Agreement,
shall constitute one and the same document in accordance with the terms of the
Agreement.
Print Name: CRESTVIEW CAPITAL MASTER, LLC
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------------
Title: MANAGER
---------------------------------------------
Address: ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
---------------------------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇
Telephone:
---------------------------------------------
Facsimile:
---------------------------------------------
E-Mail:
---------------------------------------------
SOC/EIN#:
---------------------------------------------
Principal Amount of Notes Purchased at Closing and Aggregate
Purchase Price $500,000
-----------------------------------------------
30
OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
NOTE PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Note Purchase Agreement to
which this signature page is attached, which, together with all counterparts of
the Agreement and signature pages of the other parties named in said Agreement,
shall constitute one and the same document in accordance with the terms of the
Agreement.
Print Name: SDS CAPITAL CROUP SPC, LTD.
By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------------
Title: GENERAL COUNSEL
---------------------------------------------
Address: C/O SDS MANAGEMENT, LLC
---------------------------------------------
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
---------------------------------------------
Facsimile:
---------------------------------------------
E-Mail:
---------------------------------------------
SOC/EIN#:
---------------------------------------------
Principal Amount of Notes Purchased at Closing and Aggregate
Purchase Price $2,500,000
-----------------------------------------------
31
SCHEDULE 1
National Coal Corp.
Note Purchase Agreement
Purchasers and Principal Amount of Notes
----------------------------- ------------------- ---------------- -------------------------- --------------------------
NUMBER OF SHARES OF NUMBER OF SHARES OF COMMON
NAME, ADDRESS AND FAX NUMBER PRINCIPAL AMOUNT OF PURCHASE PRICE PREFERRED STOCK SUBJECT TO STOCK TO BE PURCHASED
OF PURCHASER NOTES PURCHASED AT OF NOTES PAYABLE ADDITIONAL PURCHASE RIGHT PURSUANT TO THE STOCK
CLOSING AT CLOSING OPTION AGREEMENT
----------------------------- ------------------- ---------------- -------------------------- --------------------------
Crestview Capital Master LLC* $500,000 $500,000 11.11 50,000
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
----------------------------- ------------------- ---------------- -------------------------- --------------------------
SDS Capital Group SPC, Ltd.
Attn: ▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
$2,500,000 $2,500,000 55.56 250,000
with a copy to:
▇▇▇▇▇▇ and ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
----------------------------- ------------------ ---------------- -------------------------- --------------------------
Totals: $3,000,000 $3,000,000 66.67 300,000
----------------------------- ------------------- ---------------- -------------------------- --------------------------
----------
* This investor is a "Crestview Investor."
Exhibit A
Form of 8% Convertible Promissory Note
THIS PROMISSORY NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION
UNDER SAID ACT IS NOT REQUIRED.
NATIONAL COAL CORP.
CONVERTIBLE PROMISSORY NOTE
August 31, 2004 $[____________]
NATIONAL COAL CORP., a Florida corporation (together with its
successors and assigns, "ISSUER"), for value received, hereby promises to pay on
the Maturity Date (as defined below) to [_______________] ("Noteholder") and its
successors, transferees and assigns, by wire transfer of immediately available
funds to an account designated by Noteholder by written notice to Issuer the
principal sum of [_______________________] ($[____________]) or, if less, the
aggregate unpaid principal amount outstanding on the Maturity Date, together
with interest as provided below in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
This Note (the "NOTE") is one of a duly authorized issue of Convertible
Promissory Notes of Issuer, in aggregate principal amount of up to Three Million
Dollars ($3,000,000) (the "PROMISSORY NOTES"). The Promissory Notes rank equally
and ratably without priority over one another. No payment, including any
prepayment, shall be made hereunder unless payment, including any prepayment, is
made with respect to the other Promissory Notes in an amount which bears the
same ratio to the then unpaid principal amount of such Promissory Notes as the
payment made hereon bears to the then unpaid principal amount under this Note.
This Note is transferable or assignable by the Noteholder or any
transferee of the Noteholder; PROVIDED that such transfer or assignment is made
in compliance with the Securities Act of 1933, as amended, and any applicable
state and foreign securities laws. Issuer agrees to issue to Noteholder or any
transferee of Noteholder from time to time a replacement note or notes in the
form hereof and in such denominations as such Person may request to facilitate
such transfers and assignments. In addition, after delivery of an
indemnification agreement in form and substance satisfactory to Issuer, Issuer
also agrees to issue a replacement note if this Note has been lost, stolen, or
destroyed.
Issuer shall keep at its principal office a register (the "REGISTER")
in which shall be entered the name and address of the registered holder of this
Note and of all transfers of this Note. References to the "HOLDER" shall mean
the Person listed in the Register as the payee of the Note. The ownership of
this Note shall be proven by the Register. For the purpose of paying principal
and any interest on this Note, Issuer shall be entitled to rely on the name and
address in the Register and notwithstanding anything to the contrary contained
in this Note, no Event of Default shall occur under Section 3(a) or 3(b) if
payment of principal and any interest is made in accordance with the name and
address contained in the Register.
1. CERTAIN DEFINITIONS. The following terms (except as otherwise
expressly provided) for all purposes of this Note shall have the respective
meanings specified below. The terms defined in this Section 1 include the plural
as well as the singular. Capitalized terms used, but not otherwise defined
herein shall have the meanings assigned in the Note Purchase Agreement.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with, such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in the State of Tennessee are authorized by
law to close.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"DEBT" means at any date, without duplication, an amount equal
to or greater than one million dollars ($1,000,000.00) of: (i) all obligations
of the Issuer for borrowed money, (ii) all obligations of the Issuer evidenced
by bonds, debentures, notes, or other similar instruments, (iii) all obligations
of the Issuer in respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto), except letters of credit or
other similar instruments issued to secure payment of Trade Payables, (iv) all
obligations of the Issuer to pay the deferred purchase price of property or
services, except Trade Payables, (v) all obligations of the Issuer as lessee
under capitalized leases, (vi) all Debt of others secured by a Lien on any asset
of the Issuer, whether or not such Debt is assumed by such Person and (vii) all
Debt of others Guaranteed by the Issuer.
"DEFAULT" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"FINANCING" means the equity financing by the Issuer
consummated on the date hereof pursuant to the Purchase Agreement.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such other Person (whether arising
by virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation for
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); PROVIDED that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "GUARANTEE" used as a verb has a corresponding meaning.
2
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Note, Issuer shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement relating to such asset.
"MATURITY DATE" means May 31, 2005, subject to acceleration as
provided in Section 3 hereof or the conversion of this Note as set forth in
Section 6 hereof.
"NOTE PURCHASE AGREEMENT" means that certain Note Purchase
Agreement, dated as of the date hereof, among the Issuer and each of the
Purchasers described therein.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
"PREFERRED STOCK" means the Series A Cumulative Convertible
Preferred Stock, par value $0.0001, of the Issuer.
"PURCHASE AGREEMENT" means that certain Preferred Stock and
Warrant Purchase Agreement, dated as of August 31, 2004, among the Issuer and
each of the Purchasers described therein.
"RESTRICTED PAYMENT" means (i) the declaration or payment of
any dividend or other distribution (whether in cash, stock or other property)
with respect to the capital stock of the Issuer or any subsidiary, other than a
dividend or other distribution pursuant to the terms of the Preferred Stock or
(ii) any payment on account of the redemption, purchase or other acquisition,
directly or indirectly, of any shares of capital stock of the Issuer or any of
its subsidiaries or any option, warrant or other right to purchase or acquire
any such shares, or any other security, other than (A) the (x) redemption of
Preferred Stock pursuant to the terms thereof or (y) redemption of the Warrants
pursuant to the terms thereof, (B) the repayment or prepayment of (x) any
indebtedness outstanding as of the date hereof, (y) any trade debt, in each
case, in the ordinary course of business or (z) the Promissory Notes pursuant to
the terms thereof, (C) upon the "cashless" or "net issue" exercise by a holder
of any option, warrant or other right to purchase or acquire any such shares, in
each case, outstanding as of the Date of Original Issue or (D) the repayment of
the Permitted Debt in accordance with the terms thereof.
