UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 2, 1999 (Date of earliest event reported)
GUM TECH INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
UTAH 0-27646 87-0482806
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
246 East Watkins Street, Phoenix, Arizona 85004
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (602)252-1617
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On June 2, 1999, the Company issued 2,000 shares of its Series A
Convertible Preferred Stock and $4,000,000 in aggregate principal amount of its
8% Senior Secured Redeemable Notes and granted Warrants representing the right
to receive 300,000 shares of its common stock in a private placement to
institutional investors. The Company estimates the net proceeds of the offering,
after expenses, to be approximately $5,571,000. The Series A Convertible
Preferred Stock is subject to the terms and conditions of the Certificate of
Designation attached hereto as Exhibit 3.1. The Warrants are subject to the
terms and conditions of the form of Warrant attached hereto as Exhibit 4.1.
Pursuant to a Registration Rights Agreement attached as Exhibit 4.2, the Company
has agreed to prepare and file with the Securities and Exchange Commission a
registration statement covering the resale of the shares of Common Stock
issuable pursuant to the terms of the Series A Preferred Stock, the 8% Senior
Secured Redeemable Notes and the Warrants. The terms of the private placement
are more fully set forth in the Securities Purchase Agreement attached hereto as
Exhibit 10.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Gum Tech International, Inc. dated June 2,
1999
4.1 Form of Warrant granted to Fisher Capital Ltd. and Wingate Capital Ltd.
on June 2, 1999
4.2 Registration Rights Agreement by and between Gum Tech International,
Inc., Fisher Capital Ltd., and Wingate Capital Ltd. and dated June 2,
1999
10.1 Securities Purchase Agreement by and between Gum Tech International,
Inc., Fisher Capital Ltd., and Wingate Capital Ltd. and dated June 2,
1999
99.1 Gum Tech International, Inc. Press Release dated June 2, 1999 titled "Gum
Tech Completes $6 Million Financing with Citadel Investment Group"
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GUM TECH INTERNATIONAL, INC.
(Registrant)
By /s/ William J. Hemelt
-----------------------------
(Signature)
William J. Hemelt
Secretary and Chief Financial Officer
Date June 2, 1999
2
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Gum Tech International, Inc. dated June 2,
1999
4.1 Form of Warrant granted to Fisher Capital Ltd. and Wingate Capital Ltd.
on June 2, 1999
4.2 Registration Rights Agreement by and between Gum Tech International,
Inc., Fisher Capital Ltd., and Wingate Capital Ltd. and dated June 2,
1999
10.1 Securities Purchase Agreement by and between Gum Tech International,
Inc., Fisher Capital Ltd., and Wingate Capital Ltd. and dated June 2,
1999
99.1 Gum Tech International, Inc. Press Release dated June 2, 1999 titled "Gum
Tech Completes $6 Million Financing with Citadel Investment Group"
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CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
GUM TECH INTERNATIONAL, INC.
Gum Tech International, Inc. (the "COMPANY"), a corporation organized and
existing under the laws of the State of Utah, does hereby certify that, pursuant
to authority conferred upon the Board of Directors of the Company by the
Articles of Incorporation, as amended, of the Company, and pursuant to Section
16-10a-602 of the Utah Revised Business Corporation Act, the Board of Directors,
as of May 28, 1999, duly adopted resolutions without shareholder action
(shareholder action was not required) (i) authorizing a series of the Company's
previously authorized preferred stock, no par value per share, and (ii)
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of Two Thousand (2,000) shares of Series A Preferred Stock of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 2,000 shares of
Series A Preferred Stock (the "PREFERRED SHARES"), no par value per
share, which shall have the following powers, designations,
preferences and other special rights:
(1) VOTING RIGHTS. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the Utah Revised
Business Corporation Act, and as expressly provided in this Certificate of
Designations.
(2) DIVIDENDS. Each Preferred Share shall bear dividends ("DIVIDENDS")
at a rate of 14.0% per annum, which shall be cumulative, accrue daily from the
date of issuance of each Preferred Share (the "ISSUANCE DATE") and be payable in
cash on June 30, September 30, December 31 and March 31 of each calendar year
until the Maturity Date (as defined below) (each a "DIVIDEND DATE"). If a
Dividend Date is not a Business Day (as defined below) then the Dividend shall
be due and payable on the Business Day immediately following the Dividend Date.
Any accrued and unpaid dividends which are not paid within five (5) Business
Days following the Dividend Date for such accrued and unpaid dividends shall
bear interest at the rate of 18.0% per annum from such Dividend Date until the
same are paid in full (the "DEFAULT INTEREST"). For purposes hereof, "BUSINESS
DAY" means any day other than a Saturday, Sunday or other day on
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which commercial banks in the City of Chicago are authorized or required by law
to remain closed.
(3) CONVERSION OF PREFERRED SHARES AT MATURITY.
(a) CONVERSION. Upon the second anniversary of the Issuance Date (the
"MATURITY DATE") each Preferred Share shall automatically convert into a number
of shares of common stock of the Company, no par value per share ("COMMON
STOCK"), determined by dividing the Stated Value (as defined below) of such
Preferred Share plus any accrued and unpaid dividends and any Default Interest
thereon by the Conversion Price (as defined below). The Company shall not issue
any fraction of a share of Common Stock upon such conversion, but instead, shall
round such fraction of a share of Common Stock up or down to the nearest whole
share. For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CLOSING BID PRICE" means, for any security as of any date,
the last closing bid price for such security on the Nasdaq National
Market (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market is not the
principal securities exchange or trading market for such security, the
last closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported
for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the
holders of Preferred Shares. If the Company and the holders of
Preferred Shares are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved pursuant to Section
3(c) below with the term "Closing Bid Price" being substituted for the
term "Conversion Price."
(ii) "CONVERSION PRICE" means, as of any date, the product of (x)
the average of the Closing Bid Prices for the Common Stock for the
twenty (20) consecutive trading days immediately preceding such date
and (y) eighty percent (80%). (Such determination to be appropriately
adjusted for any stock dividend, stock split or other similar
transaction during such period.)
(iii) "SECURITIES PURCHASE AGREEMENT" means the Securities
Purchase Agreement by and among the Company and the original holders
of the Preferred Shares named therein.
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(iv) "STATED VALUE" means $1,000.00.
(b) MECHANICS OF CONVERSION. On the Maturity Date, all holders of
Preferred Shares shall surrender all stock certificates representing such shares
to the Company, duly endorsed for cancellation. Within one business day after
receipt of Preferred Shares duly endorsed for cancellation, the Company shall
issue to the holder surrendering such shares a stock certificate representing a
number of shares of Common Stock determined in accordance with Section 3(a);
provided, that in lieu of issuing shares of Common Stock in respect of the
conversion of Preferred Shares upon the Maturity Date, the Company may, upon
written notice delivered to the holders of Preferred Shares no later than 30
Business Days prior to the Maturity Date, elect to redeem all outstanding
Preferred Shares on the Maturity Date by paying to each holder an amount of cash
equal to the aggregate Stated Value of all Preferred Shares being redeemed, plus
any accrued and unpaid dividends and Default Interest thereon. Any such payment
shall be made to a holder of Preferred Shares on the Maturity Date by wire
transfer of immediately available funds to an account designated by such holder,
provided that such holder has surrendered such holder's Preferred Shares, duly
endorsed for cancellation, on or prior to such date.
(c) DISPUTE RESOLUTION. If a holder of Preferred Shares and the Company
are unable to agree upon the determination of the Conversion Price then the
Company shall within three (3) Business Days submit via facsimile the disputed
determination to an independent, reputable investment bank selected by the
Company and approved by the holders of such Preferred Shares. The Company shall
cause the investment bank to perform the determination of the Conversion Price
and notify the Company and the holder of the results no later than five (5)
business days from the time it receives the disputed determination. Such
investment bank's determination of the Conversion Price shall be binding upon
all parties absent manifest error.
(d) RECORD HOLDER. The person or persons entitled to receive the shares
of Common Stock issuable upon a conversion of Preferred Shares shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Maturity Date.
(e) TAXES. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon the conversion of
Preferred Shares.
(4) REDEMPTION AT OPTION OF HOLDERS UPON EVENT OF DEFAULT.
(a) REDEMPTION OPTION. In addition to all other rights of the holders
of Preferred Shares contained herein, after an Event of Default (as defined
below), each holder of Preferred Shares shall have the right, at such holder's
option, to require the Company to redeem for cash all or a portion of such
holder's Preferred Shares at a price per Preferred Share equal to, in the case
of an Event of Default described in clauses (i), (ii) and (iv) below, 110% of
the Stated Value or, in the case of an Event of Default other than an Event of
Default described in clauses (i), (ii) and (iv) below, 100% of the Stated Value,
in each case together with accrued but unpaid dividends and Default Interest
thereon ("REDEMPTION PRICE"). An "EVENT OF DEFAULT" shall be deemed to have
occurred at such time as any of the following events shall have occurred:
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(i) the failure of the registration statement (the "REGISTRATION
STATEMENT") filed pursuant to that certain registration rights
agreement by and between the Company and the initial holders of the
Preferred Shares (the "REGISTRATION RIGHTS AGREEMENT") to be declared
effective by the Securities and Exchange Commission (the "SEC") on or
prior to the date that is 150 days after the original date of issuance
of the Preferred Shares (the "SCHEDULED EFFECTIVE DATE");
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement (and subject to the Allowable Grace Periods set forth in
Section 3(u) thereof), the effectiveness of the Registration Statement
lapses for any reason (including, without limitation, the issuance of
a stop order) or is unavailable to the holder of the Preferred Shares
for sale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, provided that the cause of such lapse
or unavailability is not due to factors solely within the control of
such holder of Preferred Shares;
(iii) the suspension from trading or failure of the Common Stock
to be listed on the Principal Market, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading
days in any 365-day period;
(iv) upon the Company's failure to pay the Stated Value or
dividends on the Preferred Stock when due and payable pursuant to the
terms hereof (including, without limitation, the mandatory prepayment
of fifty percent (50%) of the original Stated Value of the Preferred
Shares within twelve (12) months following the Closing Date (as
defined in the Securities Purchase Agreement) as provided in Section
16);
(v) the Company or any Subsidiary (A) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(B) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (C) makes an assignment for the
benefit of its creditors, (D) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property,
(E) is adjudicated as insolvent or to be liquidated, or (F) takes
corporate action for the purpose of any of the foregoing;
(vi) on or prior to December 31, 2000, Gary S. Kehoe shall cease
to be employed in the capacity of an executive officer of the Company
with substantial responsibility for day-to-day operation of the
Company's gum business;
(vii) the Company defaults in the performance of or compliance
with any term contained in this Certificate of Designations, the
Securities Purchase Agreement, or the Registration Rights Agreement
(other than those referred to in
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subparagraph (iv) above) and such default is not remedied within 30
days after the earlier of (A) an officer of the Company obtaining
actual knowledge of such default and (B) the Company receiving written
notice of such default from any holder of Preferred Shares; or
(viii) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in any
agreement, document, certificate or instrument furnished in connection
with the Securities Purchase Agreement or the transactions
contemplated thereby proves to have been false or incorrect in any
material respect on the date as of which made, provided however, that
the holders of Preferred Shares agree that there shall not be an Event
of Default hereunder based upon a claim that any projections prepared
by the Company were materially misleading so long as at the time such
projections were prepared, the Company had a reasonable basis for
making such projections.
(b) REDEMPTION NOTICES. Within one (1) day after the occurrence of an
Event of Default or upon notice of an event which would constitute an Event of
Default, the Company shall deliver written notice thereof via facsimile and
overnight courier ("DEFAULT NOTICE") to each holder of Preferred Shares. At any
time after the earlier of a holder's receipt of a Default Notice and such holder
becoming aware of an Event of Default, any holder of Preferred Shares then
outstanding may require the Company to redeem any or all of the Preferred Shares
by delivering written notice thereof via facsimile and overnight courier
("NOTICE OF REDEMPTION") to the Company, which Notice of Redemption shall
indicate (i) the number of Preferred Shares that such holder is electing to
redeem and (ii) the aggregate Redemption Price. Upon the Company's receipt of a
Notice of Redemption from any holder of Preferred Shares, the Company shall
immediately notify each other holder of Preferred Shares by facsimile of the
Company's receipt of such notice.
(c) PAYMENT OF REDEMPTION PRICE. Each holder which has sent a Notice of
Redemption to the Company shall promptly submit to the Company such holder's
stock certificates representing Preferred Shares which such holder has elected
to have redeemed. The Company shall deliver the Redemption Price to such holder
within five business days after the Company's receipt of a Notice of Redemption;
provided that a holder's stock certificates representing Preferred Shares shall
have been so delivered to the Company. If the Company is unable to redeem all of
the Preferred Shares submitted for redemption, the Company shall (i) redeem a
pro rata amount from each holder of Preferred Shares based on the number of
Preferred Shares submitted for redemption by such holder relative to the total
number of Preferred Shares submitted for redemption by all holders of Preferred
Shares and (ii) in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations or otherwise, pay to each holder
interest at the rate of 2.5% per month (prorated for partial months) in respect
of each unredeemed Preferred Share until paid in full.
(d) VOID REDEMPTION. Notwithstanding the foregoing provisions of this
Section 4, if the Company receives a Notice of Redemption in connection with an
Event of Default arising out of the occurrence of an event described in clause
(i), (iii) or (vi) of Section 4(a), and such occurrence is by reason of events
which are not solely within the control of the Company,
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the Company shall not be required to effect any redemption of the Preferred
Shares pursuant to such notice; provided, that the Company shall be required to
provide the holder submitting such Notice of Redemption with (i) a certificate
of the Company's Chief Financial Officer stating that (x) the Event of Default
in question has occurred by reason of events which are not solely within the
control of the Company and (y) the redemption of the Preferred Shares in
connection with such Event of Default would result in the Company being required
to classify the Series A Preferred Stock as redeemable preferred stock on a
balance sheet of the Company prepared in accordance with generally accepted
accounting principles and practices ("GAAP") and (ii) an Auditors Determination
(as defined below). For purposes hereof, an "AUDITORS DETERMINATION" means a
determination requested by the Company and signed by the Company's independent
accounting firm (the "AUDITORS") concurring with the Company's conclusion that a
requirement of the Company to redeem, or a right of any holder of Preferred
Shares to require redemption of, Preferred Shares by reason of the occurrence of
an Event of Default described in clause (i), (iii) or (vi) of Section 4(a) would
result in the Company being required to classify the Series A Preferred Stock as
redeemable preferred stock on a balance sheet of the Company in accordance with
GAAP. The Auditors Determination shall (1) set forth in reasonable detail all
relevant facts considered by the Auditors in connection therewith, (2) set forth
all applicable accounting principles and assumption used, and (3) set forth in
reasonable detail or attach copies of all legal, expert and other advice or
information used by the Auditors in reaching their conclusion. To the extent any
facts are assumed for purposes of either the Company's conclusion or the
Auditors Determination, the validity of such conclusion or determination shall
depend upon such assumed facts being true and complete in all material respects.
In the event that the Company is not obligated to redeem Preferred Shares as a
result of the application of the provisions of this Section 4(d), the holder of
such Preferred Shares shall have the right to rescind such holder's Notice of
Redemption as provided in Section 4(e) below.
(e) REDEMPTION RESCISSION. In the event that (x) the Company does not
pay the Redemption Price within the time period set forth in Section 4(c), or
(y) the Company has voided a holder's request for redemption of Preferred Shares
pursuant to Section 4(d), a holder of Preferred Shares shall have the option
(the "RESCIND REDEMPTION OPTION") to, in lieu of redemption, require the Company
to promptly return to such holder any or all of the Preferred Shares that were
submitted for redemption by such holder under this Section 4 and for which the
applicable Redemption Price (together with any interest thereon) has not been
paid, by sending written notice thereof to the Company via facsimile (the
"RESCIND REDEMPTION NOTICE"). Upon the Company's receipt of such Rescind
Redemption Notice, (i) the Notice of Redemption shall be null and void with
respect to those Preferred Shares subject to the Rescind Redemption Notice, (ii)
the Company shall immediately return any Preferred Shares subject to the Rescind
Redemption Notice to the holder, (iii) the holder of such Preferred Shares
shall, on any date thereafter at such holder's option, be entitled to convert
all or any portion of such holder's Preferred Shares (including accrued and
unpaid dividends thereon plus any Default Interest) for shares of Common Stock
at the Conversion Price and (iv) the dividend rate on the Preferred Shares set
forth in Section 2 shall be increased to 24% per annum. Any conversion of
Preferred Shares in connection with the preceding clause (iii) may be made by a
holder on any date by delivery of a facsimile notice setting out the number of
Preferred Shares (including accrued and unpaid dividends thereon plus any
Default Interest) to be converted on such date and the calculation of the
Conversion Price.
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The Company shall deliver shares of Common Stock in respect of any such
conversion within three (3) Business Days following receipt of such notice.
(f) MISCELLANEOUS. A holder's delivery of a Rescind Redemption Notice
and exercise of its rights following such notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 4 of less than all
of the Preferred Shares represented by a particular preferred stock certificate,
the Company shall promptly cause to be issued and delivered to the holder of
such Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been redeemed.
(5) OTHER RIGHTS OF HOLDERS.