"SALE TRANSACTION" means the consummation of (i) the
acquisition of a controlling interest (more than 50% of the voting power) in the
Issuer (through merger, sale of stock or other transaction or series of related
transactions) by any Person or Persons who do not control the Issuer as of the
date hereof, or (ii) the sale or transfer of all or substantially all of the
Issuer's assets or business to any Person or Persons who do not control the
Issuer as of the date hereof.
"TRADE PAYABLES" means accounts payable or any other
indebtedness or monetary obligations to trade creditors created or assumed by
Issuer in the ordinary course of business in connection with the obtaining of
materials or services.
"WARRANTS" means the warrants to purchase Common Stock of the
Issuer issued in connection with the Preferred Stock and shall be equivalent in
all respects to the Warrants issued pursuant to the Purchase Agreement.
2. PRINCIPAL AND INTEREST.
3
(a) INTEREST. The aggregate outstanding principal balance of
this Note shall bear interest accruing from the date made to the date this Note
shall have been converted or repaid in full at the rate of eight percent (8%)
per annum, subject to adjustment as set forth in Section 3 hereof. All
computations of interest payable hereunder shall be on the basis of a 360-day
year and actual days elapsed in the period for which such interest is payable.
Interest shall be due and payable on the Maturity Date or such earlier date that
this Note is converted or repaid in full.
(b) PAYMENT OBLIGATION. No provision of this Note shall alter
or impair the obligations of Issuer, which are absolute and unconditional, to
pay the principal of and interest on this Note at the place, times and rate, and
in the currency herein prescribed, subject to the conversion provisions of this
Note as provided herein.
(c) PREPAYMENT. The principal hereunder and all interest
accrued thereon may be prepaid at any time by the Issuer in whole or in part (a
"PREPAYMENT"), provided that (i) the Issuer gives not less than five (5)
Business Days prior written notice to the Noteholder that it intends to make
such a Prepayment specifying the amount of such Noteholder's Note that the
Issuer will Prepay and the date on which such Prepayment will be made and (ii)
the Issuer makes such Prepayment with respect to all outstanding Promissory
Notes. For avoidance of doubt, at any time following receipt of the notice of
Prepayment until the Prepayment, the Noteholder shall have the right to convert
the Note as provided in Section 6.
3. EVENTS OF DEFAULT AND REMEDIES. In case one or more of the
following events (each, an "EVENT OF DEFAULT") (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) shall
have occurred and be continuing:
(a) default in the payment of all or any part of the principal
of any of this Note as and when the same shall become due and payable, at
maturity, by declaration or otherwise; or
(b) default in the payment of all or any part of the interest
on any of this Note as and when same shall become due and payable; or
(c) failure on the part of Issuer duly to observe or perform
any other of the covenants or agreements on the part of Issuer contained in this
Note (other than those covered by clauses (a) and (b) above) for a period of ten
(10) Business Days after the date on which written notice specifying such
failure, stating that such notice is a "Notice of Default" hereunder and
demanding that Issuer remedy the same, shall have been given by registered or
certified mail, return receipt requested, to Issuer; or
(d) any event or condition shall occur which results in the
acceleration of the maturity of any Debt or enables or, with the giving of
notice or lapse of time or both, would enable the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof; or
(e) Issuer pursuant to or within the meaning of any Bankruptcy
Law:
(i) commences a voluntary case or proceeding,
(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
4
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of
its creditors, or
(v) admits in writing its inability to pay its debts
as the same become due; or
(f) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against Issuer in an involuntary
case,
(ii) appoints a Custodian of Issuer or for all or
substantially all of the property
of Issuer, or
(iii) orders the liquidation of Issuer,
and such order or decree remains unstayed and in effect for 30 days;
then, in each case where an Event of Default occurs, the holders (the "MAJORITY
HOLDERS") of a majority in principal amount of the Promissory Notes, by notice
in writing to Issuer (the "ACCELERATION NOTICE"), may, at their option, declare
the outstanding principal hereunder and under all of the other Promissory Notes
and all accrued and unpaid interest hereon and thereon to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable; PROVIDED that if an Event of Default specified in Section 3(e) or
3(f) occurs, the principal hereunder and under all of the other Promissory Notes
and all accrued and unpaid interest hereon and thereon shall become and be
immediately due and payable without any declaration or other act on the part of
the Noteholder or the Majority Holders. Upon the first occurrence of, and during
the continuance of, an Event of Default, the interest rate shall automatically
increase to ten percent (10%) per annum.
The Issuer shall reimburse the Noteholder, on demand, for any and all
costs and expenses, including (but not limited to) reasonable attorney fees and
court costs, incurred by the Noteholder in collecting or otherwise enforcing
this Note or in attempting to do any of the foregoing.
Notwithstanding anything contained herein to the contrary, upon the
first of occur of (i) the Maturity Date or (ii) a Sale Transaction, the
Noteholder, by notice in writing to Issuer, may, at its option, declare the
outstanding principal hereunder and all accrued and unpaid interest hereon to
become due and payable immediately.
4. POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER
OF DEFAULT. No right or remedy herein conferred upon or reserved to the
Noteholder is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
No delay or omission of the Noteholder to exercise any right or power
accruing upon any Default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Default or Event of Default or an acquiescence therein; and
every power and remedy given by this Note or by law may be exercised from time
to time, and as often as shall be deemed expedient, by the Noteholder.
5
5. WAIVER OF PAST DEFAULTS. The Noteholder may waive in writing
any past Default or Event of Default hereunder and its consequences. In the case
of any such waiver, Issuer and the Noteholder shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Default or Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Note, and the interest rate hereon shall not be deemed
to have increased; but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any right consequent thereon.
6. CONVERSION.
(a) OPTIONAL CONVERSION. The outstanding principal hereunder
PLUS all interest accrued thereon may, at the Noteholder's option, be converted
at any time, in whole or in part, on or prior to the Maturity Date, into shares
of Preferred Stock, at a conversion rate of $15,000 per share (subject to
adjustment stock, splits, stock dividends and the like), all on and subject to
the terms and conditions set forth in this Section 6. Upon the conversion of
this Note into shares of Preferred Stock pursuant to this Section 6, the
Purchaser or its assigns shall receive Warrants to purchase that number of
shares of Common Stock as is equal to 20% of the number of shares of Common
Stock into which such shares of Preferred Stock are convertible.
(b) MECHANICS OF CONVERSION.
(i) Such right of conversion shall be exercised by the
Noteholder by delivering to the Issuer a conversion notice in the form attached
hereto as EXHIBIT A (the "CONVERSION NOTICE"), appropriately completed and duly
signed, and by surrender not later than two (2) business days thereafter of this
Note. The Conversion Notice shall also contain a statement of the name or names
(with addresses and tax identification or social security numbers) in which the
certificate or certificates for Preferred Stock and Warrants shall be issued, if
other than the name in which this Note are registered. Promptly after the
receipt of the Conversion Notice, the Issuer shall issue and deliver, or cause
to be delivered, to the Noteholder or such Noteholder's nominee, a certificate
or certificates for the number of shares of Preferred Stock and Warrants
issuable upon the such conversion. Such conversion shall be deemed to have been
effected as of the close of business on the date of receipt by the Issuer of the
Conversion Notice (the "CONVERSION DATE"), and the person or persons entitled to
receive the shares of Preferred Stock and Warrants issuable upon conversion
shall be treated for all purposes as the holder or holders of record of such
shares of Preferred Stock and Warrants as of the close of business on the
Conversion Date. If the Noteholder has not converted the entire amount of the
Note pursuant to the Conversion Notice, then the Company shall execute and
deliver to the Noteholder a new Note instrument identical in terms to this Note,
but with a principal amount reflecting the unconverted portion of this Note. The
new Note instrument shall be delivered subject to the same timing terms as the
certificates for the Preferred Stock and Warrants.