(a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person (as
defined below) or other transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person or (ii) other Organic Change following which the Company
is not a surviving entity, to the extent that holders of Preferred Shares have
not elected to be redeemed pursuant to the provisions of Section 5(b), the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a
written agreement (in form and substance satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to deliver to each holder of
Preferred Shares in exchange for such shares, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Preferred Shares, including, without limitation, having a stated value and
liquidation preference equal to the Stated Value and the Liquidation Preference
of the Preferred Shares held by such holder, and satisfactory to the holders of
a majority of the Preferred Shares then outstanding. Prior to the consummation
of any other Organic Change, the Company shall make appropriate provision (in
form and substance satisfactory to the holders of a majority of the Preferred
Shares then outstanding) to insure that each of the holders of the Preferred
Shares will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares at the Conversion Price). For
purposes hereof, a "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
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(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. In addition to the
rights of the holders of Preferred Shares under Section 5(a), upon a Change of
Control (as defined below) of the Company, each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to redeem all or
a portion of such holder's Preferred Shares at a price per Preferred Share equal
to the Redemption Price. No sooner than 15 days nor later than 10 days prior to
the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "NOTICE OF CHANGE OF CONTROL") to
each holder of Preferred Shares. At any time during the period beginning after
receipt of a Notice of Change of Control (or, in the event a Notice of Change of
Control is not delivered at least 10 days prior to a Change of Control, at any
time on or after the date which is 10 days prior to a Change of Control) and
ending on the date of such Change of Control, any holder of the Preferred Shares
then outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION UPON CHANGE OF
CONTROL") to the Company, which Notice of Redemption Upon Change of Control
shall indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the aggregate Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption Upon Change of Control from any holder of
Preferred Shares, the Company shall promptly, but in no event later than one (1)
business day following such receipt, notify each holder of Preferred Shares by
facsimile of the Company's receipt of such Notice(s) of Redemption Upon Change
of Control. The Company shall deliver the aggregate Redemption Price to which a
holder is entitled simultaneously with the consummation of the Change of
Control; provided that, a holder's stock certificates representing the Preferred
Shares being redeemed shall have been so delivered to the Company. Payments
provided for in this Section 5(b) shall have priority to payments to other
stockholders in connection with a Change of Control. For purposes of this
Section 5(b), "CHANGE OF CONTROL" means (i) the consolidation, merger or other
business combination of the Company with or into another Person which action
requires the approval of the Company's Board of Directors (other than (A) a
consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets, or (iii) a
purchase, tender or exchange offer made to and accepted by the holders of more
than 30% of the outstanding shares of Common Stock which action requires the
approval of the Company's Board of Directors.
(6) PURCHASE RIGHTS. If at any time the Company grants, issues or sells
any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the holders of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the
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Preferred Shares) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase
Rights.
(7) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of the Stated Value
plus accrued and unpaid dividends and Default Interest thereon (such sum being
referred to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "PARI PASSU Shares"), then each holder of Preferred
Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full amount of
Liquidation Funds payable to all holders of Preferred Shares and Pari Passu
Shares. The purchase or redemption by the Company of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other Person, nor the sale or transfer
by the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Preferred Shares shall be entitled to receive any amounts
with respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein; provided that a holder of
Preferred Shares shall be entitled to all amounts previously accrued with
respect to amounts owed hereunder.
(8) PREFERRED RANK. All shares of capital stock (other than Preferred
Shares) shall be of junior rank to the Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. The rights of all such shares of capital stock
shall be subject to the preferences and relative rights of the Preferred Shares.
Without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or issue additional or other capital stock that is of senior
or equal rank to the Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. Without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or make any amendment to the Company's Certificate
of Incorporation or bylaws, or file any resolution of the board of directors of
the Company with the Utah Secretary of State or enter into any agreement
containing any provisions, which would adversely affect or otherwise impair the
rights or relative priority of the holders of the Preferred Shares relative to
the holders of the
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Common Stock or the holders of any other class of capital stock. In the event of
the merger or consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(9) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the
Preferred Shares have been converted or redeemed as provided herein, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, its Common Stock without the prior express written consent
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares.
(10) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative vote
at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for any change to this
Certificate of Designations or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares.
(11) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any stock certificates representing the Preferred Shares, and,
in the case of loss, theft or destruction, of any indemnification undertaking by
the holder to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of the stock certificate(s) representing the
Preferred Shares, the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(12) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an
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injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
(13) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all Buyers and shall
not be construed against any person as the drafter hereof.
(14) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(15) PAYMENTS. Any payments to be made hereunder shall be made by check
or wire transfer of immediately available funds to the address, account or
accounts of record of the holders of Preferred Shares on the books of the
Company or to such other address, account or accounts as the holders of
Preferred Shares shall notify the Company in writing from time to time.
(16) REDEMPTION BY THE COMPANY.
(a) MANDATORY AND OPTIONAL REDEMPTIONS. Subject to the provisions of
this Section 16, the Company may, at its option, upon notice as provided below,
redeem all or any part of, the Preferred Shares on a pro-rata basis (based upon
the Stated Value of Preferred Shares outstanding at the time of redemption);
provided that the Company must redeem at least fifty percent (50%) of the Stated
Value of the Preferred Shares within twelve (12) months after the Closing Date
(as defined in the Securities Purchase Agreement). Any redemption of the
Preferred Shares shall be made at a price equal to 110% of the Stated Value so
redeemed, plus accrued but unpaid dividends to the date of redemption and
Default Interest thereon. The redemption may be made in cash or (no more often
than once in each period of twenty (20) consecutive days during which securities
are normally traded on the Principal Market (a "TRADING DAY")) by issuance of a
number of shares of Common Stock determined by dividing the redemption amount by
ninety five percent (95%) of the average of the Closing Bid Prices of the Common
Stock for the twenty (20) consecutive Trading Days immediately preceding the
date of the Company's notice of redemption described below in subsection 16(b).
Notwithstanding the foregoing, the Company must redeem the Preferred Shares in
cash (to the extent such redemption is required) if (i) any event constituting
an Event of Default, or an event that with the passage of time would constitute
an Event of Default if not cured, has occurred and is continuing on the date of
the Company's notice of redemption as provided in Section 16(b) below or on the
date of redemption, unless otherwise consented to in writing by the holder of
the Preferred Shares entitled to receive such redemption, or (ii) the
Registration Statement has not been declared effective by the SEC on or before
the date of redemption. To the extent the Company elects or is required to
redeem the Preferred Shares as provided in this Section 16, the Company shall
also prepay a proportional amount of Notes (as defined in the Securities
Purchase Agreement) (based upon the unpaid principal amount of the Notes
outstanding relative to the Stated Value of the Preferred Shares outstanding) as
required pursuant to Section 8 of the Securities Purchase Agreement.
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b. NOTICE OF REDEMPTION. The Company will give each holder of Preferred
Shares two (2) Trading Days prior written notice of each optional or mandatory
redemption pursuant to Section 16(a). Any such redemption notice given by the
Company shall be irrevocable. Each such notice shall specify the redemption date
(which date shall not be more than three (3) Trading Days following the date of
the redemption notice), the aggregate Stated Value of Preferred Shares to be
redeemed on such date, and the accrued and unpaid dividend amount plus any
Default Interest with respect to the Preferred Shares being redeemed.
c. ALLOCATION OF PARTIAL REDEMPTION. In the case of any partial
redemption of the Preferred Shares pursuant to Section 16(a), the proceeds of
such redemption shall be applied pro-rata (based upon the aggregate Stated Value
of each Preferred Share then outstanding) to the Preferred Shares then
outstanding. To the extent any holder of Preferred Shares receives more than its
pro-rata portion of any such redemption, it shall immediately turn over to the
other holders of Preferred Shares, their respective portion of such redemption.
d. EFFECT OF REDEMPTION; SURRENDER, ETC. In the case of each redemption
of Preferred Shares pursuant to Section 16(a), each Preferred Share to be
redeemed shall become due and payable on the date fixed for such redemption,
together with dividends on such Preferred Share accrued to such date. From and
after such date, unless the Company shall fail to pay such amount when so due
and payable, together with the dividends as aforesaid, dividends on such amount
shall cease to accrue. Any Preferred Share redeemed in full shall be surrendered
to the Company and canceled and shall not be reissued, and no Preferred Share
shall be issued in lieu of any Preferred Share redeemed pursuant to the
provisions of this Section 16.
e. LIMIT ON REDEMPTION AMOUNTS. Notwithstanding anything to the
contrary set forth in this Section 16, the aggregate principal amount of Notes
together with the Stated Value of Preferred Shares to be prepaid and redeemed by
the Company at any one time shall be limited to an aggregate amount that would
result in the issuance of shares of Common Stock not in excess of 200% of the
average daily trading volume of the Common Stock on the Principal Market as
reported by Bloomberg over the period of 20 consecutive Trading Days ending on
the trading day immediately preceding the Company's notice of redemption
delivered pursuant to Section 16(b).
(17) LIMITATION ON ISSUANCE OF COMMON STOCK. Notwithstanding anything
to the contrary set forth herein, the issuance of shares of Common Stock
pursuant to the terms hereof (including, without limitation, Sections 3, 4, 5
and 16), whether upon conversion, redemption or otherwise, shall be subject to
the provisions of Section 4.4 of the Securities Purchase Agreement.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Gary S. Kehoe, its President, as of the 28th day of
May 1999.
GUM TECH INTERNATIONAL, INC.
By: /s/ Gary S. Kehoe
---------------------------------
Name: Gary S. Kehoe
Its: President
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WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO
COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
GUM TECH INTERNATIONAL, INC.
WARRANT TO PURCHASE COMMON STOCK
Date of Issuance: June 2, 1999 Number of Shares:
----------
Gum Tech International, Inc., a Utah corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Mountain Time on the
Expiration Date (as defined herein) _______________________ (________) fully
paid and nonassessable shares of Common Stock (as defined herein) of the Company
(the "WARRANT SHARES") at the purchase price per share provided in Section 1(b)
below.
SECTION 1.
(a) SECURITIES PURCHASE AGREEMENT. This Warrant is one of the Warrants (the
"WARRANTS") issued pursuant to Section 1(a) of that certain Securities Purchase
Agreement dated as of June 2, 1999, among the Company and the Buyers referred to
therein (the "SECURITIES PURCHASE AGREEMENT").
(b) DEFINITIONS. The following words and terms as used in this Warrant
shall have the following meanings:
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(i) "APPROVED STOCK PLAN" shall mean any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director,
consultant or other service provider for services provided to the Company.
(ii) "CERTIFICATE OF DESIGNATIONS" means the Company's Certificate of
Designations, Preferences and Rights of the Preferred Shares.
(iii) "CHANGE OF CONTROL" shall have the meaning ascribed to such term
in the Securities Purchase Agreement.
(iv) "CLOSING BID PRICE" means, for any security as of any date, the
last closing bid price for such security on the Principal Market (as defined
below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the
Principal Market is not the principal trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of the Warrants. If the Company and the holders of the Warrants
are unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(a) of this Warrant with the term
"Closing Bid Price" being substituted for the term "Market Price."
(v) "COMMON STOCK" means (i) the Company's common stock, no par value
per share, and (ii) any capital stock into which such Common Stock shall have
been changed or any capital stock resulting from a reclassification of such
Common Stock.
(vi) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as defined below)
or Convertible Securities (as defined below) are actually exercisable or
convertible at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the Warrants.
(vii) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) directly or indirectly convertible into or exchangeable for Common
Stock.
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(viii) "EXPIRATION DATE" means the date three (3) years from the date
of this Warrant or, if such date falls on a Saturday, Sunday or other day on
which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"HOLIDAY"), the next date that is not a Holiday.
(ix) "MARKET PRICE" means, with respect to any security for any period,
that price which shall be computed as the arithmetic average of the Closing Bid
Prices for such security for each trading day in such period. (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
(x) "NOTES" means the Eight Percent (8%) Senior Secured Redeemable
Notes of the Company issued pursuant to the Securities Purchase Agreement.
(xi) "OPTIONS" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(xii) "OTHER SECURITIES" means (i) any Convertible Securities or
Options of the Company issued prior to, and outstanding on, the date of issuance
of this Warrant (including Common Stock issuable upon conversion or exercise
thereof) or disclosed in Schedule 3(c) to the Securities Purchase Agreement,
(ii) those securities issued pursuant to the terms of the Company's Stock Option
Plans existing on the date of issuance of this Warrant or the successor plan
identified on Schedule 3(c) to the Securities Purchase Agreement, (iii) the
Preferred Shares and (iv) the shares of Common Stock issued upon conversion,
redemption or payment, as the case may be, of the Preferred Shares and the
Notes.
(xiii) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xiv) "PREFERRED SHARES" means the shares of the Company's Series A
Preferred Stock issued pursuant to the Securities Purchase Agreement.
(xv) "PRINCIPAL MARKET" means the Nasdaq National Market.
(xvi) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(xvii) "WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xviii) "WARRANT EXERCISE PRICE" shall be the price per Warrant Share
equal to $12.44.
(xix) "WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of this Warrant.
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SECTION 2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof and the provisions of
Section 4.4 of the Securities Purchase Agreement, this Warrant may be exercised
by the holder hereof then registered on the books of the Company, in whole or in
part, at any time on any business day on or after the opening of business on the
date hereof and prior to 11:59 P.M. Mountain Time on the Expiration Date by (i)
delivery of a written notice, in the form of the subscription notice attached as
EXHIBIT A hereto (the "EXERCISE NOTICE"), of such holder's election to exercise
this Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii) (A) payment to the Company of an amount equal to the Warrant
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"AGGREGATE EXERCISE PRICE") in cash or by check or wire transfer or (B) by
notifying the Company that it should (x) subtract from the number of Warrant
Shares issuable to the holder upon such exercise an amount of Warrant Shares
having a last reported Closing Bid Price on the date immediately preceding the
date of the subscription notice equal to the Aggregate Exercise Price of the
Warrant Shares for which this Warrant is being exercised or (y) subtract an
amount equal to the Aggregate Exercise Price first from accrued and unpaid
interest on the Notes (as defined in the Securities Purchase Agreement), if any,
and second from the principal amount of the Notes held by such holder or (z)
subtract an amount equal to the Aggregate Exercise Price from any accrued but
unpaid dividends on the Preferred Shares (the "DIVIDEND REDUCTION AMOUNT") and
then reduce the number of Preferred Shares by that number of Preferred Shares
which is equivalent to the Aggregate Exercise Price less the Dividend Reduction
Amount divided by $1,000 (in each case on a pro rata basis and in the case of a
reduction in the number of Preferred Shares, rounded to the nearest whole
number) (the provisions of subsections (x), (y) and (z), collectively, a
"CASHLESS EXERCISE"), and (iii) the surrender to a common carrier for delivery
to the Company as soon as practicable following such date, this Warrant and, to
the extent that the provisions of Sections (y) and (z) of the Cashless Exercise
described above are invoked, the Notes or Preferred Shares, as applicable (or an
indemnification undertaking with respect to this Warrant and the Notes or
Preferred Shares, if applicable, in the case of their loss, theft or
destruction); provided, that if the Warrant Shares are to be issued in any name
other than that of the registered holder of this Warrant, such issuance shall be
deemed a transfer and the provisions of Section 7 shall be applicable. In the
event of any exercise of the rights represented by this Warrant in compliance
with this Section 2(a), a certificate or certificates for the Warrant Shares so
purchased, in such denominations as may be requested by the holder hereof and
registered in the name of, or as directed by, the holder, shall be delivered at
the Company's expense to, or as directed by, such holder as soon as practicable,
and in no event later than three business days, after the Company's receipt of
the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction). To the extent that the provisions of Sections (y)
or (z) of the Cashless Exercise described above are invoked and Notes or
Preferred Shares have been surrendered together with this Warrant, replacement
Notes or Preferred Shares shall be returned to the holders thereof in accordance
with the terms of the Securities Purchase Agreement and Certificate of
Designations of the Company's Series A Preferred Shares, as applicable. Upon
delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A) above or notification to the Company of a Cashless Exercise
referred to in clause (ii)(B) above, the holder of this Warrant shall be
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deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date of delivery of this Warrant as required by clause (iii)
above or the certificates evidencing such Warrant Shares. In the case of a
dispute as to the determination of the last reported Closing Bid Price or the
Market Price of a security or the arithmetic calculation of the Warrant Shares,
the Company shall promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within two business days of
receipt of the holder's subscription notice. If the holder and the Company are
unable to agree upon the determination of the last reported Closing Bid Price or
Market Price or arithmetic calculation of the Warrant Shares within one day of
such disputed determination or arithmetic calculation being submitted to the
holder, then the Company shall immediately submit via facsimile (i) the disputed
determination of the last reported Closing Bid Price or the Market Price to an
independent, reputable investment banking firm or (ii) the disputed arithmetic
calculation of the Warrant Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the holder of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment banking
firm's or accountant's determination or calculation, as the case may be, shall
be deemed conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in no event later than seven business days after any exercise and at its own
expense, issue a new Warrant identical in all respects to this Warrant exercised
except it shall represent rights to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant exercised,
less the number of Warrant Shares with respect to which such Warrant is
exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason (other than as provided in
Section 2(e)) or for no reason to issue to the holder on a timely basis as
described in this Section 2, a certificate for the number of shares of Common
Stock to which the holder is entitled upon the holder's exercise of this Warrant
or a new Warrant for the number of shares of Common Stock to which such holder
is entitled pursuant to Section 2(b) hereof, the Company shall, in addition to
any other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, including any indemnification under Section
8 of the Securities Purchase Agreement, pay as additional damages in cash to
such holder for each day the issuance of such Common Stock certificate or new
Warrant, as the case may be, is not timely effected an amount equal to .0025 of
the product of (A) the sum of the number of shares of Common Stock not issued to
the holder on a timely basis and to which the holder is entitled and/or, the
number of shares represented by the portion of this Warrant which is not being
converted, as the case may be, and (B) the Closing Bid Price of the Common Stock
on such day. The payments to which a holder shall be entitled pursuant to this
Section 2(d) are referred to herein as "WARRANT DELAY
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PAYMENTS." Warrant Delay Payments shall be paid on the earlier of (I) the last
day of the calendar month during which such Warrant Delay Payments are incurred
and (II) the third business day after the event or failure giving rise to the
Warrant Delay Payments is cured. In the event the Company fails to make Warrant
Delay Payments in a timely manner, such Warrant Delay Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full. If the Company fails to pay the Warrant Delay Payments, including any
interest thereon, within 15 business days of the date such Warrant Delay
Payments are due, then the holder entitled to such payments shall have the right
at any time, so long as the Company continues to fail to make such payments, to
require the Company, upon written notice, to immediately issue, in lieu of the
Warrant Delay Payments, including any interest thereon, the number of shares of
Common Stock equal to the quotient of (X) the sum of the Warrant Delay Payments
and all interest accrued thereon divided by (Y) the lowest Closing Bid Price in
effect during the period beginning on and including the date such written notice
is delivered to the Company and ending on and including the business day
immediately preceding the date such shares of Common Stock are received by the
holder entitled thereto.