(ii) The Issuer shall effect such issuance of Preferred Stock
and Warrants within three (3) trading days of the Conversion Date and shall
transmit the certificates by messenger or reputable overnight delivery service
to reach the address designated by such holder within three (3) trading days
after the receipt by the Issuer of such Conversion Notice. If certificates
evidencing the Preferred Stock and Warrants are not received by the holder
within five (5) Business Days of the Conversion Notice, then the holder will be
entitled to revoke and withdraw its Conversion Notice, in whole or in part, at
any time prior to its receipt of those certificates. The person or persons
entitled to receive the Preferred Stock and Warrants issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
6
such Preferred Stock and Warrants at the close of business on the Conversion
Date. If the conversion has not been rescinded in accordance with this paragraph
and the Issuer fails to deliver to the holder such certificate or certificates
pursuant to this Section 6 in accordance herewith, prior to the seventh (7th)
Business Day after the Conversion Date (assuming timely surrender of the Note),
the Issuer shall pay to such Noteholder, in cash, on a per diem basis, an amount
equal to 2% of the principal amount and all interest accrued thereon of the Note
until such delivery takes place and interest shall continue to accrue as
provided in Section 2 as if no Conversion Notice had been delivered.
The Issuer's obligation to issue Preferred Stock and Warrants
upon conversion of Note shall be absolute, is independent of any covenant of any
Noteholder, and shall not be subject to: (i) any offset or defense; or (ii) any
claims against the holders of the Promissory Notes whether pursuant to this
Note, the Articles of Incorporation, the Note Purchase Agreement, the Purchase
Agreement, the Investor Rights Agreement, the Warrants or otherwise.
(c) ADJUSTMENTS. For avoidance of doubt, any and all
adjustments to the Conversion Value (as defined in the Articles of Incorporation
as amended by the Articles of Amendment) of the Preferred Stock or the Current
Warrant Price (as defined in the Warrant) or number of Warrant Shares issuable
upon exercise of the Warrants, in each case, originally issued pursuant to this
Agreement that may have been made prior to the issuance of shares of Preferred
Stock and Warrants issued pursuant to this Section 6 shall be deemed to apply to
any such shares of Preferred Stock and Warrants. In addition, the amounts set
forth in this Section 6 shall be subject to adjustment for any stock splits,
dividends, distributions and the like.
(d) RIGHTS OF HOLDERS. Upon the conversion of this Note, the
Holder shall have all of the rights with respect to the Preferred Stock and
Warrants issued pursuant to this Section 6 that such Holder would have had if
such Preferred Stock and Warrants were purchased pursuant to the Purchase
Agreement, including, without limitation, the rights of a Purchaser and Holder
under the Purchase Agreement, Investor Rights Agreement and Certificate of
Amendment.
(e) FRACTIONAL SHARES. Upon the conversion of this Note
pursuant to this Section 6, fractional shares of Preferred Stock shall be issued
as appropriate.
7. LIQUIDATION RIGHTS; NO RESTRICTED PAYMENTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Issuer, this Note shall be entitled to a claim
in liquidation before participation by the holders of any debt subordinate
hereto or of any capital stock of the Issuer. The amount of the claim in
liquidation shall equal the amount to which the Noteholder would be entitled in
the case of payment. If upon such liquidation, dissolution, or winding up, the
assets available for distribution among the holders of the Promissory Notes
shall be insufficient to permit the payment of the full amounts of their claims
in liquidation, then the entire assets of the Issuer to be distributed to the
holders of the Promissory Notes shall be distributed pro-rata among the holders
of the Promissory Notes based upon the amounts of their respective claims in
liquidation.
(b) Issuer shall not declare or make any Restricted Payments
prior to conversion or payment in full of this Note.
8. MODIFICATION OF NOTE. This Note may be modified with the
written consent of the Issuer and the Majority Holders.
7
9. MISCELLANEOUS.
(a) This Note shall be governed by and be construed in accordance with
the laws of the State of New York without regard to the conflicts of law rules
of such state. Each of the Issuer and Noteholder hereby irrevocably and
unconditionally submits, for itself and its property, to the jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court for the Southern District of New York, and any
appellate court from any thereof, in respect of actions brought against it as a
defendant, in any action, suit or proceeding arising out of or relating to this
Note, or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action, suit or proceeding may be heard and determined in such
courts. Each of the parties hereto agrees that a final judgment in any such
action, suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Issuer and Noteholder hereto irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any action, suit or proceeding
arising out of or relating to this Note, or in any court referred to above. Each
of the parties hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action,
suit proceeding in any such court and waives any other right to which it may be
entitled on account of its place of residence or domicile.
(b) Issuer hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, except as specifically provided
herein, and assent to extensions of the time of payment, or forbearance or other
indulgence without notice.
(c) The Section headings herein are for convenience only and shall not
affect the construction hereof. This Note and the Note Purchase Agreement
constitute the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof and shall supersede any prior
agreements and understandings between the parties hereto with respect to such
subject matter. The parties agree that this Note shall be deemed to have been
jointly and equally drafting by them, and that the provisions of this Note
therefore should not be construed against a party or parties on the grounds that
such party or parties drafted or was more responsible for the drafting of any
such provision(s).
[signature page follows]
8
IN WITNESS WHEREOF, Issuer has caused this Convertible Promissory Note
to be duly executed as of the date first set forth above.
NATIONAL COAL CORP.
By: ________________________________________
Name:
Title:
9
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder in order to convert the Note)
The undersigned hereby irrevocably elects to convert the Convertible Promissory
Note (the "Note") of National Coal Corp., a Florida corporation (the
"Corporation"), due May 31, 2005 held by the undersigned into shares of
Preferred Stock and Warrants, according to the terms and conditions of the Note
and the conditions hereof, as of the date written below. The undersigned hereby
requests that certificates for the shares of Preferred Stock and Warrants to be
issued to the undersigned pursuant to this Conversion Notice be issued in the
name of, and delivered to, the undersigned or its designee as indicated below.
If the shares of Preferred Stock and Warrants are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. A copy of the Note being converted is attached
hereto (and the original Note shall be transmitted to the Corporation pursuant
to the terms thereof). All capitalized terms used in this Conversion Notice, but
not otherwise defined herein shall have the meanings assigned in the Note.
______________________________________________________________________________
Date of Conversion (Date of Notice)
______________________________________________________________________________
Principal Amount of Note to be Converted
______________________________________________________________________________
Principal Amount of Note not to be Converted (Principal Amount Remaining after
Conversion)
______________________________________________________________________________
Amount of accumulated and unpaid interest on principal amount of Note to be
Converted
______________________________________________________________________________
Number of shares of Preferred Stock to be Issued (including conversion of
accrued but unpaid interest on Notes to be Converted)
______________________________________________________________________________
Applicable Conversion Value
______________________________________________________________________________
Number of Warrants to be issued
Conversion Information:[NAME OF HOLDER]
-----------------------------------
Address of Holder:
-----------------------------------
-----------------------------------
Issue Preferred Stock and Warrants to (if different than above):
Name:_______________________________
Address:____________________________
____________________________
Tax ID #:_____________________
________________________________________________
Name of Holder
By:_____________________________________________
Name:
Title:
EXHIBIT C
FORM OF COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED.