(e) In the event that the Company is unable to issue Warrant Shares
upon exercise of this Warrant as a result of the application of Section 4.4 of
the Securities Purchase Agreement, the Company agrees to pay to the holder of
this Warrant an amount of cash equal to the product of (i) the difference
between the Closing Bid Price of the Common Stock on the date of exercise of
this Warrant and the Warrant Exercise Price and (ii) the number of Warrant
Shares for which this Warrant is being exercised. Any payments required by this
Section 2(e) shall be made by the Company within the time periods set out in
Section 2(b) as if the Company were delivering Warrants Shares as opposed to
cash. The other rights and remedies afforded to a holder of Warrants hereunder
shall not be affected by the application of Section 4.4 of the Securities
Purchase Agreement.
SECTION 3. COVENANTS AS TO WARRANTS, WARRANT SHARES AND COMMON STOCK. The
Company hereby covenants and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated
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quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of the
same class shall be listed on such national securities exchange or automated
quotation system.
(e) The Company will not, by amendment of its Certificate 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 to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Warrant Exercise Price then in effect,
and (ii) will take all such actions 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.
SECTION 4. TAXES. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
SECTION 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
SECTION 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted
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under the Securities Act; provided, however, that by making the representations
herein, the holder does not agree to hold this Warrant or any of the Warrant
Shares for any minimum or other specific term and reserves the right to dispose
of this Warrant and the Warrant Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the Securities Act.
The holder of this Warrant further represents, by acceptance hereof, that, as of
this date, such holder is an "accredited investor" as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of
this Warrant, the holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.
SECTION 7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder shall have
delivered to the Company an opinion of counsel, in generally acceptable form, to
the effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration;
provided that (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) neither the Company
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nor any other person is under any obligation to register the Warrants under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for resale
under the Securities Act pursuant to the Registration Rights Agreement dated as
of even date herewith by and between the Company and the Buyers listed on the
signature page thereto (the "REGISTRATION RIGHTS AGREEMENT") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
SECTION 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. If and whenever on or after the date of issuance of
this Warrant, the Company issues or sells, or in accordance with Section 8(b) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
Market Price of the Common Stock for the five (5) consecutive trading days
immediately preceding the date of such issue or sale (the "APPLICABLE PRICE"),
then immediately after such issue or sale the Warrant Exercise Price then in
effect shall be reduced to an amount equal to the product of (x) the Warrant
Exercise Price in effect immediately prior to such issue or sale and (y) the
quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such issue or sale, by (2)
the product derived by multiplying the (I) Applicable Price by (II) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
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time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 8(b)(i) to the extent that
such adjustment is based solely on the fact that the Convertible Securities
issuable upon exercise of such Option are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common Stock.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8(b)(ii) to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Warrant Exercise Price in effect at
the time of such change shall be adjusted to the Warrant Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of shares of Common Stock acquirable hereunder
shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if
the terms of any Option or Convertible Security that was
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outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect except to the extent the
original grant, issuance or sale of such option or convertible security resulted
in a decrease of the Warrant Exercise Price then in effect.
(c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price of such securities for the twenty (20) consecutive
trading days immediately preceding the date of receipt. If any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.
(ii) RECORD DATE. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon
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the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(e) DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other transaction) (a "DISTRIBUTION"), at any time after the
issuance of this Warrant, then, in each such case:
(i) the Warrant Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced, effective as
of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Bid Price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing Bid Price on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
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(f) CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 8 (other than an issuance of securities pursuant to
an Approved Stock Plan or upon the issuance or sale of shares of Common Stock
upon issuance, exercise or conversion of the Other Securities) but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Warrant Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant so as to protect the rights of
the holders of the Warrants; provided that no such adjustment will increase the
Warrant Exercise Price or decrease the number of shares of Common Stock
obtainable as otherwise determined pursuant to this Section 8.
(g) NOTICES.
(i) Immediately upon any adjustment of the Warrant Exercise Price
or the number of Warrant Shares, the Company will give written notice thereof to
the holder of this Warrant, setting forth in reasonable detail, and certifying,
the calculation of such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
(h) DE MINIMIS ADJUSTMENTS. Notwithstanding anything to the contrary in
this Section 8, no adjustment in the number of Warrant Shares or the Warrant
Exercise Price shall be required unless such adjustment would result in an
increase or decrease of at least one percent (1%) of the Warrant Exercise Price;
PROVIDED that any adjustments which by reason of this Subsection 8(h) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the nearest cent or to
the nearest one-thousandth of a share, as the case may be.
SECTION 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE. (a) In addition to any adjustments pursuant to
Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable
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upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) cash, stock, securities or other assets with respect to
or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior
to the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") written agreement (in form and substance
satisfactory to the holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Warrants then outstanding) to
deliver to each holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants. Prior to the consummation of any other Organic Change, the Company
shall make appropriate provision (in form and substance satisfactory to the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding) to insure that each
of the holders of the Warrants will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Warrants, such cash, shares of stock, securities or other assets
that would have been issued or payable in such Organic Change with respect to or
in exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change.
SECTION 10. REDEMPTION OF NUMBER OF WARRANT SHARES. Commencing one year
from the original date of issuance of this Warrant, on any day immediately
following at least twenty (20) consecutive trading days during which the Closing
Bid Price of the Common Stock on each trading day during such twenty (20)
consecutive trading days exceeds 150%, 200% or 250%, respectively, of the
average Closing Bid Price of the Common Stock for the twenty (20) trading days
immediately preceding the original date of issuance of this Warrant, the Company
shall have the right, in its sole discretion, to reduce the number of Warrant
Shares subject to this Warrant by one-third, two-thirds or all, respectively
("REDEMPTION AT COMPANY'S ELECTION"); provided that the Conditions to Redemption
at the Company's Election (as set forth below) and the other terms of this
Section 10 are satisfied. The Company shall exercise its right to Redemption at
Company's Election by providing each holder of Warrants written notice ("NOTICE
OF REDEMPTION AT COMPANY'S ELECTION") within 5 days following occurrence of any
of the events described in the immediately preceding sentence. If the Company
elects to require redemption of some, but not all, of the Warrant Shares subject
to redemption at such time, the Company shall redeem an amount from each holder
of Warrant Shares equal to such holder's pro rata amount (based on the number of
such Warrant Shares held by such holder relative to the number of such Warrant
Shares outstanding on date of the
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Company's delivery of the Notice of Reduction at Company's Election) of all
Warrant Shares the Company is requiring to be redeemed. The Notice of Redemption
at Company's Election shall indicate (x) the number of Warrant Shares the
Company has selected for redemption, (y) the date selected by the Company for
redemption (the "COMPANY'S ELECTION REDEMPTION DATE"), which date shall be not
less than 10 or more than 15 trading days after each holder's receipt of such
notice, and (z) each holder's pro rata share of outstanding Warrant Shares the
Company is requiring to be redeemed. "CONDITIONS TO REDEMPTION AT THE COMPANY'S
ELECTION" means the following conditions: (i) on each day during the period
beginning 25 days prior to the date of the Company's Notice of Redemption at
Company's Election and ending on and including the Company's Election Redemption
Date, the Registration Statement shall be effective and available for the sale
of no less than 100% of the Underlying Shares (as defined in the Securities
Purchase Agreement); (ii) on each day during the period beginning on and
including the date which is 25 trading days prior to the date of the Company's
Notice of Redemption at Company's Election and ending on and including the
Company's Election Redemption Date, the Common Stock is/was authorized for
quotation on the Nasdaq National Market or listed on the American Stock Exchange
or the New York Stock Exchange, Inc. and was/is not suspended from trading;
(iii) neither an Event of Default (as defined in each of the Certificate of
Designations and the Securities Purchase Agreement, respectively) with respect
to the Preferred Shares or the Notes nor any event that with the passage of time
would constitute an Event of Default (assuming it was not cured) shall have
occurred; (iv) during the period beginning on the original date of issuance of
this Warrant and ending on and including the Company's Election Redemption Date,
there shall not have occurred the consummation of any Organic Change or a public
announcement of a pending Organic Change which has not been abandoned or
terminated; and (v) the Company otherwise has satisfied its obligations and is
not in material default under this Warrant, the Notes, the Certificate of
Designations, the Securities Purchase Agreement or the Registration Rights
Agreement.
SECTION 11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking, issue a new Warrant of like denomination and
tenor as this Warrant so lost, stolen, mutilated or destroyed.
SECTION 12. NOTICE. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
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If to the Company:
Gum Tech International, Inc.
246 East Watkins Street
Phoenix AZ 85004
Telephone: (602) 252-1617
Facsimile: (602) 252-6650
Attention: Chief Financial Officer
With copy to:
Snell & Wilmer
One Arizona Center
Phoenix AZ 85004
(602) 382-6000
(602) 382-6070
Richard Stagg, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
SECTION 13. AMENDMENT AND WAIVER. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no such
action may increase the Warrant Exercise Price of the Warrants or decrease the
number of shares or class of stock obtainable upon exercise of any Warrants
without the written consent of the holder of such Warrant.
SECTION 14. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Utah shall govern all issues concerning the relative rights
of the Company and its stockholders. All other questions concerning
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the construction, validity, enforcement and interpretation of this Warrant shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
GUM TECH INTERNATIONAL, INC.
By: /s/ Gary S. Kehoe
------------------------------------
Name: Gary S. Kehoe
Title: President
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EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
GUM TECH INTERNATIONAL, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Gum Tech
International, Inc. a Utah corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to
_______________________ Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to
___________________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant. In the event that the
holder has elected a Cashless Exercise with respect to some or all of the
Warrant Shares to be issued pursuant hereto, the holder agrees to have the
Aggregate Exercise Price (as defined in the Warrant) offset against (i) the
number of Warrant Shares deliverable hereunder, (ii) the principal and interest,
if any, on such holder's Notes (as defined in the Warrant), or (iii) accrued but
unpaid dividends on, and the number of, such holders Preferred Shares (as
defined in the Warrant), each as more fully specified in the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
- --------------------------------
Name of Registered Holder
By:
-----------------------------
Name:
Title:
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EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, a warrant to purchase ____________ shares of the capital stock
of Gum Tech International, Inc., a _______ corporation, represented by warrant
certificate no. _____, standing in the name of the undersigned on the books of
said corporation. The undersigned does hereby irrevocably constitute and appoint
______________, attorney to transfer the warrants of said corporation, with full
power of substitution in the premises.
Dated: _________, 199_
------------------------------------
By: _____________________________
Its: _____________________________
-19-
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 2
1999, by and among Gum Tech International, Inc., a Utah corporation, with
headquarters located at 246 East Watkins Street, Phoenix AZ 85004 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the
"BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto dated as of even date herewith (the "SECURITIES PURCHASE
AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to the Buyers
the Company's (i) eight percent (8%) Senior Secured Redeemable Notes (the
"NOTES"), (ii) Series A Preferred Stock (the "PREFERRED SHARES"), and (iii)
Common Stock Purchase Warrants (the "WARRANTS"); and
B. The Warrants may be exercised by the holders thereof to purchase
shares (the "WARRANT SHARES") of the Company's common stock, no par value per
share (the "COMMON STOCK"), and, under certain circumstances, (i) the Notes
and/or Preferred Shares may be redeemed for shares of Common Stock ("REDEMPTION
SHARES") and (ii) the Company may pay interest on the Notes in shares of Common
Stock (the "COUPON SHARES"); and
C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "INVESTOR" means a Buyer, any transferee or assignee thereof to whom
a Buyer assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
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c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933
Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Redemption Shares, the Coupon
Shares and the Warrant Shares and any shares of capital stock issued or issuable
with respect to the Redemption Shares, the Coupon Shares, the Warrant Shares,
the Notes, the Preferred Shares or the Warrants as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, as soon as
practicable but in no event later than 30 days after the date of issuance of the
relevant Notes, Preferred Shares and Warrants, file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3 covering the
resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(d).
The initial Registration Statement prepared pursuant hereto shall register for
resale at least 1,000,000 shares of Common Stock, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than 120 days after the issuance of the relevant Notes,
Preferred Shares and Warrants.
b. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
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c. LEGAL COUNSEL. Subject to Section 5 hereof, the Buyers holding a
majority of the Registrable Securities shall have the right to select one legal
counsel to review and oversee any offering pursuant to this Section 2 ("LEGAL
COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
d. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
e. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities or an Investor's
allocated portion of the Registrable Securities pursuant to Section 2(b), the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover all of such Registrable Securities (based on the market price of the
Common Stock), in each case, as soon as practicable, but in any event not later
than fifteen (15) days after the necessity therefor arises. The Company shall
use it best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of the
Registrable Securities" if at any time the number of Registrable Securities
issued or issuable upon (i) redemption of or payment of interest on the Notes,
(ii) redemption of the Preferred Shares and (iii) exercise of the Warrants is
greater than the quotient determined by dividing (x) the number of shares of
Common Stock available for resale under such Registration Statement by (y) 1.25.
f. EFFECT OF FAILURE TO OBTAIN AND MAINTAIN EFFECTIVENESS OF
REGISTRATION STATEMENT. If (i) the Registration Statement covering all the
applicable Registrable Securities required to be filed by the Company pursuant
to this Agreement is not (A) filed with the SEC within thirty (30) days
following the Closing Date (as defined in the Securities Purchase Agreement)
(the "FILING DEADLINE") or (B) declared effective by the SEC within one hundred
and twenty (120) days following the Closing Date (the "EFFECTIVENESS DEADLINE")
or (ii) on any day after the Registration Statement has been declared effective
by the SEC sales of all the Registrable Securities required to be included on a
Registration Statement cannot be made pursuant to the Registration Statement
(including, without limitation, because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, or to register sufficient shares
of Common Stock), then, subject to Section 3(u), as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each
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holder of Registrable Securities an amount in cash equal to the product of (I)
.0025 multiplied by (II) the sum of (a) the aggregate principal amount of Notes
held by such holder plus any accrued and unpaid interest thereon plus (b) the
aggregate Stated Value (as defined in the Certificate of Designation) of the
Preferred Shares held by such holder plus any accrued and unpaid dividends
thereon plus (c) the aggregate exercise price of the Warrant Shares receivable
upon exercise of the Warrants held by such holder plus (d) the product of (1)
the sum of the number of Redemption Shares, Coupon Shares and Warrant Shares
held by such holder multiplied by (2) the average of the Closing Sale Prices (as
defined in the Warrant) of the Common Stock during any period for which a
Registration Delay Payment (as defined below) is required to be made multiplied
by (III) the sum of (x) the number of days after the Filing Deadline that such
Registration Statement is not filed with the SEC, PLUS (y) the number of days
after the Effectiveness Deadline that the Registration Statement is not declared
effective by the SEC, PLUS (z) the number of days that sales cannot be made
pursuant to the Registration Statement after the Registration Statement has been
declared effective by the SEC. The payments to which a holder shall be entitled
pursuant to this Section 2(f) are referred to herein as "REGISTRATION DELAY
PAYMENTS." Registration Delay Payments shall be paid on the earlier of (I) the
last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third business day after the event or failure giving rise
to the Registration Delayed Payments is cured. In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of 1.5% per month (prorated for partial
months) until paid in full. If the Company fails to pay the Registration Delay
Payments, including any interest thereon, within 15 business days of the date
such Registration Delay Payments are due, then the holder entitled to such
payments shall have the right at any time, so long as the Company continues to
fail to make such payments, to require the Company, upon written notice, to
immediately issue, in lieu of the Registration Delay Payments, including any
interest thereon, the number of shares of Common Stock equal to the quotient of
(X) the sum of the Registration Delay Payments and all interest accrued thereon
divided by (Y) the lowest Closing Bid Price (as defined in the Warrant) in
effect during the period beginning on and including the date such written notice
is delivered to the Company and ending on and including the business day
immediately preceding the date such shares of Common Stock are received by the
holder entitled thereto. Notwithstanding anything to the contrary set forth
herein, no penalties shall accrue pursuant to this Section 2(f) after the date
upon which no Registrable Securities remain outstanding or all of the
Registrable Securities may be sold pursuant to Rule 144(k), whichever occurs
earlier.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(e), the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of any Preferred Shares
for the registration of Registrable Securities pursuant to Section 2(a)) and use
its best efforts to cause such Registration Statement relating to the
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Registrable Securities to become effective as soon as possible after such filing
(but in no event later than 120 days after the issuance of any Preferred Shares
for the registration of Registrable Securities pursuant to Section 2(a)), and
keep such Registration Statement effective pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which (A) the
Investors shall have sold all the Registrable Securities and (B) none of the
Preferred Shares or Warrants is outstanding (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. The term "best efforts" as used in the first
sentence of this Section 3(a) shall mean, among other things, that the Company
shall submit to the SEC, within two business days after the Company learns that
no review of a particular Registration Statement will be made by the staff of
the SEC or that the staff has no further comments on the Registration Statement,
as the case may be, a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than 48 hours after the
submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), the Company shall file such amendments or supplements with the SEC
on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement the Registration Statement.