Warrant No. W-__
COMMON STOCK PURCHASE WARRANT
To Purchase ____________ Shares of Common Stock of
NATIONAL COAL CORP.
THIS IS TO CERTIFY THAT _______________, or registered assigns (the
"Holder"), is entitled, during the Exercise Period (as hereinafter defined), to
purchase from National Coal Corp., a Florida corporation (the "Company"), the
Warrant Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, at a purchase price of $2.10 per share, all on and
subject to the terms and conditions hereinafter set forth.
1. DEFINITIONS. As used in this Warrant, the following terms have
the respective meanings set forth below:
"ADDITIONAL SHARES OF COMMON STOCK" means any shares of Common Stock
issued by the Company after the Closing Date other than: (i) Warrant Stock; (ii)
shares issued or issuable pursuant to anti-dilution provisions of the Preferred
Stock; (iii) shares issued or issuable upon the conversion of the Preferred
Stock; (iv) shares issued or issuable upon the exercise of any warrants or
options outstanding as of the Closing Date; (v) shares of Common Stock or Common
Stock Equivalents issued in connection with a bona-fide strategic transaction;
(vii) shares of Common Stock or Common Stock Equivalents issued in connection
with any stock-based compensation plans of the Company approved by the Board of
Directors of the Company including all (which shall be at least three)
Independent Directors (as defined in the Purchase Agreement), the number of such
shares of Common Stock (or, in the case of Common Stock Equivalents, the number
of shares of Common Stock acquirable pursuant thereto) not to exceed 5 million
(as adjusted for stock splits, stock dividends and the like) and the value
assigned upon grant not to be less than 85% of the Current Market Price or
(viii) shares issuable upon the exercise of any warrants that are issuable
pursuant to the terms of the Purchase Agreement or upon conversion of the Notes
(as defined in the Note Purchase Agreement).
"AFFILIATE" means any person or entity that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a person or entity, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Holder of Warrants,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Holder will be deemed to be an Affiliate
of such Holder.
"APPRAISED VALUE" means, in respect of any share of Common Stock on any
date herein specified, the fair saleable value of such share of Common Stock
(determined without giving effect to the discount for (i) a minority interest or
(ii) any lack of liquidity of the Common Stock or to the fact that the Company
may have no class of equity registered under the Exchange Act) as of the last
day of the most recent fiscal month ending prior to such date specified, based
on the value of the Company on a fully-diluted basis, as determined by a
nationally recognized investment banking firm selected by the Company's
Board of Directors and having no prior relationship with the Company.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Tennessee
generally are authorized or required by law or other government actions to
close.
"CHANGE OF CONTROL" means the (i) acquisition by an individual or legal
entity or group (as set forth in Section 13(d) of the Exchange Act) of more than
one-half of the voting rights or equity interests in the Company; or (ii) sale,
conveyance, or other disposition of all or substantially all of the assets,
property or business of the Company or the merger into or consolidation with any
other corporation (other than a wholly owned subsidiary corporation) or
effectuation of any transaction or series of related transactions where holders
of the Company's voting securities prior to such transaction or series of
transactions fail to continue to hold at least 50% of the voting power of the
Company.
"CLOSING DATE" means August 31, 2004.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"COMMON STOCK" means (except where the context otherwise indicates) the
Common Stock, $0.0001 par value per share, of the Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may thereafter
be changed or converted, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets on liquidation over any other class of stock
of the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7.
"COMMON STOCK EQUIVALENTS" has the meaning set forth in Section 4.4.
"CURRENT MARKET PRICE" means, in respect of any share of Common Stock
on any date herein specified,
(1) if there shall not then be a public market for the Common
Stock, the higher of
(a) the book value per share of Common Stock at such date, and
(b) the Appraised Value per share of Common Stock at such
date,
or
(2) if there shall then be a public market for the Common Stock, the
higher of (x) the book value per share of Common Stock at such date, and (y) the
average of the daily market prices for the 5 consecutive trading days
immediately before such date. The daily market price for each such trading day
shall be (i) the closing price on such day on the principal stock exchange
(including Nasdaq) on which such Common Stock is then listed or admitted to
trading, or quoted, as applicable, (ii) if no sale takes place on such day on
any such exchange, the last reported closing price on such day as officially
quoted on any such exchange (including Nasdaq), (iii) if the Common Stock is not
then listed or admitted to trading on any stock exchange, the last reported
closing bid price on such day in the over-the-counter market, as furnished by
the National Association of Securities Dealers Automatic Quotation System or the
National Quotation Bureau, Inc., (iv) if neither such corporation at the time is
engaged in the business of reporting
2
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. (the "NASD") selected mutually by the
holder of this Warrant and the Company or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which shall be
selected by holder of this Warrant and one of which shall be selected by the
Company.
"CURRENT WARRANT PRICE" means, in respect of a share of Common Stock at
any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date. Until the Current Warrant Price
is adjusted pursuant to the terms herein, the initial Current Warrant Price
shall be $2.10 per share of Common Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"EXERCISE PERIOD" means the period during which this Warrant is
exercisable pursuant to Section 2.1.
"EXPIRATION DATE" means August 31, 2006.
"GAAP" means generally accepted accounting principles in the United
States of America as from time to time in effect.
"NASD" means the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"OTHER PROPERTY" has the meaning set forth in Section 4.7.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"PREFERRED STOCK" shall mean the Company's Series A Cumulative
Convertible Preferred Stock, par value $0.0001 per share.
"PURCHASE AGREEMENT" means, as applicable, (i) that certain Preferred
Stock and Warrant Purchase Agreement (the "PREFERRED STOCK PURCHASE AGREEMENT")
dated as of August 31, 2004 among the Company and the other parties named
therein, if this Warrant was issued pursuant thereto or (ii) that certain Note
Purchase Agreement (the "NOTE PURCHASE AGREEMENT") dated as of August 31, 2004
among the Company and the other parties named therein, if this Warrant was
issued upon conversion of the Notes (as Defined in the Note Purchase Agreement)
issued pursuant thereto.
"RESTRICTED COMMON STOCK" means shares of Common Stock which are, or
which upon their issuance upon the exercise of any Warrant would be required to
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 3.2.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"TRADING DAY" means any day on which the primary market on which shares
of Common Stock are
3
listed is open for trading.
"TRANSFER" means any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
"WARRANTS" means this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"WARRANT PRICE" means an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price.
"WARRANT STOCK" means the ____________ [20% COVERAGE] shares of Common
Stock to be purchased upon the exercise hereof, subject to adjustment as
provided herein.
2. EXERCISE OF WARRANT.
2.1. MANNER OF EXERCISE. From and after the Closing Date, and until
5:00 P.M., New York time, on the Expiration Date (the "Exercise Period"), the
Holder may exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Warrant Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, the Holder
shall deliver to the Company at its principal office or at the office or agency
designated by the Company pursuant to Section 12, (i) a written notice of
Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant
Price as provided herein, and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as EXHIBIT A, duly executed by the Holder or its agent or attorney. Upon
receipt thereof, the Company shall, as promptly as practicable, and in any event
within three Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Warrant Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the Holder
shall request in the notice and shall be registered in the name of the Holder or
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and the Holder or any other Person so designated to
be named therein shall be deemed to have become a Holder of record of such
shares for all purposes, as of the date when the notice, together with the
payment of the Warrant Price and this Warrant, is received by the Company as
described above. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or at the request of the Holder, appropriate notation may be made on
this Warrant and the same returned to the Holder.
If the Company intentionally and willfully fails to deliver to the
holder such certificate or certificates pursuant to this Section 2.1 (free of
any restrictions on transfer or legends, if such shares have been registered) in
accordance herewith, prior to the seventh trading day after the receipt by the
Company of (i) a written notice of Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Warrant Stock to be
purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this
Warrant (the "Date of Receipt"), the Company shall pay to such Holder, in cash,
on a per diem basis, an amount equal to 2% of the value of the undelivered
Warrant Stock (based on the Current Market Price
4
of the Common Stock on the Date of Receipt) per month until such delivery takes
place.
Payment of the Warrant Price may be made at the option of the Holder
by: (i) certified or official bank check payable to the order of the Company,
(ii) wire transfer to the account of the Company or (iii) at any time after
January 28, 2005 if, at any time and from time to time, the Warrant Stock is not
registered for resale pursuant to an effective registration statement pursuant
to which sales may be made, the surrender and cancellation of a portion of
shares of Common Stock then held by the Holder or issuable upon such exercise of
this Warrant, which shall be valued and credited toward the total Warrant Price
due the Company for the exercise of the Warrant based upon the Current Market
Price of the Common Stock. All shares of Common Stock issuable upon the exercise
of this Warrant pursuant to the terms hereof shall be validly issued and, upon
payment of the Warrant Price, shall be fully paid and nonassessable and not
subject to any preemptive rights.
2.2. FRACTIONAL SHARES. The Company shall not be required to issue
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay an amount in cash equal to
the Current Market Price per share of Common Stock on the date of exercise
multiplied by such fraction.
2.3. CONTINUED VALIDITY. A Holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a Holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as the Holder under Sections 10 and
13 of this Warrant.
2.4. RESTRICTIONS ON EXERCISE AMOUNT.
(i) Unless a Holder delivers to the Company irrevocable written notice
(x) prior to the date of issuance hereof or sixty-one days prior to the
effective date of such notice that this Section 2.4(i) shall not apply to such
Holder or (y) prior to a Change of Control the terms of which require the
conversion of the Preferred Stock into Common Stock, the Holder may not acquire
a number of shares of Warrant Stock to the extent that, upon such exercise, the
number of shares of Common Stock then beneficially owned by such holder and its
Affiliates and any other persons or entities whose beneficial ownership of
Common Stock would be aggregated with the Holder's for purposes of Section 13(d)
of the Exchange Act (including shares held by any "group" of which the holder is
a member, but excluding shares beneficially owned by virtue of the ownership of
securities or rights to acquire securities that have limitations on the right to
convert, exercise or purchase similar to the limitation set forth herein),
exceeds 9.99% if the holder is a Crestview Investor or any of their successors
or assigns, or 4.99% if the Holder is any other person, in each case, of the
total number of shares of Common Stock of the Company then issued and
outstanding. For purposes hereof, "group" has the meaning set forth in Section
13(d) of the Exchange Act and applicable regulations of the Securities and
Exchange Commission, and the percentage held by the holder shall be determined
in a manner consistent with the provisions of Section 13(d) of the Exchange Act.
Each delivery of a notice of exercise by a Holder will constitute a
representation by such Holder that it has evaluated the limitation set forth in
this paragraph and determined, based on the most recent public filings by the
Company with the Commission, that the issuance of the full number of shares of
Warrant Stock requested in such notice of exercise is permitted under this
paragraph. "Crestview Investor" shall mean a Holder designated as a Crestview
Investor on SCHEDULE 1 to the Purchase Agreement.
(ii) In the event the Company is prohibited from issuing shares of
Warrant Stock as a result of any restrictions or prohibitions under applicable
law or the rules or regulations of any stock exchange,
5
interdealer quotation system or other self-regulatory organization, the Company
shall as soon as possible seek the approval of its stockholders and take such
other action to authorize the issuance of the full number of shares of Common
Stock issuable upon exercise of this Warrant.
3. TRANSFER, DIVISION AND COMBINATION.
3.1. TRANSFER. The Warrants and the Warrant Stock shall be freely
transferable, subject to compliance with all applicable laws, including, but not
limited to the Securities Act. If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant or the resale of the Warrant
Stock, this Warrant or the Warrant Stock, as applicable, shall not be registered
under the Securities Act, the Company may require, as a condition of allowing
such transfer (i) that the Holder or transferee of this Warrant or the Warrant
Stock as the case may be, furnish to the Company a written opinion of counsel
that is reasonably acceptable to the Company to the effect that such transfer
may be made without registration under the Securities Act, (ii) that the Holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and substantially in the form attached
as EXHIBIT C hereto and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act. Transfer of this
Warrant and all rights hereunder, in whole or in part, in accordance with the
foregoing provisions, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at the principal
office of the Company referred to in Section 2.1 or the office or agency
designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of EXHIBIT B hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. Following a transfer that complies
with the requirements of this Section 3.1, the Warrant may be exercised by a new
Holder for the purchase of shares of Common Stock regardless of whether the
Company issued or registered a new Warrant on the books of the Company.
3.2. RESTRICTIVE LEGEND. Each certificate for Warrant Stock
initially issued upon the exercise of this Warrant, and each certificate for
Warrant Stock issued to any subsequent transferee of any such certificate, shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR
TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED."
3.3. DIVISION AND COMBINATION; EXPENSES; BOOKS. This Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. The Company shall prepare, issue and deliver at its own
expense the new Warrant or Warrants under this Section 3. The Company agrees to
maintain, at its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
6
4. ADJUSTMENTS. The number of shares of Common Stock for which
this Warrant is exercisable, and the price at which such shares may be purchased
upon exercise of this Warrant, shall be subject to adjustment from time to time
as set forth in this Section 4. The Company shall give the Holder notice of any
event described below which requires an adjustment pursuant to this Section 4 in
accordance with Sections 5.1 and 5.2.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
while this Warrant is outstanding the Company shall:
(i) declare a dividend or make a distribution on its
outstanding shares of Common Stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then:
(1) the number of shares of Common Stock acquirable upon exercise of
this Warrant immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock that would have been acquirable under
this Warrant immediately prior to the record date for such dividend or
distribution or the effective date of such subdivision or combination would own
or be entitled to receive after such record date or the effective date of such
subdivision or combination, as applicable, and
(2) the Current Warrant Price shall be adjusted to equal:
(A) the Current Warrant Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision or combination, multiplied by the number of shares
of Common Stock into which this Warrant is exercisable immediately
prior to the adjustment, divided by
(B) the number of shares of Common Stock into which this
Warrant is exercisable immediately after such adjustment.
Any adjustment made pursuant to clause (i) of this paragraph shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time while this Warrant
is outstanding the Company shall cause the holders of its Common Stock to be
entitled to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of
stock of any class or any other securities or property or assets of any nature
whatsoever (other than cash or additional shares of Common Stock as provided in
Section 4.1 hereof), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any class or
any other securities or property or assets of any nature
7
whatsoever, then:
(1) the number of shares of Common Stock acquirable upon
exercise of this Warrant shall be adjusted to equal the product of the
number of shares of Common Stock acquirable upon exercise of this
Warrant immediately prior to the record date for such dividend or
distribution, multiplied by a fraction (x) the numerator of which shall
be the Current Warrant Price per share of Common Stock at the date of
taking such record and (y) the denominator of which shall be such
Current Warrant Price minus the amount allocable to one share of Common
Stock of any such cash so distributable and of the fair value (as
determined in good faith by the Board of Directors of the Company) of
any and all such evidences of indebtedness, shares of stock, other
securities or property or warrants or other subscription or purchase
rights so distributable; and
(2) the Current Warrant Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted to equal (x) the Current
Warrant Price multiplied by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to the
adjustment, divided by (y) the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately after such
adjustment. A reclassification of the Common Stock (other than a change
in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of
its Common Stock of such shares of such other class of stock within the
meaning of this Section 4.2 and, if the outstanding shares of Common
Stock shall be changed into a larger or smaller number of shares of
Common Stock as a part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(i) If at any time while this Warrant is outstanding the
Company shall issue or sell any Additional Shares of Common Stock in exchange
for consideration in an amount per Additional Share of Common Stock less than
$1.50 (as adjusted for stock splits, stock dividends and the like) at the time
the additional shares of Common Stock are issued or sold, then:
(A) the Current Warrant Price immediately prior to such
issue or sale shall be reduced to a price determined by dividing
(1) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior to such issue or
sale multiplied by the then existing Current Warrant Price, plus (b)
the consideration, if any, received by the Company upon such issue or
sale, by
(2) the total number of shares of Common Stock
outstanding immediately after such issue or sale; and
(B) the number of shares of Common Stock acquirable upon
exercise of this Warrant shall be adjusted to equal the amount obtained by
(1) multiplying the Current Warrant Price in effect
immediately prior to such issue or sale by the number of shares of
Common Stock acquirable upon exercise of this Warrant immediately prior
to such issue or sale and
(2) dividing the product thereof by the Current
Warrant Price resulting from the adjustment made pursuant to clause
(A).