c. The Company shall permit Legal Counsel to review and comment upon a
Registration Statement and all amendments and supplements thereto within a
reasonable time prior to their filing with the SEC, and not file any document in
a form to which Legal Counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto without the prior approval of Legal Counsel,
which consent shall not be unreasonably withheld. The Company shall furnish to
Legal Counsel, without charge, (i) any correspondence from the SEC or the staff
of the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated
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therein by reference and all exhibits and (iii) upon the effectiveness of any
Registration Statement, one copy of the prospectus included in such Registration
Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits, (ii) upon the effectiveness of any Registration Statement, ten
(10) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as
Legal Counsel or any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. Subject to Section 3(u), as promptly as practicable after becoming
aware of such event, the Company shall notify Legal Counsel and each Investor in
writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness
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shall be delivered to Legal Counsel and each Investor by facsimile on the same
day of such effectiveness and by overnight mail), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. The Company shall furnish to each Investor on the date of the
effectiveness of the Registration Statement (and thereafter from time to time on
such dates as any Investor may reasonably request at such Investor's expense)
(i) an opinion of counsel representing the Company addressed to the Investors
regarding the effectiveness of the Registration Statement and the absence of any
stop order, and (ii) in the case of an underwriting (a) a letter, dated such
date, from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Investors, and
(b) an opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors.
i. The Company shall make available for inspection by (i) any Investor,
(ii) Legal Counsel and (iii) one firm of accountants or other agents retained by
the Investors (collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (b) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge; provided further however, that each Investor agrees to comply
with all applicable provisions of Federal and state securities laws with respect
to trading in securities of the Company to the extent that such Investor
acquires material non-public information concerning the Company or any of its
subsidiaries as a result of the (i) exercise of any remedies provided for
pursuant to this Agreement or (ii) inspections provided in this Section 3(i).
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake
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appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market System or, if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request.
m. The Company shall provide a transfer agent and registrar of all such
Registrable Securities not later than the effective date of such Registration
Statement.
n. If requested by an Investor, the Company shall (i) immediately
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor requests to be included therein relating to the sale
and distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by a holder of such Registrable Securities.
o. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
p. The Company shall make generally available to its security holders
as soon as practical, but not later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
r. Within two (2) business days after the Registration Statement which
includes the Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that the Registration Statement has been declared effective by the
SEC in the form attached hereto as EXHIBIT A.
s. In addition to the Company's obligations under Sections 3(b), 3(f)
and 3(g) and under the 1933 Act, no more than five business days after the last
date of each fiscal quarter of the Company while a Registration Statement is
effective or required to be effective the Company shall deliver to each Investor
a supplement (each a "SUPPLEMENT") to the prospectus included in such
Registration Statement which updates (as of the last date of such fiscal quarter
of the Company) the information contained in the Registration Statement relating
to (i) the total number of Preferred Shares and Warrant Shares outstanding, (ii)
the Conversion Price and Exercise Price, (iii) the total number of shares of
Common Stock issuable upon conversion of all outstanding Preferred Shares, the
exercise of all outstanding Warrants and the payment of the Notes (to the extent
the Company has elected to pay the Notes in Common Stock), (iv) the number of
shares of Common Stock beneficially owned by each Investor whose shares are
included in the Registration Statement, and (v) the number of shares of Common
Stock being offered by each Investor whose shares are included in the
Registration Statement. On or before the third business day prior to the last
day of each fiscal quarter of the Company while a Registration Statement is
effective or required to be effective, the Company shall deliver a written
request to each Investor for information to be included in the Supplement, which
must be delivered to the Company not more than two business days after the last
day of each fiscal quarter. On the date the Company delivers the Supplement to
the Investors, the Company shall file the Supplement with the SEC under Rule
424(b)(3) of the 1933 Act, or if the Supplement may not be filed under Rule
424(b)(3) of the 1933 Act, then under such other applicable provisions of the
1933 Act.
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t. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
u. Notwithstanding anything to the contrary in this Agreement, at any
time after the Registration Statement has been declared effective by the SEC,
the Company may delay the disclosure of material non-public information
concerning the Company, the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company and, in the opinion of counsel to the Company,
otherwise required (a "GRACE PERIOD"); provided, that the Company shall promptly
(i) notify the Investors in writing of the existence of material non-public
information giving rise to a Grace Period (provided that in such notice the
Company shall not disclose the content of such material non-public information
to the Investors) and the date on which the Grace Period will begin, and (ii)
notify the Investors in writing of the date on which the Grace Period ends; and,
provided further, that during any consecutive 365 day period, there shall be not
more than two Grace Periods exceeding 30 days in the aggregate (each such period
an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the holders
receive the notice referred to in clause (i) above and shall end on and include
the later of the date the holders receive the notice referred to in clause (ii)
above and the date referred to in such notice. The provisions of Sections 2(f)
and 3(g) shall not be applicable during the period of any Allowable Grace
Period. Upon expiration of the Grace Period, the Company shall again be bound by
the first sentence of Section 3(f) with respect to the information giving rise
thereto. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Certificate of Designations in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
the notice referred to in clause (i) and for which the Investor has not yet
settled.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has
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notified the Company in writing of such Investor's election to exclude all of
such Investor's Registrable Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f). Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Certificate of
Designations in connection with any sale of Registrable Securities with respect
to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(g) or the first sentence of 3(f) and for which
the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and, subject to the
limitations set forth in Section 4.1(h) of the Securities Purchase Agreement,
fees and disbursements of Legal Counsel, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint
or several, (collectively, "CLAIMS") reasonably incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is or may be
a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which
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Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement by the Company (the matters in the foregoing clauses (i)
through (iv) being, collectively, "VIOLATIONS"). The Company shall reimburse the
Indemnified Persons, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (I) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(d); (II) shall not be available to the extent that such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the prospectus
made available by the Company, if such prospectus was timely made available by
the Company pursuant to Section 3(d); (III) shall not apply to amounts paid by
an Indemnified Person in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; (IV) shall not apply, in the case of claims arising under
subsection (iii) above, to the extent that the Company's violation was the
direct result of an Indemnified Person's willful, deliberate or knowing
violation of any provision of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer and sale of the Registrable
Securities by such Person pursuant to a Registration Statement; and (V) shall
not apply to sales made by an Investor during a Grace Period (assuming the
Company has properly notified the Investor of the existence of such Grace Period
pursuant to Section 3(u) hereof). Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each Person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim
or Indemnified Damages to which any of them may become subject, under the 1933
Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages
arise out of or are based upon any
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Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following
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indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to the
Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements (it being understood that nothing
herein shall limit the Company's obligations under Section 4.1(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
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c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon reasonable request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company provided to its stockholders and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the investors to sell such securities pursuant to
Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
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b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Gum Tech International, Inc.
245 East Watkins Street
Phoenix AZ 85004
Telephone: (602) 252-1617
Facsimile: (602) 252-6650
Attention: Chief Financial Officer
With a copy to:
Snell & Wilmer
One Arizona Center
Phoenix AZ 85004
Telephone: (602) 382-6000
Facsimile: (602) 382-6070
Attention: Richard Stagg, Esq.
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. The corporate laws of the State of Utah shall govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the
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construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. Each party hereby irrevocably waives any
right it may have, and agrees not to request, a jury trial for the adjudication
of any dispute hereunder or in connection herewith or arising out of this
Agreement or any transaction contemplated hereby.
e. This Agreement, the Securities Purchase Agreement, the Warrants, the
Notes and the Certificate of Designations constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Warrants, the Notes and the Certificate of Designations supersede
all prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall inure
to the benefit of and be binding upon the permitted successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the
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intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares and the Warrants then outstanding,
or in the case of the Warrants, issuable, have been converted into or exercised
for Registrable Securities without regard to any limitation on conversions of
Preferred Shares or the exercise of the Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
GUM TECH INTERNATIONAL, INC. FISHER CAPITAL LTD.
By: /s/ Gary S. Kehoe By: /s/ Kenneth A. Simpler
------------------------------ ---------------------------------
Name: Gary S. Kehoe Name: Kenneth A. Simpler
Title: President Its: Vice President
WINGATE CAPITAL LTD.
By: /s/ Kenneth A. Simpler
---------------------------------
Name: Kenneth A. Simpler
Its: Vice President
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of June 2, 1999,
by and among Gum Tech International, Inc., a Utah corporation, with headquarters
located at 246 East Watkins Street, Phoenix AZ 85004 (the "COMPANY"), and the
investors listed on the Schedule of Buyers attached hereto (individually, a
"BUYER" and collectively, the "BUYERS"). Capitalized terms used in this
Agreement shall have the meanings defined herein; ANNEX I contains an Index of
the location of such defined terms.
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. The Company has authorized the issuance of up to Two Thousand (2,000)
shares of a new series of preferred stock, no par value per share: the Company's
Series A Preferred Stock (the "PREFERRED STOCK"), in substantially the form of
the Company's Certificate of Designations, Preferences and Rights of the
Preferred Stock, attached hereto as EXHIBIT A (the "CERTIFICATE OF
DESIGNATIONS");
C. The Company has authorized the issuance of up to Four Million Dollars
($4,000,000) original principal amount of Eight Percent (8%) Senior Secured
Redeemable Notes (the "NOTES") of the Company in substantially the form attached
hereto as EXHIBIT B.
D. The Company has authorized the issuance of Warrants (the "WARRANTS") to
purchase up to 300,000 shares of the Company's Common Stock, in substantially
the form attached hereto as EXHIBIT C.
E. The Buyers wish to purchase in the aggregate, upon the terms and
conditions set forth herein, (i) 2,000 shares of the Preferred Stock (the
"PREFERRED SHARES"), (ii) Four Million Dollars ($4,000,000) original principal
amount of Notes and (iii) Warrants to purchase 300,000 shares of Common Stock
(as adjusted pursuant to the terms of the Warrant), each in the amounts set
forth opposite such Buyer's name under the headings "Preferred Shares," "Notes"
and "Warrants" on the Schedule of Buyers attached hereto as ANNEX II (the
"SCHEDULE OF BUYERS"); and
F. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as EXHIBIT D (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws for shares of the
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Company's Common Stock, no par value per share (the "COMMON STOCK"), that may be
issued to the Buyers (i) upon repurchase of the Preferred Stock and/or
redemption of the Notes (the "REDEMPTION SHARES"), (ii) in lieu of cash payment
of interest on the Notes (the "COUPON SHARES") and (iii) upon exercise of the
Warrant (the "WARRANT SHARES", and together with the Redemption Shares and the
Coupon Shares, the "UNDERLYING SHARES").
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES, NOTES AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES, NOTES AND WARRANTS. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally agrees
to purchase from the Company, the respective number of Preferred Shares, Notes
and Warrants set forth opposite such Buyer's name under the headings "Preferred
Shares," "Notes" and "Warrants" on the Schedule of Buyers (the "CLOSING"). The
aggregate purchase price (the "PURCHASE PRICE") of the Preferred Shares, Notes
and Warrants at the Closing shall be Six Million Ten Dollars $6,000,010
allocated as set forth under the headings "Preferred Share Purchase Price,"
"Note Purchase Price,"and "Warrant Purchase Price" on the Schedule of Buyers.
b. CLOSING DATE. The date and time of the Closing (the "CLOSING DATE")
shall be 10:00 a.m. Central Time, three (3) business days following the date
hereof, subject to notification of satisfaction (or waiver) of the conditions to
the Closing set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyers). The Closing shall occur on
the Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe
Street, Suite 1600, Chicago, Illinois 60661-3693.
c. FORM OF PAYMENT. On the Closing Date, (i) each Buyer shall pay the
Purchase Price to the Company for the Preferred Shares, Notes and Warrants to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer, (x) stock certificates (the
"PREFERRED STOCK CERTIFICATES") representing such number of the Preferred Shares
which such Buyer is then purchasing, (y) Notes in the aggregate principal amount
of the Notes which such Buyer is purchasing, and (z) Warrants representing the
number of Warrant Shares which such Buyer is purchasing (each as indicated
opposite such Buyers' name on the Schedule of Buyers), duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the Preferred
Shares, the Notes and the Warrants, (ii) upon redemption of the Preferred Shares
and/or the Notes, will acquire the Redemption Shares then issuable, (iii) upon
payment of interest on the Notes, will acquire the Coupon Shares then issuable,
and (iv) upon exercise of the Warrants, will acquire the Warrant Shares issuable
upon exercise thereof (the Preferred Shares, the Notes, the Warrants and the
Underlying Shares collectively are referred to herein as the "SECURITIES"), for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer 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 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
d. INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below unless the senior officers of such Buyer responsible for
negotiation of the transactions contemplated by this Agreement have actual
knowledge of facts that form the basis of any alleged breach of such
representations and warranties. Such Buyer understands that its investment in
the Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the
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investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Securities.
f. TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to counsel for the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with a copy of Form 144 filed with
respect to the transfer of such Securities and reasonable assurances that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act, as amended, (or a successor rule thereto) ("RULE 144"); (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
g. LEGENDS. Such Buyer understands that the certificates, notes or
other instruments representing the Preferred Shares, the Notes and the Warrants
and, until such time as the resale of the Underlying Shares has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Underlying Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE] [NOTE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
COUNSEL FOR THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THE SECURITIES.
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The legend set forth above shall be removed and the Company shall issue a
certificate or note, as the case may be, without such legend to the holder of
the Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a form reasonably acceptable to counsel for the
Company, to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the 1933 Act, or (iii) such
holder provides the Company with a copy of Form 144 filed with respect to the
transfer of such Securities and reasonable assurances that the Securities can be
sold pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold.
h. VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. RESIDENCY. Such Buyer is a resident of that state and/or country
specified in its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity, including joint
ventures, in which the Company, directly or indirectly, owns capital stock or
holds an equity or similar interest) are corporations or limited liability
companies duly organized and validly existing in good standing under the laws of
the jurisdiction in which they are incorporated, and have the requisite power
and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation or limited liability company to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE
EFFECT" means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents. The Company has no Subsidiaries
except as set forth on SCHEDULE 3(A).
b. AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights
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Agreement, the Irrevocable Transfer Agent Instructions, the Notes, the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents and the Certificate of Designations by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Shares, the Notes and
the Warrants and the reservation for issuance and the issuance of the Underlying
Shares, have been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) the Transaction Documents have been duly
executed and delivered by the Company, (iv) the Transaction Documents constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to the Closing Date, the Certificate of Designations has been filed with
the Secretary of State of the State of Utah and will be in full force and
effect, enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of May 1, 1999, the authorized capital stock of
the Company consisted of (i) 20,000,000 shares of Common Stock, of which as of
May 1, 1999, 7,273,087 shares were issued and outstanding, 1,013,750 shares are
reserved for issuance pursuant to the Company's stock option and purchase plans
and 1,124,926 shares are issuable and reserved for issuance pursuant to
securities (other than the Preferred Shares, the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 1,000,000 shares of Preferred Stock, of which as of the date hereof, no
shares are issued and outstanding. All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in SCHEDULE 3(C), (i) since May 1, 1999 there have been no
changes in the number of authorized or issued shares of capital stock as set
forth above, (ii) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (iii) there are no outstanding debt
securities, (iv) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the
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<PAGE>
issuance of the Securities as described in this Agreement, and (viii) the
Company does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's By-laws, as amended and as in effect on the
date hereof (the "BY-LAWS").
d. ISSUANCE OF SECURITIES. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, will be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Certificate of Designations. One million
(1,000,000) shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance as Redemption Shares, Coupon Shares or Warrant Shares.
Upon redemption, payment or exercise in accordance with the terms of the
Certificate of Designations, the Notes or the Warrants, as the case may be, the
Underlying Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under the
1933 Act.
e. NO CONFLICTS. Except as disclosed in SCHEDULE 3(E), the execution,
delivery and performance of the Transaction Documents by the Company, the
performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Underlying Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the Principal
Market (as defined below)) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected, except for such conflicts, defaults or violations which would
not have a Material Adverse Effect, or (iii) other than pursuant to the terms of
the Transaction Documents, result in the creation or imposition of any Lien upon
the assets or properties of the Company. Except as disclosed in SCHEDULE 3(E),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in SCHEDULE 3(E), neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under any contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which would not, individually or in the aggregate, have a Material
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Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or to perform its obligations under
the Certificate of Designations, in each case in accordance with the terms
hereof or thereof, except for such consents, authorizations, orders, filings and
registrations the failure of which to obtain could not reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in SCHEDULE 3(E), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof or will be obtained as of the Closing
Date. The Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not in violation
of the listing requirements of the Principal Market (as defined below),
including, without limitation, the requirements set forth in Rule 4460 of the
Principal Market.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since January 1, 1998, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading.
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<PAGE>
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3(G),
since December 31, 1998 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings. Except
as disclosed in SCHEDULE 3(G), since December 31, 1998 the Company has not
declared or paid any dividends, sold any assets in excess of $25,000 outside of
the ordinary course of business or had capital expenditures, individually or in
the aggregate, in excess of $50,000.
h. ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 3(H), and
except for such actions, suits, proceedings, inquiries or investigations which,
if determined adversely, could not reasonably be expected to result in a
Material Adverse Effect, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, or any
of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such.
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The Company
acknowledges and agrees that each of the Buyers is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that each Buyer is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by any of the
Buyers or any of their respective representatives or agents to the Company in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not been
publicly disclosed or announced.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
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l. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Underlying Shares issuable upon redemption of the Preferred Shares
and/or the Notes and the Warrant Shares issuable upon exercise of the Warrants
may increase in certain circumstances. The Company further acknowledges that its
obligation to issue Redemption Shares upon redemption of the Preferred Shares
and/or the Notes in accordance with this Agreement and/or the Certificate of
Designations and its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants, is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
n. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. None of the Company's
or its Subsidiaries' employees is a member of a union, neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
o. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights (collectively, the "INTELLECTUAL
PROPERTY") necessary to conduct their respective businesses as now conducted,
and all such Intellectual Property is set forth on SCHEDULE 3(O). Except as set
forth on SCHEDULE 3(O), none of the Company's trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets or other intellectual property rights have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Agreement. Except as set forth on
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SCHEDULE 3(O), the Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth on SCHEDULE 3(O), there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.
p. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
q. TITLE; NO LIENS; OTHER FINANCING STATEMENTS. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
listed on SCHEDULE 3(Q) hereto. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries. All real property listed on
SCHEDULE 3(Q) hereto, together with all real property held by the Company and of
its Subsidiaries (as referred to in the immediately preceding sentence)
constitutes all real property necessary to the business and operations of the
Company as currently conducted. The Company owns and, as to all Collateral
whether now existing or hereafter acquired, will continue to own, each item of
the Collateral free and clear of any and all Liens, rights or claims of all
other Persons other than Permitted Liens, and the Company shall defend the
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest therein adverse to the Buyers other than the holders of
Permitted Liens. No financing statement or other evidence of a Lien covering or
purporting to cover any of the Collateral is on file in any public office other
than (i) financing statements filed or to be filed in connection with the
security interests granted to the Buyers hereunder, (ii) financing statements
for which proper termination statements have been delivered to the Buyers for
filing, and (iii) financing statements filed in connection with Permitted Liens.
r. INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.
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s. REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to posses such certificates, authorizations
or permits would not have, individually or in the aggregate, a Material Adverse
Effect, and neither the Company nor any such Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
t. TAX STATUS. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
u. TRANSACTIONS WITH AFFILIATES. Except as disclosed in SCHEDULE 3(U)
and in the SEC Documents filed at least ten days prior to the date hereof and
other than the grant of stock options disclosed on SCHEDULE 3(C), none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
v. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyer's
ownership of the Securities.
w. RIGHTS AGREEMENT. Except as disclosed in SCHEDULE 3(W), the Company
has not adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
x. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the
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Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
y. YEAR 2000 COMPLIANCE. The Company has initiated a review and
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "YEAR 2000 PROBLEM" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date- sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, the Company believes that the computer
applications that are currently material to its or any Subsidiaries' business
and operations are reasonably expected to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000, except
to the extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
z. NO OTHER AGREEMENTS. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
aa. CREATION OF SECURITY INTEREST. This Agreement is effective to
create in favor of the Buyers a valid security interest in and Lien upon all of
the Company's right, title and interest in and to the Collateral, and, upon the
filing of appropriate Uniform Commercial Code financing statements in the
jurisdictions listed on SCHEDULE 3(AA) attached hereto, Buyers will have valid
first priority perfected security interest in all of the Collateral, subject
only to Permitted Liens.
bb. EQUIPMENT, INVENTORY AND GOODS. All of the Company's and its
Subsidiaries' Equipment, Inventory and Goods are located at the places as
specified on SCHEDULE 3(BB) attached hereto. Except as disclosed on SCHEDULE
3(BB), none of the Collateral is in the possession of any bailee, warehousemen,
processor or consignee. The chief place of business, chief executive office and
the office where the Company keeps its books and records are located at the
place as specified on SCHEDULE 3(BB). The Company (including any Person acquired
by the Company) does not do business and has not done business during the past
five (5) years under any trade name or fictitious business name except as
disclosed on SCHEDULE 3(BB) attached hereto.
cc. DEPOSITARY ACCOUNTS. All depositary, collection, concentration and
other accounts (each a "DEPOSITARY ACCOUNT" and, together with any other
depositary account established by the Company in accordance with the terms of
this Agreement (including, without limitation pursuant to Sections 4.1(m) and
4.2(l) hereof), collectively, the "DEPOSITARY ACCOUNTS") maintained by the
Company and any of its Subsidiaries are described on SCHEDULE 3(CC) hereto,
which description includes for each such account the name on the account, the
name,
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address and telephone and telecopy numbers of the financial institution at which
such account is maintained, the account number and the account officer, if any,
of such account.
dd. INSTRUCTIONS TO OBLIGORS TO PAY TO LOCKBOX ACCOUNT. The Company has
instructed each of its contract manufacturing customers to make all payments in
respect of accounts receivable or other amounts owing to the Company directly to
a lockbox listed on SCHEDULE 3(DD) (each an" EXISTING LOCKBOX", and together
with any New Lockbox established pursuant to Section 4.1(m), collectively the
"LOCKBOX"). All proceeds from each Existing Lockbox are deposited directly by
the banks set forth on SCHEDULE 3(DD) hereto (each such bank, a "COLLECTION
BANK") into a Depositary Account. Each bank at which such a Depositary Account
is located has executed a lockbox collection notice in the form of Exhibit I
hereto (a "LOCKBOX COLLECTION NOTICE"). The Company has not granted any Person,
other than the Buyers as contemplated by this Agreement, dominion and control of
any Depositary Account or the right to take dominion and control of any
Depositary Account at a future time or upon the occurrence of a future event.
4. COVENANTS.
Section 4.1. AFFIRMATIVE COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts to satisfy
timely each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. FORM D AND BLUE SKY. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. REPORTING STATUS. Until the date on which the Investors shall have
sold all the Underlying Shares issued or issuable upon conversion, payment or
exercise of the Preferred Shares, the Notes and the Warrants or in respect of
dividends or interest on the Preferred Shares or the Notes, as the case may be
(collectively, the "REGISTRATION PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Shares, Notes and Warrants for substantially the same purposes and
in substantially the same amounts as indicated in SCHEDULE 4.1(D). Except as
disclosed in SCHEDULE 4.1(D), the
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Company shall not and shall not suffer or permit any of its Subsidiaries to use
any portion of the proceeds of the Notes, directly or indirectly, to purchase or
carry Margin Stock or repay or otherwise refinance Indebtedness of the Company
or others incurred to purchase or carry Margin Stock, or otherwise in any manner
which is in contravention of any applicable law or in violation of this
Agreement. Neither the Company nor any of its Subsidiaries is generally engaged,
nor shall the Company or any of its Subsidiaries engage in the future in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock. For the purposes hereof, "MARGIN
STOCK" means "margin stock" as such term is defined in Regulation T, U or X of
Board of Governors of the Federal Reserve System, or any entity succeeding to
any of its principal functions.
e. FINANCIAL INFORMATION. The Company agrees to send the following to
each Investor (as that term is defined in the Registration Rights Agreement) and
Note holder until the later of the end of the Registration Period and the
repayment in full of the Notes: (i) unless the following are filed with the SEC
through EDGAR and are available to the public through EDGAR, within one (1)
business day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form
8-K and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; (ii) promptly (and in no event later than 24 hours
following the release thereof), facsimile copies of all press releases issued by
the Company or any of its Subsidiaries; and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. RIGHT OF FIRST OFFER. Subject to the exceptions described below, the
Company and its Subsidiaries shall not negotiate or contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities of the Company or any Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("FUTURE OFFERINGS") during the period beginning on the date hereof and ending
on, and including, the second anniversary of the Closing Date, unless it shall
have first delivered to each Buyer or a designee appointed by such Buyer written
notice (the "FUTURE OFFERING NOTICE") describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Buyer an option
to purchase up to its Aggregate Percentage (as defined below) of the securities
to be issued in such Future Offering, upon consummation of such Future Offering
(the limitations referred to in this sentence are collectively referred to as
the "FUTURE OFFERING LIMITATIONS"). For purposes of this Section 4(f),
"AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean the
percentage obtained by dividing (i) the aggregate number of the Preferred Shares
initially issued to such Buyer by (ii) the aggregate number of the Preferred
Shares initially issued to all the Buyers. A Buyer can exercise its option to
participate in a Future Offering by delivering written notice thereof to
participate to the Company within five (5) business days after receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage, then each Buyer
which has indicated that it is willing to purchase a number
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of securities in such Future Offering in excess of its Aggregate Percentage
shall be entitled to purchase its pro rata portion (determined in the same
manner as described in the preceding sentence) of the securities in the Future
Offering which one or more of the Buyers have not elected to purchase. In the
event the Buyers fail to elect to fully participate in the Future Offering
within the periods described in this Section 4(f), the Company shall have 60
days thereafter to sell the securities of the Future Offering that the Buyers
did not elect to purchase, upon terms and conditions no more favorable to the
purchasers thereof than specified in the Future Offering Notice. In the event
the Company has not sold such securities of the Future Offering within such 60
day period, the Company shall not thereafter issue or sell such securities
without first offering such securities to the Buyers in the manner provided in
this Section 4(f). The Future Offering Limitations shall not apply to (i) a loan
from a commercial bank which does not have any equity feature, (ii) any
transaction involving the Company's or a Subsidiary's issuances of securities
(A) as consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Company, including without
limitation, issuance of consideration to members of Gel Tech, L.L.C., an Arizona
limited liability company ("GEL TECH"), in connection with the Company's
exercise of its option to purchase the interests of such members pursuant to the
terms of the Gel Tech operating agreement or in connection with the sale by Gel
Tech of up to twenty five percent (25%) of additional membership interests to a
third party, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, as disclosed in Schedule 3(c), (v) the grant
of additional options or warrants, or the issuance of additional securities,
each as disclosed in Schedule 3(c), or under any Company stock option plan,
restricted stock plan or stock purchase plan for the benefit of the Company's
employees or directors in effect as of the date hereof or disclosed in Schedule
3(c), or (vi) the issuance of options to Whitehill Oral Technologies, Inc.
("WHITEHILL") to purchase an aggregate of up to 45,000 shares of the Company's
Common Stock at prevailing market prices upon issuance. The Buyers shall not be
required to participate or exercise their right of first refusal with respect to
a particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
g. LISTING. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents and the Certificate of
Designations. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq National Market, The New York Stock Exchange, Inc. or
The American Stock Exchange, Inc. (such market, the "PRINCIPAL MARKET"). Neither
the Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market unless such Common Stock shall simultaneously be listed
on another market which constitutes a Principal Market. The Company shall
promptly, and in no event later than the following business day, provide to each
Buyer copies of any notices it receives
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from the Principal Market regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(g).
h. EXPENSES. Subject to Section 13(l) below, at the Closing, the
Company shall reimburse the Buyers for the Buyers' reasonable expenses
(including attorneys' fees and expenses) in conducting due diligence and
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby (including the review of any provision of
information for the Registration Statement) up to an aggregate of $50,000.
i. FILING OF FORM 8-K. On or before the fifth (5th) business day
following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act.
j. CAPITAL AND SURPLUS; SPECIAL RESERVES. The amount to be represented
in the capital account for the Series A Preferred Stock at all times for each
outstanding Preferred Share shall be an amount equal to the Stated Value (as
defined in the Certificate of Designations).
k. During such time as the Notes shall remain outstanding:
(A) COMPLIANCE CERTIFICATE. Promptly following the delivery (or
filing with the SEC) of the financial statements described in Section
4.1(e) (or, at the request of a Buyer on an earlier date following the
completion of any calendar quarter, but in no event earlier than
forty-five (45) days following the completion of such calendar
quarter), the Company shall deliver to the Buyers a duly executed and
completed copy of a certificate in the form of EXHIBIT H hereto (a
"COMPLIANCE CERTIFICATE"), which certificate shall (i) evidence
compliance with the financial covenants set forth in Section
4.2(a),4.2(b) and 4.2(c) hereof during the quarterly or annual period
covered by the statements then being furnished (including with respect
to each such Section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of
the amount, ratio or percentage then in existence), and (ii) contain a
statement that the officer executing such Compliance Certificate has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default (as defined
herein) or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
(B) INSPECTION. The Company shall permit the representatives of
each holder of Notes (x) if no Default or Event of Default then
exists, at the expense of
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such holder and upon reasonable prior notice to the Company, to visit
the principal executive office of the Company, to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with the
Company's officers, and (with the consent of the Company, which
consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Company, which consent will
not be unreasonably withheld) to visit the other offices and
properties of the Company and each Subsidiary, all at such reasonable
times and as often as may be reasonably requested in writing; and (y)
if a Default or Event of Default then exists, at the expense of the
Company to visit and inspect any of the offices or properties of the
Company or any Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss their respective affairs, finances
and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may
be requested.
(C) [INTENTIONALLY OMITTED]
(D) DELIVERY OF PLEDGED STOCK. To the extent the Company has on
the date hereof any Subsidiaries, or subsequent to the date hereof,
forms or acquires any Subsidiaries, the Company shall promptly deliver
to the Buyers, the stock certificates evidencing the stock of such
Subsidiary, together with stock powers duly executed in blank,
PROVIDED, HOWEVER, the Buyers acknowledge and agree that the Company
cannot, and shall not be required to pledge to the Buyers, the
Company's interest in Gel Tech.
(E) NAME CHANGE; LOCATION; BAILEES.
(i) The Company will notify the Buyers promptly in writing
prior to any change in the Company's name, identity or corporate
structure or the proposed use by the Company of any trade name or
fictitious business name other than any such name set forth on
SCHEDULE 3(BB) attached hereto.
(ii) Except for the sale of Inventory in the ordinary course
of business, the Company will keep the Collateral at the
locations specified in SCHEDULE 3(BB). The Company will give the
Buyers thirty (30) day's prior written notice of any change in
the Company's principal place of business or of any new location
for any of the Collateral. On or prior to the effectiveness of
any such change in location, the Company shall deliver to the
Buyers, updated or revised SCHEDULES 3(AA) AND 3(BB).
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(iii) If any Collateral is at any time in the possession or
control of any warehousemen, bailee, consignee or processor, the
Company shall, upon the request of the Buyers or their
representatives, notify such warehousemen, bailee, consignee or
processor of the Lien and security interest created hereby and
shall instruct such Person to hold all such Collateral for the
Buyers' account subject to the Buyers' instructions.
(F) DEPOSITS INTO DEPOSITARY ACCOUNTS.
(i) The Company will immediately deposit all cash payments
for Inventory or other cash payments constituting proceeds of
Collateral in the identical form in which such payment was made,
whether by cash or check, in each case into one of the Depositary
Accounts. From and after receipt by any Collection Bank of
written notice from the Buyers to such Collection Bank that an
Event of Default has occurred and is continuing, all amounts held
or deposited in the related Depositary Account held by such
Collection Bank shall be held by such Collection Bank subject
pending instructions from the Buyers. Pending such instructions
after an Event of Default, funds on deposit in such Depositary
Accounts shall be the sole and exclusive property of the Buyers
to be applied to any accrued and unpaid interest and then to any
unpaid principal then due and owing in each case with respect to
the Notes.
(l) RIGHTS AGREEMENT. In connection with the adoption of any
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control of the Company, the
Company and its board of directors agree to take all necessary action, if any,
to render such shareholder rights plan or similar arrangement inapplicable to
the transactions contemplated by this Agreement including, without limitation,
the Company's issuance of the Securities and the Buyer's ownership of the
Securities.