8
(ii) The provisions of paragraph 4.3(i) shall not apply to
any issuance of additional shares of Common Stock for which an adjustment is
provided under Section 4.1 or 4.2. No adjustment of the number of shares of
Common Stock acquirable upon exercise of this Warrant shall be made under
paragraph 4.3(i) upon the issuance of any additional shares of Common Stock
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights or pursuant to the exercise of any conversion or exchange
rights in any convertible securities, if any such adjustment shall previously
have been made upon the issuance of such warrants or other rights or upon the
issuance of such convertible securities (or upon the issuance of any warrant or
other rights therefor) pursuant to Section 4.4.
4.4. ISSUANCE OF COMMON STOCK EQUIVALENTS. If at any time while
this Warrant is outstanding the Company shall issue or sell any warrants or
other rights to subscribe for or purchase any additional shares of Common Stock
or any securities convertible into shares of Common Stock (other than the
Additional Shares of Common Stock) (collectively, "Common Stock Equivalents"),
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the effective price per share for which Common Stock is
issuable upon the exercise, exchange or conversion of such Common Stock
Equivalents shall be less than the Current Warrant Price in effect immediately
prior to the time of such issue or sale, then the number of shares of Warrant
Stock acquirable upon the exercise of this Warrant and the Current Warrant Price
shall be adjusted as provided in Section 4.3 on the basis that the maximum
number of additional shares of Common Stock issuable pursuant to all such Common
Stock Equivalents shall be deemed to have been issued and outstanding and the
Company shall have received all of the consideration payable therefor, if any,
as of the date of the actual issuance of such Common Stock Equivalents. No
further adjustments to the current Warrant Price shall be made under this
Section 4.4 upon the actual issue of such Common Stock upon the exercise,
conversion or exchange of such Common Stock Equivalents.
4.5. SUPERSEDING ADJUSTMENT.
(i) If, at any time after any adjustment of the number of
shares of Common Stock into which this Warrant is exercisable and the Current
Warrant Price shall have been made pursuant to Section 4.4 as the result of any
issuance of Common Stock Equivalents, (x) the right to exercise, convert or
exchange all or a portion of such Common Stock Equivalents shall expire
unexercised, or (y) the conversion rate or consideration per share for which
shares of Common Stock are issuable pursuant to such Common Stock Equivalents
shall be increased solely by virtue of provisions therein contained for an
automatic increase in such conversion rate or consideration per share upon the
occurrence of a specified date or event, then any such previous adjustments to
the Current Warrant Price and the number of shares of Common Stock for which
this Warrant is exercisable shall be rescinded and annulled and the additional
shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
(ii) Upon the occurrence of an event set forth in Section
4.5(i) above there shall be a recomputation made of the effect of such Common
Stock Equivalents on the basis of: (i) treating the number of additional shares
of Common Stock or other property, if any, theretofore actually issued or
issuable pursuant to the previous exercise, conversion or exchange of such
Common Stock Equivalents, as having been issued on the date or dates of any such
exercise, conversion or exchange and for the consideration actually received and
receivable therefor, and (ii) treating any such Common Stock Equivalents which
then remain outstanding as having been granted or issued immediately after the
time of such increase of the conversion rate or consideration per share for
which shares of Common Stock or other property are issuable under such Common
Stock Equivalents; whereupon a new adjustment to the number of shares of Common
Stock for which this Warrant is exercisable and the Current Warrant Price shall
be made, which new adjustment shall supersede the previous adjustment so
rescinded and annulled.
9
4.6. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock into which this Warrant is exercisable and the Current
Warrant Price provided for in Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any that would otherwise be required may
be postponed (except in the case of a subdivision or combination of shares of
the Common Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other adjustments not
previously made adds or subtracts less than 1% of the shares of Common Stock
into which this Warrant is exercisable immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such minimum
amount (except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments required by
this Section 4 and not previously made, would result in a minimum adjustment or
on the date of exercise. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company undertakes a
transaction contemplated under this Section 4 and as a result takes a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights or other benefits
contemplated under this Section 4 and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights or other benefits
contemplated under this Section 4, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) ESCROW OF STOCK. If after any property becomes
distributable pursuant to Section 4 by reason of the taking of any record of the
holders of Common Stock, but prior to the occurrence of the event for which such
record is taken, a holder of this Warrant exercises the Warrant during such
time, then such holder shall continue to be entitled to receive any shares of
Common Stock issuable upon exercise hereunder by reason of such adjustment and
such shares or other property shall be held in escrow for the holder of this
Warrant by the Company to be issued to holder of this Warrant upon and to the
extent that the event actually takes place. Notwithstanding any other provision
to the contrary herein, if the event for which such record was taken fails to
occur or is rescinded, then such escrowed shares shall be canceled by the
Company and escrowed property returned to the Company.
4.7. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS.
(a) If there shall occur a Change of Control and if pursuant
to the terms of such Change of Control, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then the Holder of this Warrant
shall have the right thereafter to receive, upon the exercise of the Warrant,
the number of shares of common stock of the successor or acquiring corporation
or of the Company, if it is the surviving corporation, and the Other Property
receivable upon or as a result of such Change of Control by a holder of the
number of shares of Common Stock into which this Warrant is exercisable
immediately prior to such event.
10
(b) In case of any such Change of Control described above, the
successor or acquiring corporation (if other than the Company) and, if an entity
different from the successor or surviving entity, the entity whose capital stock
or assets the holders of Common Stock of the Company are entitled to receive as
a result of such transaction, shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of contained
in this Warrant to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of the Common Stock into
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in Section 4. For purposes of
Section 4, common stock of the successor or acquiring corporation shall include
stock of such corporation of any class which is not preferred as to dividends or
assets on liquidation over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4 shall similarly apply to successive Change of Control
transactions.
4.8. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than the payment of dividends permitted by Section 4 or any other
action described in Section 4, then, unless such action will not have a
materially adverse effect upon the rights of the holder of this Warrant, the
number of shares of Common Stock or other stock into which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
4.9. CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
4.10. STOCK TRANSFER TAXES. The issue of stock certificates upon
exercise of this Warrant shall be made without charge to the holder for any tax
in respect of such issue. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of shares in any name other than that of the holder of this Warrant,
and the Company shall not be required to issue or deliver any such stock
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
5. NOTICES TO WARRANT HOLDERS.
5.1. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Current Warrant Price, the Company, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to the Holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of the Holder of this Warrant,
furnish or cause to be furnished to such Holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Current Warrant Price at the
time in effect and (iii) the number of shares of Common Stock and the amount, if
any, or other property which at the time would be received upon the exercise of
Warrants owned by such Holder.