(m) INSTRUCTIONS TO OBLIGORS TO PAY TO LOCKBOX ACCOUNT. Unless
instructed prior to the date hereof, the Company will instruct all contract
manufacturing customers to make all payments in respect of accounts receivable
or other amounts owing to the Company directly to an Existing Lockbox. If
payments from all of the Company's contract manufacturing customers are less
than 90% of the Company's Net Revenue in any calendar quarter, the Company will
instruct such other customers and obligors whose payments in that quarter, when
added to the payments made by the Company's contract manufacturing customers,
equaled at least ninety percent (90%) of the Company's Net Revenue in that
quarter, to make all future payments in respect of accounts receivable or other
amounts owing to the Company directly to a Lockbox. The Company hereby agrees
that any Existing Lockbox hereunder shall only receive payments from customers
and obligors of the Company and its Subsidiaries (other than Gel Tech) and shall
not receive payments from Gel Tech customers or obligors (whether in the form of
a separate check from a Gel Tech customer or a single check representing payment
for obligations owed to both the Company and Gel Tech). Notwithstanding the
foregoing, if the Company is required to instruct any of its customers and
obligors to make payments to a Lockbox pursuant to the second sentence of this
Section 4.1(m),
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but is prohibited by the provisions of the preceding sentence from instructing
such customers and obligors to make payment to an Existing Lockbox, the Company
shall be obligated to immediately establish a new lockbox (the "NEW LOCKBOX"),
and the Company shall instruct such customers and obligors to make all future
payments to the New Lockbox. Contemporaneously with the establishment of the New
Lockbox, the Company shall establish a new depositary account (the "NEW
DEPOSITARY ACCOUNT"), and all proceeds from such New Lockbox shall be deposited
directly by the bank at which such New Depositary Account is located (such bank,
the "NEW COLLECTION BANK") into the New Depositary Account. Prior to
establishing any such New Depositary Account with any bank, the Company shall
cause such New Collection Bank to execute a lockbox collection notice in the
form of Exhibit I hereto (a "NEW COLLECTION NOTICE").
Each of the Buyers hereby acknowledges and agrees that certain of the
funds deposited into the New Depositary Account will represent proceeds from
accounts receivable of Gel Tech, and as such, Buyers shall have no interest in
the proceeds of such Gel Tech accounts receivable. To the extent any Buyer has
delivered to the New Collection Bank a notice in the form of Annex A to the New
Collection Notice, the Company agrees to hold proceeds of Gel Tech's accounts
receivable in trust for Gel Tech, and upon receipt of an accounting in form and
substance satisfactory to the Buyers setting forth, in detail, the amount of Gel
Tech accounts receivable which have been deposited into the New Depositary
Account, the Buyers shall turn over to Gel Tech the proceeds of such accounts
receivable.
(n) FINANCIAL DISCLOSURE. During the periods for which Compliance
Certificates are required to be delivered to each of the Buyers hereunder, the
Company agrees to include all information required by and/or contained in such
Compliance Certificates in its annual and quarterly filings on Forms 10-K and
10-Q.
(o) PROXY STATEMENT. The Company shall provide each stockholder
entitled to vote at the Company's annual meeting of stockholders to be held in
calendar year 2000 a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such annual stockholder meeting for approval of the
Company's issuance of all of the Securities as contemplated by this Agreement
(the "STOCKHOLDER APPROVAL"). The Company shall use its best efforts to solicit
its stockholders' approval of such issuance of the Securities and cause the
Board of Directors of the Company to recommend to the stockholders that they
approve such proposal.
Section 4.2. NEGATIVE COVENANTS OF THE COMPANY. For purposes of this
Agreement:
"CASH EQUIVALENTS" means: (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof having maturities
of not more than six (6) months from the date of acquisition; (b) certificates
of deposit, time deposits, repurchase agreements, reverse repurchase agreements,
or bankers' acceptances, having in each case a tenor of not more than six (6)
months, issued by any U.S. commercial bank or any branch or agency of a non-U.S.
bank licensed to conduct business in the U.S. having combined capital and
surplus of not less than $250,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard &
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Poor's Corporation or P-1 by Moody's Investors Service Inc. and in either case
having a tenor of not more than three (3) months, and (d) reputable and
nationally recognized money market funds with a minimum of $100,000,000 in
assets, and pursuant to which the Company may withdraw its investment at any
time without penalty.
"CAPITAL LEASE OBLIGATIONS" means all monetary obligations of the
Company or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, is classified as a capital lease.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person: (i) with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (iii) under
any interest rate swap or hedging contracts; (iv) to make take-or-pay or similar
payments if required regardless of nonperformance by any other party or parties
to an agreement; or (v) for the obligations of another through any agreement to
purchase, repurchase or otherwise acquire such obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to maintain the solvency, financial condition or any balance
sheet item or level of income of another Person. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed or supported.
"GAAP" means generally accepted accounting principles, consistently
applied for the periods covered thereby.
"INDEBTEDNESS" of any Person means, without duplication: (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business); (c) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses; (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property); (f) all
Capital Lease Obligations; (g) all indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in any property or assets (including accounts and contracts rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness; and (h)
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all Contingent Obligations described in clause (i) of the definition thereof in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (a) through (g) above.
The Company covenants that so long as the Notes are outstanding:
a. NET REVENUE. The Company shall not permit Net Revenue for any
quarterly period set forth below to fall below the amount set forth in the table
below with respect to such quarterly period:
QUARTERLY PERIOD NET REVENUE
---------------- -----------
June 30, 1999 $1,400,000
September 30, 1999 $1,750,000
December 31, 1999 $2,000,000
March 31, 2000 $2,500,000
June 30, 2000 $3,000,000
September 30, 2000 $3,500,000
December 31, 2000 $4,000,000
For the purposes hereof "NET REVENUE" shall have the meaning set forth in the
Compliance Certificate.
b. EBITDA. The Company shall not permit EBITDA for any quarterly period
set forth below to fall below the amount set forth in the table below with
respect to such quarterly period:
QUARTERLY PERIOD EBITDA
---------------- ------
June 30, 1999 $(550,000)
September 30, 1999 $(500,000)
December 31, 1999 $(400,000)
March 31, 2000 $(200,000)
June 30, 2000 $ 50,000
September 30, 2000 $ 400,000
December 31, 2000 $ 700,000
For the purposes hereof "EBITDA" shall have the meaning set forth in the
Compliance Certificate.
c. CASH BALANCE. The Company shall not permit the aggregate amount of
cash and Cash Equivalents of the Company and its Subsidiaries (excluding cash
and Cash Equivalents of Gel Tech) to fall below the amount set forth in the
table below as of each of the dates set forth below:
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DATE CASH BALANCE
---- ------------
June 30, 1999 $1,000,000
September 30, 1999 $1,000,000
December 31, 1999 $1,000,000
March 31, 2000 $1,000,000
June 30, 2000 $1,250,000
September 30, 2000 $1,500,000
December 31, 2000 $2,000,000
In determining the amount of the Company's cash and Cash Equivalents, the
Company shall not include in its calculation, any cash or Cash Equivalents which
are restricted or encumbered (other than cash and Cash Equivalents which are
restricted by the terms of this Agreement or encumbered by a Lien in favor of
the Buyers).
d. LIENS. The Company will not, and will not permit any Subsidiary to,
permit to exist, create, assume or incur, directly or indirectly, any mortgage,
lien, pledge, charge, security interest or other encumbrance (collectively, a
"LIEN") on its properties or assets, whether now owned or hereafter acquired,
except (the following, collectively, "PERMITTED LIENS"):
(A) Liens existing on property or assets of the Company or any
Subsidiary as of the date of this Agreement that are described in
SCHEDULE 4.2(D)(A);
(B) Liens for taxes, assessments or governmental charges not then
due and payable;
(C) Liens incidental to the conduct of business or the ownership
of properties and assets (including landlords', lessors', carriers',
warehousemen's, mechanics', materialmen's and other similar liens) to
secure amounts not yet due and payable and Liens to secure the
performance of bids, tenders, leases or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of like
general nature incurred in the ordinary course of business and not in
connection with the borrowing of money;
(D) any attachment or judgment Lien, unless such Lien has not,
within 60 days after the entry thereof, been suspended, discharged or
stayed pending appeal, or has not been discharged within 60 days after
the expiration of any such stay or suspension;
(E) Liens securing Indebtedness of a Subsidiary to the Company,
which Indebtedness of such Subsidiary is permitted by Section 4.2(h).
(F) encumbrances in the nature of leases, subleases, zoning
restrictions, easements, rights of way and other rights and
restrictions of record on the use of real property and defects in
title arising or incurred in the ordinary course of
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business, which, individually and in the aggregate, do not materially
impair the use or value of the property or assets subject thereto;
(G) Liens resulting from extensions, renewals or replacements of
Liens permitted by paragraph (A) provided that (i) there is no
increase in the principal amount or decrease in maturity of the
Indebtedness secured thereby at the time of such extension, renewal or
replacement, (ii) any new Lien attaches only to the same property
theretofore subject to such earlier Lien and (iii) immediately after
such extension, renewal or replacement no Default or Event of Default
would exist;
(H) Liens on the assets of Gel Tech, but only to the extent such
lien secures Indebtedness of Gel Tech permitted under Section 4.2(h)
hereof;
(I) Liens securing Indebtedness permitted by Section 4.2(h)(C);
(J) Liens incurred pursuant to the execution, delivery and
performance of this Agreement; or
(K) Liens on a cash collateral account located at Johnson Bank in
favor of Textron Financial Corporation in respect of the letter of
credit referred to in Section 4.2(h)(F), PROVIDED THAT the amount on
deposit in such cash collateral account subject to such Lien shall not
exceed (i) $250,000 for the period from the Closing Date to January
15, 2000, (ii) $125,000 for the period from January 1, 2000 to July
15, 2000 and (iii) $50,000 for the period from July 1, 2000 until
January 15, 2001.
e. MERGERS, CONSOLIDATIONS, ETC. The Company will not, and will not
permit any Subsidiary to, consolidate with or merge with any other Person or
convey, transfer, sell or lease all or substantially all of its assets in a
single transaction or series of transactions to any Person without the prior
written consent of the holders of Notes constituting two-third (2/3) of the
remaining principal amount of the Notes then outstanding, PROVIDED THAT any
wholly owned Subsidiary of the Company may merge into the Company.
f. DISPOSITION OF STOCK OF THE COMPANY AND ITS SUBSIDIARIES. The
Company will not, nor will it permit any Subsidiary to, issue, convey, transfer
or sell capital stock, or issue any warrants, rights or options to purchase, or
securities convertible into or exchangeable for, such capital stock, to any
Person other than to the Company or another Subsidiary, except in connection
with (i) the transactions to be consummated pursuant to this Agreement, (ii) the
Company's issuance of securities representing in the aggregate less than 10% of
the Company's outstanding Common Stock as of the date of this Agreement (A) in
connection with any strategic partnership or joint venture related to the
Company's business or (B) as consideration for the acquisition of a business,
product, license, service or other asset related to the Company's business,
(iii) the Company's issuance of Common Stock to the other members of Gel Tech
pursuant to Section 9.2 of the operating agreement of Gel Tech, (iv) Gel Tech's
issuance of up to 25% of the total profits and capital interests in Gel Tech to
a third party, (v) the issuance of Common Stock in a firm
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commitment, underwritten public offering, (vi) the issuance of securities upon
exercise or conversion of the Company's options, warrants, or other convertible
securities outstanding as of the date hereof, as disclosed in Schedule 3(c),
(vii) the grant of additional options or warrants, or the issuance of additional
securities, each as disclosed in Schedule 3(c), or under any Company stock
option plan, restricted stock plan, or stock purchase plan for the benefit of
the Company's employees or directors in effect as of the date hereof or
disclosed in Schedule 3(c), or (viii) the issuance of options to Whitehill to
purchase an aggregate of up to 45,000 shares of the Company's Common Stock at
prevailing market prices. If a Subsidiary at any time ceases to be such as a
result of a sale or issuance of its capital stock, any Liens on property of such
Subsidiary securing Indebtedness owed to the Company or another Subsidiary,
which is not contemporaneously repaid, together with such Indebtedness, shall be
deemed to have been incurred by the Company at the time such Subsidiary ceases
to be a Subsidiary.
g. LOANS AND INVESTMENTS. The Company shall not and shall not suffer or
permit any of its Subsidiaries to (i) purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, including the establishment
or creation of a Subsidiary, or (ii) make or commit to make any acquisition of
all or substantially all of the assets of another Person, or of any business or
division of any Person, including without limitation, by way of merger,
consolidation or other combination or (iii) make or commit to make any advance,
loan, extension of credit or capital contribution to or any other investment in,
any Person including any Affiliate of the Company (the items described in
clauses (i), (ii) and (iii) are referred to as "INVESTMENTS"), except for:
(A) Investments in Gel Tech in the amount of up to $3,500,000;
(B) Investments pursuant to transactions permitted pursuant to
Sections 4.2(f) and/or 4.2(h); or
(C) Investments in Cash Equivalents; or
(D) secured extensions of credit by the Company to any of its
Subsidiaries (provided that the obligations of each obligor shall be
evidenced by notes, which secured notes shall be pledged to Buyers,
and have such other terms as Buyers may reasonably require), but only
to the extent that prior to any such extension of credit to such
Subsidiary, (i) the Buyers shall have a valid first priority perfected
security interest in all of the stock of such Subsidiary, and (ii)
such extension of credit shall be secured by a blanket lien on all
assets of such Subsidiary which security interest shall be assigned to
the Buyers free and clear of all Liens other than Permitted Liens.
h. LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not
suffer or permit any of its Subsidiaries to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except:
(A) Indebtedness incurred pursuant to this Agreement;
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(B) Indebtedness existing on the Closing Date and set forth in
SCHEDULE 4.2(H)(B) including extensions and refinancings thereof which
do not increase the principal amount of such Indebtedness as of the
date of such extension or refinancing;
(C) Indebtedness not to exceed $250,000 in the aggregate at any
time outstanding consisting of Capital Lease Obligations or purchase
money secured indebtedness, excluding (for the purposes of calculating
such Indebtedness) any Indebtedness described in subsections
4.2(h)(B), (E), (F) and (G);
(D) secured intercompany Indebtedness permitted pursuant to
Section 4.2(g)(D);
(E) other unsecured Indebtedness for which, prior to the Maturity
Date (as defined below), (x) no payments of principal are due and (y)
interest payments, in the aggregate, do not exceed $150,000 per
calendar quarter;
(F) Indebtedness of the Company in respect of that certain letter
of credit issued by Johnson Bank in favor of Textron Financial
Corporation, which Indebtedness shall not exceed (i) $250,000 for the
period from the Closing Date to January 15, 2000, (ii) $125,000 for
the period from January 1, 2000 to July 15, 2000 and (iii) $50,000 for
the period from July 1, 2000 until January 15, 2001.
(G) other Indebtedness of Gel Tech not to exceed the sum of (i)
$500,000 in the aggregate at any one time outstanding PLUS (ii) an
amount equal to 80% of the fair market value of all inventory and
accounts receivable of the Company.
i. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
suffer or permit any of its Subsidiaries to, enter into any transaction with any
Affiliate of the Company or of any such Subsidiary, except:
(A) as expressly permitted by this Agreement;
(B) in the ordinary course of business and pursuant to the
reasonable requirements of the business of the Company or such
Subsidiary; or
(C) transactions contemplated by the Gel Tech operating agreement
in as in effect on the Closing Date;
and, in the case of clause (B), upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate of the Company or such Subsidiary and
which are disclosed in writing to each of the Buyers. For the purposes of this
Agreement, "AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person
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possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the other Person, whether through the ownership
of voting securities, by contract or otherwise. Without limitation, any
director, executive officer or beneficial owner of five percent (5%) or more of
the equity of a Person shall for the purposes of this Agreement, be deemed to
control the other Person.
j. CHANGE IN BUSINESS. The Company shall not, and shall not permit any
of its Subsidiaries to, engage in any material line of business substantially
different from those lines of business carried on by it on the date hereof.
k. CHANGE IN CONSTITUENT DOCUMENTS. Except as contemplated by this
Agreement, the Company shall not, and shall not permit any of its Subsidiaries
to materially amend, restate or otherwise modify their respective certificate of
incorporation, articles or by-laws without the prior written consent of the
Buyers, which consent will not be unreasonably withheld.
l. CHANGE IN PAYMENT INSTRUCTIONS TO CUSTOMERS; CHANGES TO DEPOSITARY
ACCOUNTS. The Company will not add or terminate any bank as a Collection Bank
from those listed on SCHEDULE 3(DD), add or make any change in any Depositary
Account or make any change in its instructions to its customers or obligors
regarding payments to be made to the Company or payments to be made to any
Depositary Account or Collection Bank, unless the Buyers shall have received, at
least 10 days before the proposed effective date therefor, (i) written notice of
such addition, termination or change (with such additional information with
respect to such account as the Buyer from time to time reasonably may request),
(ii) with respect to the addition of a Collection Bank or a Depositary Account,
an executed account agreement from, and executed copies of a Lockbox Collection
Notice to, the Collection Bank and (iii) updated or revisions to SCHEDULES 3(CC)
AND 3(DD), as the case may be, together with an effective date for such updated
or revised Schedules; PROVIDED, HOWEVER, that the Company may make changes in
instructions to its customers and obligors regarding payments if such new
instructions require such customers or obligors to make payments to another
existing Collection Account or Depositary Account.