5.2. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose
11
of entitling them to receive a dividend (other than a cash dividend payable out
of earnings or earned surplus legally available for the payment of dividends
under the laws of the jurisdiction of incorporation of the Company) or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the Holder (i)
at least 20 days' prior written notice of the date on which a record date shall
be selected for such dividend, distribution or right or for determining rights
to vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to the
Holder at the last address of the Holder appearing on the books of the Company
and delivered in accordance with Section 16.2.
5.3. NO RIGHTS AS STOCKHOLDER. This Warrant does not entitle the
Holder to any voting or other rights as a stockholder of the Company prior to
exercise and payment for the Warrant Price in accordance with the terms hereof.
6. NO IMPAIRMENT. The Company shall not by any action, including,
without limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant. Upon the request of the
Holder, the Company will at any time during the period this Warrant is
outstanding acknowledge in writing, in form satisfactory to the Holder, the
continuing validity of this Warrant and the obligations of the Company
hereunder.
12
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH APPROVAL OF ANY GOVERNMENTAL AUTHORITY. From and after the Closing Date,
the Company shall at all times reserve and keep available for issue upon the
exercise of Warrants such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants (without regard to any ownership limitations provided in Section
2.4(i)). All shares of Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued and fully paid and nonassessable,
and not subject to preemptive rights. Before taking any action which would cause
an adjustment reducing the Current Warrant Price below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Current Warrant Price. Before taking any
action which would result in an adjustment in the number of shares of Common
Stock for which this Warrant is exercisable or in the Current Warrant Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof. If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or qualification with
any governmental authority under any federal or state law before such shares may
be so issued (other than as a result of a prior or contemplated distribution by
the Holder of this Warrant), the Company will in good faith and as expeditiously
as possible and at its expense endeavor to cause such shares to be duly
registered.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the
case of all dividends or other distributions by the Company to the holders of
its Common Stock with respect to which any provision of Section 4 refers to the
taking of a record of such holders, the Company will in each such case take such
a record and will take such record as of the close of business on a Business
Day. The Company will not at any time, except upon dissolution, liquidation or
winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
9. REGISTRATION RIGHTS. The resale of the Warrant Stock shall be
registered in accordance with the terms and conditions contained in that certain
Investor Rights Agreement dated of even date hereof, among the Holder, the
Company and the other parties named therein (the "Investor Rights Agreement").
The Holder acknowledges that pursuant to the Investor Rights Agreement, the
Company has the right to request that the Holder furnish information regarding
such Holder and the distribution of the Warrant Stock as is required by law or
the Commission to be disclosed in the Registration Statement (as such term is
defined in the Investor Rights Agreement), and the Company may exclude from such
registration the shares of Warrant Stock acquirable hereunder if Holder fails to
furnish such information within a reasonable time prior to the filing of each
Registration Statement, supplemented prospectus included therein and/or amended
Registration Statement.
10. SUPPLYING INFORMATION. Upon any default by the Company of its
obligations hereunder or under the Investor Rights Agreement, the Company shall
cooperate with the Holder in supplying such information as may be reasonably
necessary for such Holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION. Upon receipt by the Company from the
Holder of evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of this Warrant and indemnity or security
reasonably satisfactory to it and reimbursement to the Company of all reasonable
expenses incidental thereto and in case of mutilation upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant of like tenor to the Holder; provided, however, that in
13
the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY. As long as any of the Warrants remain
outstanding, the Company shall maintain an office or agency (which may be the
principal executive offices of the Company) where the Warrants may be presented
for exercise, registration of transfer, division or combination as provided in
this Warrant.
13. FINANCIAL AND BUSINESS INFORMATION.
13.1. QUARTERLY INFORMATION. The Company will deliver to the Holder,
as soon as available and in any event within 45 days after the end of each of
the first three quarters of each fiscal year of the Company, one copy of an
unaudited consolidated balance sheet of the Company and its subsidiaries as at
the end of such quarter, and the related unaudited consolidated statements of
income, retained earnings and cash flow of the Company and its subsidiaries for
such quarter and, in the case of the second and third quarters, for the portion
of the fiscal year ending with such quarter, setting forth in each case in
comparative form the figures for the corresponding periods in the previous
fiscal year. Such financial statements shall be prepared by the Company in
accordance with GAAP and accompanied by the certification of the Company's chief
executive officer or chief financial officer that such financial statements
present fairly the consolidated financial position, results of operations and
cash flow of the Company and its subsidiaries as at the end of such quarter and
for such year-to-date period, as the case may be; provided, however, that the
Company shall have no obligation to deliver such quarterly information under
this Section 13.1 to the extent it is publicly available; and provided further,
that if such information contains material non-public information, the Company
shall so notify the Holder prior to delivery thereof and the Holder shall have
the right to refuse delivery of such information.
13.2. ANNUAL INFORMATION. The Company will deliver to the Holder as
soon as available and in any event within 90 days after the end of each fiscal
year of the Company, one copy of an audited consolidated balance sheet of the
Company and its subsidiaries as at the end of such year, and audited
consolidated statements of income, retained earnings and cash flow of the
Company and its subsidiaries for such year; setting forth in each case in
comparative form the figures for the corresponding periods in the previous
fiscal year; all prepared in accordance with GAAP, and which audited financial
statements shall be accompanied by an opinion thereon of the independent
certified public accountants regularly retained by the Company, or any other
firm of independent certified public accountants of recognized national standing
selected by the Company; provided, however, that the Company shall have no
obligation to deliver such annual information under this Section 13.2 to the
extent it is publicly available; and provided further, that if such information
contains material non-public information, the Company shall so notify the Holder
prior to delivery thereof and the Holder shall have the right to refuse delivery
of such information.
13.3. FILINGS. The Company will file on or before the required date
all regular or periodic reports (pursuant to the Exchange Act) with the
Commission and will deliver to Holder promptly upon their becoming available one
copy of each report, notice or proxy statement sent by the Company to its
stockholders generally.
14. LIMITATION OF LIABILITY. No provision hereof, in the absence
of affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of the Holder for the purchase price of any Common Stock,
whether such liability is asserted by the Company or by creditors of the
Company.
15. REDEMPTION AT COMPANY'S ELECTION.
14
15.1. The Company may at the option of the Board of Directors of the
Company redeem this Warrant, in whole or in part, at any time after March 1,
2006 provided that (i) the Current Market Price (as determined by paragraph (2)
of such definition) is greater than $4.20 (as adjusted for stock splits, reverse
splits, stock dividends and the like) for ten consecutive trading days and (ii)
all of the Warrant Stock underlying the Warrants to be redeemed (x) is then
registered under an effective registration statement in accordance with the
terms and conditions of the Investor Rights Agreement and the Company is in
compliance in all material respects with the Investor Rights Agreement or (y)
may be sold without restriction pursuant to Rule 144(k) promulgated by the
Commission under the Securities Act. The amount payable in redemption of the
rights to purchase the Warrant Stock pursuant to this Section 15.1 shall be cash
equal to $0.01 multiplied by the number of Warrant Shares that would be issuable
upon exercise of the Warrants being redeemed (the "Redemption Price").
15.2. The Company shall effect a redemption as follows:
(i) The number of warrants subject to redemption
(including the Warrants) shall be allocated pro rata among the holders of all of
the warrants to purchase Common Stock issued by the Company pursuant to the
Purchase Agreement together with those issued upon conversion of the Notes (as
defined in the Note Purchase Agreement) (collectively, the "Redemption
Warrants"), based upon the number of Redemption Warrants then outstanding that
are held by each such holder.
(ii) The Company shall pay the Redemption Price in cash
for the Redemption Warrants to be redeemed.
(iii) At least 15 but no more than 60 days prior to the
date fixed for any redemption of any Redemption Warrants (the "Redemption
Date"), written notice shall be given to each holder of record of Redemption
Warrants to be redeemed, notifying such holder of the redemption to be effected,
specifying the Redemption Date, the Redemption Price, the place at which payment
may be obtained and calling upon such holder to surrender to the Company, in the
manner and at the place designated, its certificate or certificates representing
the Redemption Warrants to be redeemed (the "Redemption Notice"). On or after
the Redemption Date, each holder of Redemption Warrants to be redeemed shall
surrender to the Company the certificate or certificates representing such
warrants, in the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price therefor shall be paid to the person whose
name appears on such certificate or certificates as the owner thereof, and upon
such payment, each surrendered certificate shall be canceled. In the event less
than all the warrants represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed warrants. For avoidance
of doubt, the holder may exercise the Warrant at any time prior to the
redemption of the Warrant pursuant to this Section 15.
16. MISCELLANEOUS.
16.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
third party costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by the
Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
16.2. NOTICE GENERALLY. All notices, requests, demands or other
communications provided for herein shall be in writing and shall be given in the
manner and to the addresses set forth in the Purchase Agreement.
15
16.3. SUCCESSORS AND ASSIGNS. Subject to compliance with the
provisions of Section 3.1, this Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and assigns of the Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant,
and shall be enforceable by any such Holder.
16.4. AMENDMENT. This Warrant may be modified or amended or the
provisions of this Warrant waived with the written consent of both the Company
and the Holder.
16.5. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be modified to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
16.6. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16.7. GOVERNING LAW. This Warrant and the transactions contemplated
hereby shall be deemed to be consummated in the State of New York and shall be
governed by and interpreted in accordance with the local laws of the State of
New York without regard to the provisions thereof relating to conflicts of laws.
The Company hereby irrevocably consents to the exclusive jurisdiction of the
State and Federal courts located in New York City, New York in connection with
any action or proceeding arising out of or relating to this Warrant. In any such
litigation the Company agrees that the service thereof may be made by certified
or registered mail directed to the Company pursuant to Section 16.2.
16
IN WITNESS WHEREOF, National Coal Corp. has caused this Warrant to be
executed by its duly authorized officer and attested by its Secretary.
Dated: August 31, 2004
NATIONAL COAL CORP.
By: ______________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title: Secretary
17
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
1. The undersigned hereby elects to purchase shares of the Common Stock
of National Coal Corp. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. The undersigned hereby elects to convert the attached Warrant into
Common Stock of National Coal Corp. through "cashless exercise" in the manner
specified in the Warrant. This conversion is exercised with respect to
_____________________ of the Shares covered by the Warrant.
3. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
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(Name)
----------------------------------------
----------------------------------------
(Address)
[and, if such shares of Common Stock shall not include all of the
shares of Common Stock issuable as provided in this Warrant, that a new Warrant
of like tenor and date for the balance of the shares of Common Stock issuable
hereunder be delivered to the undersigned.]
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(Name of Registered Owner)
-------------------------------------
(Signature of Registered Owner)
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(Street Address)
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(State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the Warrant in every particular, without alteration or
enlargement or any change whatsoever.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant for the
purchase of shares of common stock of National Coal Corp. hereby sells, assigns
and transfers unto the Assignee named below all of the rights of the undersigned
under this Warrant, with respect to the number of shares of common stock set
forth below:
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---------------------------------------
---------------------------------------
(Name and Address of Assignee)
---------------------------------------
(Number of Shares of Common Stock)
and does hereby irrevocably constitute and appoint ____________ attorney-in-fact
to register such transfer on the books of the Company, maintained for the
purpose, with full power of substitution in the premises.
Dated:________________________________
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(Print Name and Title)
--------------------------------------
(Signature)
--------------------------------------
(Witness)
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the Warrant in every particular, without alteration or
enlargement or any change whatsoever.
EXHIBIT C
FORM OF INVESTMENT REPRESENTATION LETTER
In connection with the acquisition of [warrants (the "Warrants") to purchase
____ shares of common stock of National Coal Corp. (the "Company"), par value
$0.0001 per share (the "Common Stock")][___shares of common stock of National
Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock")
upon the exercise of warrants by ________], by _______________ (the "Holder")
from _____________, the Holder hereby represents and warrants to the Company as
follows:
The Holder (i) is an "Accredited Investor" as that term is defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act"); and (ii) has the ability to bear the economic risks of such Holder's
prospective investment, including a complete loss of Holder's investment in the
Warrants and the shares of Common Stock issuable upon the exercise thereof
(collectively, the "Securities").
The Holder, by acceptance of the Warrants, represents and warrants to the
Company that the Warrants and all securities acquired upon any and all exercises
of the Warrants are purchased for the Holder's own account, and not with view to
distribution of either the Warrants or any securities purchasable upon exercise
thereof in violation of applicable securities laws.
The Holder acknowledges that (i) the Securities have not been registered under
the Act, (ii) the Securities are "restricted securities" and the certificate(s)
representing the Securities shall bear the following legend, or a similar legend
to the same effect, until (i) in the case of the shares of Common Stock
underlying the Warrants, such shares shall have been registered for resale by
the Holder under the Act and effectively been disposed of in accordance with a
registration statement that has been declared effective; or (ii) in the opinion
of counsel for the Company such Securities may be sold without registration
under the Act:
"[NEITHER] THE SECURITIES REPRESENTED BY THIS CERTIFICATE [NOR THE SECURITIES
INTO WHICH THEY ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND ALL SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. [NEITHER] THE
SECURITIES REPRESENTED HEREBY [NOR THE SECURITIES INTO WHICH THEY ARE
EXERCISABLE] MAY [NOT] BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT
THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT
REGISTRATION UNDER THE ACT."
IN WITNESS WHEREOF, the Holder has caused this Investment Representation Letter
to be executed in its corporate name by its duly authorized officer this __ day
of __________ 200_.
[Name]
By:______________________________
Name:
Title:
EXHIBIT H
SUBSCRIPTION FORM
[To be executed only upon exercise Additional Purchase Right]
1. The undersigned hereby elects to purchase shares of the Series A
Cumulative Convertible Preferred Stock of National Coal Corp. (the "Company")
along with the appropriate number of Warrants, in each case, pursuant to the
terms of the Note Purchase Agreement, dated as of August 31, 2004 among the
Company and the Purchasers listed in Schedule 1 thereto (the "Purchase
Agreement"), and tenders herewith payment of the purchase price of such shares
in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below. The
undersigned hereby makes for the benefit of the Company, as of the date hereof
and with respect to the shares of Series A Cumulative Convertible Stock being
acquired hereunder, the representations and warranties set forth in Section 4.3
through 4.6 of the Purchase Agreement.
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(Name)
----------------------------------------
----------------------------------------
(Address)
-------------------------------------
(Name of Purchaser)
-------------------------------------
(Signature of Purchaser)
-------------------------------------
(Street Address)
-------------------------------------
(State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
Purchaser in the Purchase Agreement in every particular, without alteration or
enlargement or any change whatsoever.
EXHIBIT I
ASSIGNMENT FORM
FOR ADDITIONAL PURCHASE RIGHT
FOR VALUE RECEIVED the undersigned Purchaser pursuant to the Note Purchase
Agreement, dated as of August 31, 2004 among the Company and the Purchasers
listed in Schedule 1 thereto (the "Purchase Agreement") hereby sells, assigns
and transfers unto the Assignee named below all of the rights of the undersigned
under Article VIII of the Purchase Agreement, with respect to the number of
shares of Preferred Stock and Warrant Shares set forth below:
---------------------------------------
---------------------------------------
---------------------------------------
(Name and Address of Assignee)
---------------------------------------
(Number of Shares of Preferred Stock)
---------------------------------------
(Number of Warrant Shares)
Dated:_________________________________
--------------------------------------
(Print Name and Title)
--------------------------------------
(Signature)
--------------------------------------
(Witness)
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the Warrant in every particular, without alteration or
enlargement or any change whatsoever.