4.3 NEGATIVE COVENANTS OF THE BUYERS.
a. LIMITATIONS ON RESALE OF REDEMPTION SHARES AND SHORT SALES OF COMMON
STOCK; OTHER RESTRICTIONS. Each of the Buyers agrees that such Buyer shall not
sell more than (i) five percent (5%) of the Redemption Shares received by such
Buyer in respect of any prepayment of the Notes or (ii) twenty percent (20%) of
the Redemption Shares received by such Buyer in respect of redemption of the
Preferred Shares on any Trading Day (as defined below). Except as otherwise
provided herein, no Buyer will maintain at the time of Closing, nor will it
create or maintain at any time following the Closing until the first date on
which such Buyer no longer owns any Warrants, Notes, or Preferred Shares, a
"short position" in the Common Stock; PROVIDED, HOWEVER, that any Buyer which
holds Warrants may create or maintain a short position in the Common Stock up to
the number of shares of Common Stock represented by such Buyer's Warrants
(assuming the full conversion or exercise of such Warrants); PROVIDED FURTHER,
that any such Buyer will not create any short position with respect to shares of
Common Stock represented by such Warrants on or after the date of this Agreement
and prior to the date that is one (1) year
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from the date of this Agreement. For purposes hereof, a "short position" shall
be deemed to have been maintained or created by a Buyer if such Buyer (i) enters
into a "short sale" (as such term is defined in Rule 3b-3 under the Exchange
Act), (ii) purchases a put option to sell shares of Common Stock or (iii) enters
into a derivative or other similar transaction whereby the Buyer will be
compensated in the event of a decline in the price of the Common Stock;
PROVIDED, HOWEVER, that such term shall not include any short sales effected as
a result of the Company's failure to deliver Underlying Shares in accordance
with the terms of this Agreement, the Warrants or the Certificate of
Designations.
b. SECURITIES LAWS MATTERS. Each Buyer agrees to comply with all
applicable provisions of Federal and state securities laws with respect to
trading in securities of the Company to the extent that such Buyer receives
material non-public information concerning the Company or any of its
Subsidiaries as a result of (i) the exercise of any remedies provided for
pursuant to the terms of this Agreement, (ii) receipt of the Compliance
Certificates, or (iii) the inspections provided in Section 4.2(k).
4.4 NASDAQ RULE 4460. The Buyers acknowledge and agree that the Company
shall not be obligated to issue more than one million four hundred fifty four
thousand six hundred seventeen (1,454,617) Underlying Shares pursuant to the
terms of this Agreement, the Notes, the Certificate of Designations or the
Warrants, (i) until such time as the Company obtains the Stockholder Approval or
receives a waiver from the National Association of Securities Dealers of the
application of Rule 4460 of the Principal Market to the transactions
contemplated hereby, (ii) until such time as the Company's Common Stock is no
longer listed on the NASDAQ National Market System or (iii) unless the
provisions of Rule 4460 of the Principal Market do not apply or would permit the
Company to issue a greater number of shares. Notwithstanding the foregoing, the
Company and the Buyers agree that nothing contained in this Section 4.4 shall
(i) affect or modify the Company's obligation to make all payments required by
this Agreement, the Notes, the Certificate of Designations and the Warrants or
(ii) limit or restrict the exercise of a Buyer's rights upon an Event of Default
(as defined herein and in the Certificate of Designations).
5. TRANSFER AGENT INSTRUCTIONS FOR WARRANTS AND PREFERRED SHARES.
The Company shall issue irrevocable instructions to its transfer agent,
and any subsequent transfer agent, to issue certificates, registered in the name
of each Buyer or its respective nominee(s), for the Underlying Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the Underlying Shares
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Underlying Shares, prior to registration of the
Underlying Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this
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Section 5 shall affect in any way each Buyer's obligations and agreements set
forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act or the Buyer provides the Company with a
copy of Form 144 filed with respect to the transfer of such Securities and a
written representation that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Underlying Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legend. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares, Notes and Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Utah.
c. Such Buyer shall have delivered to the Company the Purchase Price
for the Preferred Shares, Notes and Warrants being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
d. The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
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7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred
Shares, Notes and Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
a. The Company shall have executed each of the Transaction Documents
and delivered the same to such Buyer.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Utah, and a copy thereof certified by such
Secretary of State shall have been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been suspended by the SEC or
the Principal Market and the Underlying Shares shall be listed upon the
Principal Market.
d. The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the President or Chief
Financial Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above, in the form attached here to as
EXHIBIT E.
e. Such Buyer shall have received the opinion of the Company's counsel
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of EXHIBIT F attached
hereto.
f. The Company shall have executed and delivered to such Buyer the
Warrants, Notes and Preferred Stock Certificates (each in such denominations or
principal amounts as such Buyer shall request) for the Warrants, Notes and
Preferred Shares being purchased by such Buyer at the Closing.
g. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 3(b)(ii) above and in a form reasonably acceptable to
such Buyer.
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h. As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of issuing
Redemption Shares, Coupon Shares and Warrant Shares, at least 1,000,000 shares
of Common Stock.
i. The Irrevocable Transfer Agent Instructions, in the form of EXHIBIT
G attached hereto, shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
j. The Company shall have delivered to such Buyer a copy of a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 30 days of
the Closing Date.
k. The Company shall have delivered to such Buyer a copy of a certified
copy of the Articles of Incorporation as certified by the Secretary of State of
the State of Utah within 30 days of the Closing Date.
l. The Company shall have delivered to such Buyer a secretary's
certificate, dated as of the Closing Date, as to (i) the resolutions described
in Section 7(g), (ii) the Articles of Incorporation and (iii) the Bylaws, each
as in effect at the Closing.
m. The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
n. The Company shall have made all filings under all applicable federal
and state securities laws necessary to consummate the issuance of the Securities
pursuant to this Agreement in compliance with such laws.
o. All consents, approvals and actions of, filings with and notices to
any governmental or regulatory authority necessary to permit the Buyers and the
Company to perform their obligations under the Transaction Documents and to
consummate the transactions contemplated hereby and thereby (i) shall have been
duly obtained, made or given, (ii) shall not be subject to the satisfaction of
any condition that has not been satisfied or waived or (iii) shall be in full
force and effect, and all terminations or expirations of waiting periods imposed
by any governmental or regulatory authority necessary for the consummation of
the transactions contemplated by this Agreement shall have occurred.
p. There shall not have occurred any Material Adverse Effect on the
Company and the Subsidiaries, taken as a whole.
q. There shall not be in effect any order or law restraining, enjoining
or otherwise prohibiting or making illegal the consummations of the transactions
contemplated by the Transaction Documents or which could reasonably be expected
to otherwise result in a material diminution of the benefits of the transactions
contemplated by the Transaction Documents to the
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Buyers, and there shall not be pending or threatened on the Closing Date any
action or proceeding or any other action in, before or by any governmental or
regulatory authority which would reasonably be expected to result in the
issuance of any such order or the enactment, promulgation or deemed
applicability to the Buyers, the Company or any Subsidiary or the transactions
contemplated by the Transaction Documents of any such law.
r. The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.
s. With respect to the security interest granted pursuant to this
Agreement, the Company shall have delivered or caused to be delivered to the
each Buyer:
(A) duly executed copies of all UCC-l financing statements to be
filed, registered or recorded in the filing offices set forth on
SCHEDULE 3(AA) hereto, listing the Company as debtor and each Buyer as
secured party, together with any other filings, registrations and
recordings reasonably necessary and advisable to perfect the Liens of
the Buyers in the Collateral;
(B) uniform commercial code financing statement, federal and
state tax lien and judgment searches as the Buyers shall have
reasonably requested of the Company, and such termination statements
or other documents as may be reasonably necessary to confirm that the
Collateral is subject to no other Liens in favor of any Persons (other
than Permitted Liens);
(C) evidence that all other actions reasonably necessary or, in
the reasonable opinion of the Buyers, desirable to perfect and protect
the Liens created hereunder have been taken;
(D) funds sufficient to pay any filing or recording tax or fee in
connection with any and all UCC-1 financing statements; and
(E) such consents, estoppels, subordination agreements and other
documents and instruments executed by landlords, tenants and other
Persons party to material contracts relating to any Collateral as to
which the Buyers shall be granted a Lien, as reasonably requested by
the Buyers.
t. Duly executed Lockbox Collection Notices from each bank at which a
Depositary Account is located.
8. PAYMENT AND PREPAYMENT OF PRINCIPAL ON THE NOTES; PAYMENT OF INTEREST
ON THE NOTES.
a. PAYMENT AT MATURITY. On June 2, 2001 (the "MATURITY DATE") the
Company will pay all of the principal amount of the Notes remaining outstanding,
if any, in cash.
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b. OPTIONAL AND MANDATORY PREPAYMENTS. Subject to the provisions of
this Section 8, the Company may, at its option, upon notice as provided below,
prepay all or any part of the Notes on a pro-rata basis (based upon the
principal amount of the Notes outstanding at the time of prepayment); provided
that the Company agrees to prepay at least fifty percent (50%) of the original
principal amount of the Notes within twelve (12) months after the Closing Date.
Any prepayment of the Notes shall be made at a price equal to 110% of the
principal amount so prepaid, plus accrued interest to the date of prepayment.
The prepayment may be made in cash or (no more often than once in each period of
twenty (20) consecutive days during which securities are normally traded on the
Principal Market (a "TRADING DAY")) by issuance of a number of shares of Common
Stock determined by dividing the prepayment amount by the average of the Closing
Bid Prices (as defined in the Certificate of Designations) of the Common Stock
for the twenty (20) consecutive Trading Days immediately preceding the date of
the Company's notice of prepayment described below in subsection 8(c).
Notwithstanding the foregoing, the Company must prepay the Notes in cash (to the
extent such prepayment is required) if (i) any event constituting an Event of
Default, or an event that with the passage of time would constitute an Event of
Default if not cured, has occurred and is continuing on the date of the
Company's notice of prepayment as provided in Section 8(c) below or on the date
of prepayment, unless otherwise consented to in writing by the holder of the
Notes entitled to receive such prepayment, or (b) the Registration Statement (as
defined below) has not been declared effective by the Securities and Exchange
Commission (the "SEC") on or before the date of prepayment. To the extent the
Company elects or is required to prepay the Notes as provided in this Section
8(b), the Company shall also redeem a proportional amount of Preferred Shares
(based upon the Stated Value (as defined in the Certificate of Designations) of
the Preferred Shares outstanding relative to the principal amount of the Notes
outstanding) as required pursuant to Section 16 of the Certificate of
Designations. If the average of the Closing Bid Prices of the Common Stock used
to determine the number of shares of Common Stock required to prepay the Notes
with respect to any prepayment effected by the Company at its option is more
than the average of the Closing Bid Prices of the Common Stock for the twenty
(20) consecutive Trading Days immediately following the prepayment date, the
Company shall pay to the recipient of such shares, on or prior to the date that
is twenty-five (25) Trading Days after the prepayment date, an amount in cash
equal to the product of the per share difference between such average prices and
the number of shares issued as consideration for repayment of that portion of
the Notes being redeemed and sold during such twenty (20) Trading Day period
immediately following the prepayment date.
c. NOTICE OF PREPAYMENT. The Company will give each holder of Notes two
(2) Trading Days prior written notice of each optional or mandatory prepayment
pursuant to Section 8(b). Any such prepayment notice given by the Company shall
be irrevocable. Each such notice shall specify the prepayment date (which date
shall not be more than three (3) Trading Days following the date of the
prepayment notice), the aggregate principal amount of the Notes to be prepaid on
such date, and the accrued and unpaid interest amount plus any Default Interest
to be paid on the prepayment date with respect to such principal amount of Notes
being prepaid.
d. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of any partial
prepayment of the Notes pursuant to Section 8(b), the proceeds of such
prepayment shall be applied pro-rata (based upon the aggregate principal amount
of each Note then outstanding) to the respective unpaid
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principal amount of each Note then outstanding. To the extent any holder of any
Note receives more than its pro-rata portion of any such prepayment, it shall
immediately turn over to the other holders of the Notes, their respective
portion of such prepayment.
e. EFFECT OF PREPAYMENT; SURRENDER, ETC. In the case of each prepayment
of Notes pursuant to Section 8(b), the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
date. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and canceled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
f. LIMIT ON PREPAYMENT AMOUNTS. Notwithstanding anything to the
contrary set forth in this Section 8, the aggregate principal amount of Notes
together with the Stated Value of Preferred Shares to be prepaid and redeemed by
the Company at any one time shall be limited to an aggregate amount that would
result in the issuance of shares of Common Stock not in excess of 200% of the
average daily trading volume of the Common Stock on the Principal Market as
reported by Bloomberg Financial Markets ("BLOOMBERG") over the period of 20
consecutive Trading Days ending on the trading day immediately preceding the
Company's notice of prepayment delivered pursuant to Section 8(c).
g. INTEREST ON THE NOTES. The Notes shall bear interest ("INTEREST") at
a rate of 8.0% per annum, which shall be cumulative, accrue daily from the date
of issuance of the Notes (the "ISSUANCE DATE") and be payable on June 30,
September 30, December 31 and March 31 of each year until the Maturity Date
(each an "INTEREST PAYMENT DATE"). If an Interest Payment Date is not a Business
Day (as defined below) then the Interest shall be due and payable on the
Business Day immediately following the Interest Payment Date. Interest shall be
payable in cash or, at the option of the Company, in shares of Common Stock
based on the Interest Conversion Price (as defined below) on the Interest
Payment Date; provided that the Interest which accrued during any period shall
be payable in shares of Common Stock only if the Company provides written notice
("INTEREST ELECTION NOTICE") to each holder of Notes at least 10 days prior to
the Interest Payment Date. Notwithstanding the foregoing, the Company must pay
such Interest in cash if (a) any event constituting an Event of Default, or an
event that with the passage of time would constitute an Event of Default if not
cured, has occurred and is continuing on the date of the Company's Interest
Election Notice or on the Interest Payment Date, unless otherwise consented to
in writing by the holder of Notes entitled to receive such Interest, or (b) the
Registration Statement has not been declared effective by the SEC on or before
the Interest Payment Date. Any accrued and unpaid interest which is not paid (in
stock or cash as applicable) within five (5) Business Days after the Interest
Payment Date for such accrued and unpaid interest shall bear interest at the
rate of 15% per annum from such Interest Payment Date until the same is paid in
full (the "DEFAULT INTEREST"). For purposes of this Agreement, the "INTEREST
CONVERSION PRICE" means the average Closing Bid Price (as defined in the
Certificate of Designations) of the Common Stock for the (5) five trading days
immediately preceding the Interest Election Notice. If the average of the
Closing Bid Prices of the Common Stock used to determine the number of shares of
Common Stock required to pay
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interest on the Notes with respect to any interest payment is more than the
average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive Trading Days immediately following the Interest Payment Date, the
Company shall pay to the recipient of such shares, on or prior to the date that
is ten (10) Trading Days after the Interest Payment Date, an amount in cash
equal to the product of the per share difference between such average prices and
the number of shares issued as consideration for interest being paid on the Note
and sold during such five (5) Trading Day period.
9. SECURITY FOR THE NOTE.
Section 9.1 GRANT OF SECURITY INTEREST. As collateral security for the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of all principal and interest due on the Notes, and all other amounts
from time to time due and owing with respect to the Notes, the Company hereby
pledges and grants to the holder of the Notes, a Lien on and security interest
in and to all of the Company's right, title and interest in the following
property and interests in property, whether now owned by the Company or
hereafter acquired and whether now existing or hereafter coming into existence
and wherever located (all being collectively referred to herein as
"COLLATERAL"):
(a) the "INSTRUMENTS" (as such term is defined in the Uniform
Commercial Code as in effect from time to time in the State of New York ("UCC"),
including, without limitation, promissory notes, drafts, bills of exchange,
trade acceptances, letters of credit and "CHATTEL PAPER" (as such term is
defined in the UCC)) of the Company, together with all payments thereon or
thereunder:
(b) all "ACCOUNTS" (as such term is defined in the UCC);
(c) all "INVENTORY" (as such term is defined in the UCC);
(d) all "GENERAL INTANGIBLES" (as such term is defined in the UCC, and,
in any event, including, without limitation, all right, title and interest in or
under any Contract, models, drawings, materials and records, claims, literary
rights, goodwill, rights of performance, warranties, rights under insurance
policies, rights of indemnification and any other rights or interest in or
relating to Intellectual Property);
(e) all "EQUIPMENT" (as such term is defined in the UCC, and, in any
event, including all motor vehicles);
(f) all "DOCUMENTS" (as such term is defined in the UCC, and including,
without limitation, "ALL DOCUMENTS OF TITLE" (as defined in the UCC) bills of
lading or other receipts evidencing or representing Inventory or Equipment).
(g) all "CONTRACTs" (which for purposes of this Agreement, means all
contracts, undertakings, or other agreements (other than rights evidenced by
Chattel Paper, Documents or Instruments) in or under which the Company may now
or hereafter have any
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right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof);
(h) all "GOODS" (as such term is defined in the UCC);
(i) all "INVESTMENT PROPERTY" (as such term is defined in the UCC);
(j) all "FIXTURES" (which for purposes of this Agreement means all of
the following now owned or hereafter acquired by the Company: plant fixtures,
other fixtures and storage facilities wherever located, and all additions and
accessions thereto and replacements therefor);
(k) all bank and depositary accounts and the balance from time to time
in all such bank and depositary accounts maintained by the Company;
(l) all other stock or other securities owned by the Company,
including, without limitation, any stock of any subsidiaries of the Company; and
(m) all other tangible and intangible property of the Company,
including, without limitation, all proceeds, products, accessions, rents,
profits, income, benefits, substitutions, additions and replacements of and to
any of the property of the Company described in the preceding clauses of this
Section 9 (including, without limitation, any proceeds of insurance thereon and
all rights, claims and benefits against any Person relating thereto) and all
books, correspondence, files, records, invoices and other papers, including
without limitation all tapes, cards, computer runs, computer programs, computer
files and other papers, documents and records in the possession or under the
control of the Company or any computer bureau or service company from time to
time acting for the Company.
Notwithstanding the foregoing, the Buyers acknowledge and agree that
the definition of Collateral shall not include the Company's interest in Gel
Tech.
Section 9.2 BUYERS SECURED PARI-PASSU IN THE COLLATERAL. By its
execution hereof, each of the Buyers hereby agrees that, vis-a-vis all other
Buyers hereunder, its security interest ranks pari-passu with all others Buyers,
and the fact that each Buyer received its own respective UCC-1 financing
statements, which financing statement may have been filed prior to another
Buyer's financing statement hereunder, is not intended to confer, as between the
Buyers, any superior or prior perfected security interest. Such individual
filings in favor of each Buyer were undertaken for administrative convenience
purposes so that the Buyers would not need to appoint a collateral agent to act
for all Buyers and, as between the Buyers, each Buyer has an equivalent security
interest in all of the Collateral. If any Buyer hereunder receives more than its
allocable portion of the Collateral hereunder, it shall immediately turn-over to
the other Buyers their applicable portion of such Collateral or proceeds
thereof.
10. EVENT OF DEFAULT; REMEDIES.
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10.1 EVENT OF DEFAULT. For purpose of this Agreement "DEFAULT" or
"EVENT OF DEFAULT" shall exist if any of the following conditions or events
shall occur and be continuing:
(A) the Company defaults in the payment of any principal on any
Note when the same becomes due and payable, whether at maturity or at
a date fixed for prepayment or by declaration or otherwise (including,
without limitation the mandatory prepayment of fifty percent (50%) of
the original principal amount of the Notes within twelve (12) months
following the Closing Date as provided in Section 8(b)); or
(B) the Company defaults in the payment of any interest on any
Note for more than five business days after the same becomes due and
payable; or
(C) the Company defaults in the performance of or compliance with
any term contained in Sections 4.2(a), (b), (c), (e), (f) or (j); or
(D) the Company defaults in the performance of or compliance with
any term contained in this Agreement, the Notes or the Registration
Rights Agreement (other than those referred to in paragraphs (A), (B)
and (C) of this definition) and such default is not remedied within 30
days after the earlier of (i) an officer of the Company obtaining
actual knowledge of such default and (ii) the Company receiving
written notice of such default from any holder of a Note, PROVIDED
HOWEVER, that the Company shall not be entitled to any cure period or
grace period in the case of a breach of Section 4.2(k) hereof, to the
extent such breach results in, or is reasonably likely to result in, a
termination, liquidation, dissolution or cessation of existence of the
Company or any of its Subsidiaries; or
(E) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any agreement, document, certificate or instrument
furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the
date as of which made, PROVIDED HOWEVER, that the Buyers agree that
there shall not be any Event of Default hereunder based upon a claim
that any projections prepared by the Company were materially
misleading so long as at the time such projections were prepared, the
Company had a reasonable basis for making such projections; or
(F) the Company or any Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against
it of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (iii) makes an assignment for the
benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part
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of its property, (v) is adjudicated as insolvent or to be liquidated,
or (vi) takes corporate action for the purpose of any of the
foregoing; or
(G) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any
Subsidiary, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving
a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any Subsidiary, or any
such petition shall be filed against the Company or any Subsidiary and
such petition shall not be dismissed within 60 days; or
(H) a final judgment or judgments for the payment of money
aggregating in excess of $750,000 are rendered against one or more of
the Company and its Subsidiaries and which judgments are not, within
60 days after entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within 60 days after the expiration of
such stay, PROVIDED HOWEVER, that any judgement which is covered by
insurance or an indemnity from a credit worthy party shall not be
included in calculating the $750,000 amount set forth above so long as
the Company provides to the Buyers a written statement from such
insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Buyers) to the effect that such
judgement is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within 30 days of
the issuance of such judgement; or
(I) the failure of the Registration Statement required to be
filed pursuant to the Registration Rights Agreement (the "Registration
Statement") to be declared effective by the SEC on or prior to the
date that is 130 days after the original date of issuance of the
Notes; or
(J) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement
(and subject to the Allowable Grace Period set forth in Section 3(u)
thereof), the effectiveness of the Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop
order) or is unavailable to the holder of the Notes for sale of all of
the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, provided that the cause of such lapse or unavailability is
not due to factors solely within the control of such holder of Notes;
or
(K) the suspension from trading or failure of the Common Stock to
be listed on the Nasdaq National Market, the New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. for a period of five
consecutive Trading Days or for more than an aggregate of 10 Trading
Days in any 365-day period; or
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(L) on or prior to December 31, 2000, Gary S. Kehoe shall cease
to be employed in the capacity of an executive officer of the Company
with substantial responsibility for day-to-day operation of the
Company's gum business.
10.2 REMEDIES. Upon the occurrence and during the continuance of any
Event of Default:
a. ACCELERATION; DEFAULT INTEREST.
(A) If an Event of Default with respect to the Company described
in paragraph (F) or (G) of the definition of Event of Default
contained in Section 10.1 has occurred, all the Notes then outstanding
shall automatically become immediately due and payable.
(B) If any Event of Default described in paragraph (A) or (B) of
the definition of Event of Default contained in Section 10.1 has
occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the
Notes held by it or them to be immediately due and payable.
(C) If any other Event of Default has occurred and is continuing,
the Buyers which hold more than 51% of the aggregate outstanding
principal amount of the Notes (the "MAJORITY BUYERS") may at any time
at its or their option, by notice or notices to the Company, declare
all the Notes then outstanding to be immediately due and payable.
(D) To the extent permitted by applicable law, upon the
occurrence and continuance of an Event of Default, for the period from
the date of such Event of Default to and including the date such Event
of Default is either cured or waived, the interest rate applicable to
the Notes shall be increased from 8% to 15%, and in the case of any
Event of Default arising as a result of the failure to make an
interest payment, such increased interest rate of 15% shall be
applicable to the amount of such defaulted interest payment.
Upon any Notes becoming due and payable under this Section 10.2(a), whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus all accrued and unpaid interest
thereon shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
b. REMEDIES WITH RESPECT TO COLLATERAL - During the period an Event of
Default shall have occurred and be continuing, and upon the affirmative vote and
direction of the Majority Buyers:
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(A) the Company shall assemble the Collateral at such place or
places as may be reasonably designated by the Majority Buyers or their
representative;
(B) the Majority Buyers or their representative may make any
reasonable compromise or settlement deemed desirable with respect to
any of the Collateral and may extend the time of payment, arrange for
payment in installments, or otherwise modify the terms of, any of the
Collateral;
(C) the Majority Buyers shall have all of the rights and remedies
with respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not said Uniform Commercial Code is in
effect in the jurisdiction where the rights and remedies are asserted)
and such additional rights and remedies to which a secured party is
entitled under the laws in effect in any jurisdiction where any rights
and remedies hereunder may be asserted, including, without limitation,
the right, to the maximum extent permitted by law, to exercise all
voting, consensual and other powers of ownership pertaining to the
Collateral as if the holders of the Notes were the sole and absolute
owner thereof (and the Company agrees to take all such action as may
be appropriate to give effect to such right);
(D) the Majority Buyers or their Representative in their
discretion may, in the name of the Majority Buyers or in the name of
the Company or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or
in exchange for any of the Collateral, but shall be under no
obligation to do so;
(E) the Majority Buyers, or their Representative, may take
immediate possession and occupancy of any premises owned, used or
leased by the Company and exercise all other rights and remedies of an
assignee which may be available to the Majority Buyers; and
(F) the Majority Buyers may, upon ten (10) Business Days prior
written notice to the Company of the time and place, with respect to
the Collateral or any part thereof which shall then be or shall
thereafter come into the possession, custody or control of the
Majority Buyers or its Representative, sell, lease, assign or
otherwise dispose of all or any part of such Collateral, at such place
or places as the Majority Buyers deems best, and for cash or for
credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or
notice of intention to effect any such disposition or of the time or
place thereof (except such notice as is required above or by
applicable statute and cannot be waived), and the Majority Buyers or
anyone else may be the purchaser, lessee, assignee or recipient of any
or all of the Collateral so disposed of at any public sale (or, to the
extent permitted by law, at any private sale) and thereafter hold the
same absolutely, free from any claim or right of whatsoever kind,
including any right or equity of redemption (statutory or otherwise),
of the Company, any such demand, notice and right or equity being
hereby expressly
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waived and released. The Majority Buyers may, without notice or
publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to
which the sale may be so adjourned.
Any actions taken by the Majority Buyers pursuant to this Section 10 shall be
taken for the benefit of all holders of the Notes, and the proceeds of each
collection, sale or other disposition of the Collateral under this Section 10
shall be applied in the following order: (i) the cost of collection and
foreclosure upon the Collateral, (ii) to the payment of all accrued and unpaid
interest, (iii) to the payment of all unpaid principal, and (iv) to any other
amounts owing to the holders of the Notes under the Transaction Documents.
c. CONVERSION TO COMMON STOCK. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 10.2(a), the holder
of any Note may elect to convert all principal, together with Interest and
Default Interest, outstanding on such Note at the Conversion Price (as defined
in the Certificate of Designations) by delivery of a written facsimile notice
setting out the principal amount, Interest and Default Interest to be converted
as of the date of the notice and the calculation of the Conversion Price. The
Company shall deliver shares of Common Stock in respect of any such conversion
within three (3) days following receipt of such notice.
d. OTHER REMEDIES. If any Default or Event of Default has occurred and
is continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 10.2 (a), the holder of any
Note at the time outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
e. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under this Agreement, the Notes or any of the other
Transaction Documents, the Company will pay to the holders of the Notes on
demand such further amount as shall be sufficient to cover all costs and
expenses of such holders incurred in any enforcement or collection under this
Section 10, including without limitation, the reasonable attorney's fees,
expenses and disbursements of one counsel representing such holders.
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11. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES; PLACE OF PAYMENT.
a. REGISTRATION OF NOTES. The Company shall keep at its principal
executive office a register for the registration and registration of transfers
of Notes. The name and address of each holder of one or more Notes, each
transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary.
b. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the
principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes of the same series (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request, subject to
the limitations on transfer set forth in Section 2(f), and shall be
substantially in the form of EXHIBIT B. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less than
$100,000, provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes, one Note may be in a denomination of less
than $100,000. Notwithstanding the foregoing, Notes may be freely transferred
among affiliates of holders of the Notes on the Closing Date in any
denomination.
c. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note, and (A) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, or (B) in the case of
mutilation, upon surrender and cancellation thereof, the Company at its own
expense shall execute and deliver, in lieu thereof, a new Note, dated and
bearing interest from the date to which interest shall have been paid on such
lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
d. PLACE OF PAYMENT. Payments of principal and interest becoming due
and payable on the Notes shall be made in accordance with the terms and
provisions of the Notes. The Company may at any time, by notice to each holder
of a Note, change the place of payment of the Notes so long as such place of
payment shall be either the principal office of the Company in such jurisdiction
or the principal office of a bank or trust company in such jurisdiction.
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e. HOME OFFICE PAYMENT. So long as Buyer or Buyer's nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 11(d)
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, and interest by the method and at the address specified
for such purpose below Buyer's name in the Schedule of Buyers or by such other
method or at such other address as Buyer shall have from time to time specified
to the Company in writing for such purpose, without the presentation or
surrender of such Note or the making of any notation thereon, except that upon
written request of the Company made concurrently with or reasonably promptly
after payment or prepayment in full of any Note, Buyer shall surrender such Note
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office or at the place of payment most recently
designated by the Company pursuant to Section 11(d). Prior to any sale or other
disposition of any Note held by Buyer or Buyer's nominee Buyer will, at Buyer's
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 11(b).
12. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents and the
Certificate of Designations, the Company shall defend, protect, indemnify and
hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
the Certificate of Designations or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee (other than a cause of action, suit or claim
which is, (x) caused by a breach of the Transaction Documents by the Indemnitees
or by the Indemnitees' own gross negligence or willful misconduct, (y) brought
or made by the Company and (z) not a shareholder derivative suit) and arising
out of or resulting from (i) the execution, delivery, performance or enforcement
of the Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of such Buyer or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
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13. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the
State of Utah shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection with or arising out of this agreement or any transaction contemplated
hereby.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding,
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and no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.
f. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Gum Tech International, Inc.
246 East Watkins Street
Phoenix AZ 85004
Telephone: (602) 252-1617
Facsimile: (602) 252-6650
Attention: Chief Financial Officer
With a copy to:
Snell & Wilmer
One Arizona Center
Phoenix AZ 85004
Telephone: (602) 382-6000
Facsimile: (602) 382-6070
Attention: Richard Stagg, Esq.
If to the Transfer Agent:
Corporate Stock Transfer
370 17th Street, Suite 2350
Denver, Colorado
Telephone: (303) 595-3300
Facsimile: (303) 592-8821
Attention: Ms. Carolyn Bell
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
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transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, including by merger or consolidation. A Buyer may assign some or
all of its rights hereunder without the consent of the Company, provided,
however, that any such assignment shall not release such Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption. Notwithstanding
anything to the contrary contained in the Transaction Documents, the Buyers
shall be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by such Securities.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. Unless this Agreement is terminated under Section 13(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5, and
13, and the indemnification provisions set forth in Section 12, shall survive
the Closing until the end of the Registration Period. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
j. PUBLICITY. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) business days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option
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to terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
13(l), the Company shall remain obligated to reimburse the
nonbreaching Buyers for the expenses described in Section 4(h) above.
m. PLACEMENT AGENT. The Company shall be responsible for the payment of
any placement agent's fees or broker's commissions relating to or arising out of
the transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. REMEDIES. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and the
Certificate of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to the Certificate of Designations
or Warrants or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
* * * * * *
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IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
BUYERS:
FISHER CAPITAL LTD.
By: /s/ Kenneth A. Simpler
----------------------
Name: Kenneth A. Simpler
Its: Vice President
WINGATE CAPITAL LTD.
By: /s/ Kenneth A. Simpler
----------------------
Name: Kenneth A. Simpler
Its: Vice President
COMPANY:
GUM TECH INTERNATIONAL, INC.
By: /s/ Gary S. Kehoe
-----------------------
Name: Gary S. Kehoe
Its: President
EXHIBIT 99.1
COMPANY PRESS RELEASE
GUM TECH COMPLETES $6 MILLION FINANCING
WITH CITADEL INVESTMENT GROUP
PHOENIX, June 2/PRNewswire/ -- Gum Tech International, Inc. (Nasdaq: GUMM -
news) announced today that it has completed a financing arrangement with Citadel
Investment Group for $6 million in combined debt and preferred equity. The
company plans to use the proceeds to support its Gel Tech LLC joint venture, to
continue its development work on a nicotine gum, and as working capital for its
gum manufacturing operations. Pursuant to this financing, Gum Tech issued $4
million in 8% Senior Secured Redeemable Notes and $2 million in Series A
Preferred Stock.
William Hemelt, Gum Tech's Chief Financial Officer, said, "We believe that this
financing with Citadel results in as little dilution as possible to our current
shareholders while at the same time providing the company with the resources
necessary to move the Gel Tech and nicotine gum projects to the next stage."
According to Hemelt, "This arrangement allows us to repay the financing with
cash from future profits, or common stock, whichever is in the best interests of
shareholders in the future."
Gary Kehoe, Gum Tech's President, said, "We are very pleased to establish this
relationship with Citadel. The company has come a long way in the last year and
a half. This financing will enable us to accelerate our progress on a number of
important projects, including our gel technology and continuing to make Gum Tech
the leader in the development and manufacture of functional chewing gums."
InterContinental Capital served as a facilitator in the transaction with Citadel
Investment Group.
Gum Tech develops, manufactures, and distributes specialty chewing gum products
designed to provide health benefits to consumers. The company partners with
major food, pharmaceutical, or marketing companies to develop and manufacture
gum products under contract manufacturing agreements and supports its own line
of branded gums. Gum Tech operates one of the most advanced chewing gum
manufacturing plants in the U.S. and is the only stainless steel gum
manufacturing facility registered with the Food and Drug Administration to
manufacture gum with over-the counter drug products.
o Gum Tech is located at 246 East Watkins Street, Phoenix, Arizona 85004.
o (Nasdaq: GUMM - news)
o E-Mail: [email protected]
4
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Gum Tech Forward-Looking Statement:
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements regarding
the company's anticipated growth in business and future results of operations.
These forward-looking statements are based on the company's expectations and are
subject to a number of risks and uncertainties, many of which cannot be
predicted or quantified and are beyond the company's control. Future events and
actual results could differ materially from those set forth in, contemplated by,
or underlying the forward-looking statements. Factors that could cause actual
results to differ materially from the company's expectations include less than
anticipated demand for the company's chewing gum products, lack of market
acceptance for or uncertainties concerning the efficacy of ZICAM, a decrease in
the level of reorders from existing customers, financial difficulties
encountered by one or more of the company's principal customers, difficulties in
obtaining additional capital for marketing, research and development, and other
expenses, the possibility of material charges incurred as a result of prior
activities, aggressive pricing and marketing efforts by rival gum manufacturers,
unavailability of third-party material products at reasonable prices, inventory
obsolescence due to shifts in market demand, and material litigation involving
product liabilities and consumers issues.
