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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
SEPTEMBER 30, 1999
CELERITY SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-23279 52-2050585
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(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification No.)
Incorporation)
1400 Centerpoint Boulevard
KNOXVILLE, TENNESSEE 37932
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including
area code: (423) 539-5300
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(Former Address, if changed since last report)
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THIS FORM 8-K CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INVOLVE
VARIOUS RISKS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN SUCH FORWARD LOOKING STATEMENTS.
THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO: CELERITY SYSTEM
INC.'S ("CELERITY") HISTORY OF LOSSES AND NEED FOR FINANCING, MARKET DEMAND FOR
CELERITY'S PRODUCTS, SUCCESSFUL IMPLEMENTATION OF CELERITY'S PRODUCTS,
COMPETITIVE FACTORS, THE ABILITY TO MANAGE CELERITY'S GROWTH AND THE ABILITY TO
RECRUIT ADDITIONAL PERSONNEL, RISKS INVOLVING THE PROPOSED MERGER OF A
SUBSIDIARY OF CELERITY WITH FUTURETRAK INTERNATIONAL, INC., INCLUDING THAT THE
MERGER WILL NOT BE CONSUMMATED, AND OTHER RISKS DETAILED FROM TIME TO TIME IN
CELERITY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"),
INCLUDING BUT NOT LIMITED TO, THOSE DESCRIBED UNDER THE CAPTION "DESCRIPTION OF
BUSINESS - RISK FACTORS" IN CELERITY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1998, CELERITY'S REGISTRATION STATEMENT ON FORM
S-3 (REGISTRATION NO. 333-81099), CELERITY'S CURRENT REPORTS ON FORM 8-K FILED
WITH THE COMMISSION ON SEPTEMBER 14, 1999 AND SEPTEMBER 29, 1999 AND THIS FORM
8-K.
Item 5: OTHER EVENTS
LINE OF CREDIT
The following disclosure is qualified in its entirety by the Line of Credit
Agreement, Registration Rights Agreement, Escrow Agreement and Form of
Debenture, attached hereto as Exhibits 99.1 to 99.4, respectively.
Effective September 30, 1999, Celerity entered into a Line of Credit
Agreement (the "LOC Agreement") with GMF Holdings ("GMF") and May Davis
Group, Inc. ("May Davis"). Pursuant to the terms of the LOC Agreement,
Celerity may issue and sell to GMF up to $5,000,000 principal amount of
convertible debentures during the period beginning on the effective date of a
registration statement covering the Celerity common stock underlying the
debentures and ending on September 30, 2000. The maximum principal amount of
debentures Celerity may sell on any day will be between $100,000 and
$500,000, depending upon the average trading volume during the 30 preceding
trading days, minus the principal amount of any debentures sold in the 30
calendar days immediately preceding such sale.
When issued, the debentures will bear interest at the rate of 4% per annum,
payable in cash or common stock at Celerity's discretion. Interest will be due
on September 1, 2004, the maturity date of the debentures, or on any earlier
date on which any debenture is converted. The outstanding principal amount of
the debentures will be subject to mandatory conversion upon the maturity date.
The debentures will be convertible into Celerity's common stock at a price
equal to 75% of the average closing bid price of the common stock for the five
days immediately preceding the date of conversion. In no event will Celerity be
required to issue (i) an aggregate number of shares constituting more than 19.9%
of the number of shares of common stock outstanding on the date of such issuance
or (ii) a number of shares that would result in a change of control of Celerity,
unless the shareholders of Celerity approve the issuance of such shares or
Nasdaq waives the applicable requirements. Celerity has agreed to use
commercially reasonable efforts to obtain such approval or waiver if Celerity
would otherwise be required to issue such number of shares pursuant to the terms
of the debentures.
The issuance and sale of the debentures is conditional upon the
effectiveness of a registration statement with respect to the resale of the
common stock underlying the debentures. Pursuant to a registration rights
agreement, Celerity is required to maintain the effectiveness of the
registration statement with respect to the shares of common stock underlying the
debentures until such shares are freely tradeable under Rule 144 of the
Securities Act of 1933. Celerity has agreed to bear all expenses relating to the
registration of such shares, including all registration, filing and
qualification fees, printer and accounting fees, and fees and disbursements of
counsel for Celerity, except for any underwriting discounts and commissions.
The registration rights agreement also provides that Celerity will
indemnify and hold harmless GMF, any directors or officers of GMF, any person
who controls GMF, any underwriter of any of the shares underlying the debentures
or any person who controls such underwriter against any losses, claims, damages,
liabilities, expenses or actions or proceedings that arise out of or are based
upon certain statements, omissions or violations of the registration statement,
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unless any of the foregoing arise out of information furnished in writing to
Celerity by such persons. To the extent any indemnification is prohibited or
limited by law, the indemnifying party has agreed to make the maximum
contribution with respect to any amounts for which it would otherwise be liable,
subject to certain exceptions.
May Davis, the placement agent, is entitled to a fee equal to 10% of the
amount advanced to Celerity on each advance. In addition, May Davis will be
entitled to three-year warrants to purchase 50,000 shares of common stock
exercisable at $.586 per share, issuable upon the sale of each one million
dollar principal amount of debentures. Celerity hired May Davis as consultant
for financial and investment banking advice and services pursuant to an
agreement dated October 15, 1998. May Davis has acted as placement agent for
Celerity in previous transactions.
RESIGNATION OF MARK CROMWELL
On September 30, 1999, Mark Cromwell, Vice President of Engineering,
resigned from Celerity. Dennis Smith, the former Vice President of Operations,
was appointed Vice President of Engineering and Operations, effective upon that
date.
Item 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
99.1 Line of Credit Agreement, dated September 30, 1999,
between GMF Holdings, May Davis Group and Celerity
Systems, Inc.
99.2 Registration Rights Agreement, dated September 30, 1999,
between Celerity Systems, Inc. and GMF Holdings.
99.3. Escrow Agreement, dated September 30, 1999, between
Butler Gonzalez, L.L.P., Celerity Systems, Inc. and GMF
Holdings.
99.4 Form of Debenture
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 7, 1999
CELERITY SYSTEMS, INC.
By: /s/ Kenneth D. Van Meter
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Kenneth D. Van Meter
President and Chief Executive Officer
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Exhibit 99.1
LINE OF CREDIT AGREEMENT dated as of 30th day of September, 1999 (the
"Agreement") between the entities listed on Exhibit A attached hereto, GMF
HOLDINGS (collectively referred to as the "Investor"), MAY DAVIS GROUP (the
"Placement Agent") located at One World Trade Center, New York, New York, a
corporation organized under the laws of New York and CELERITY SYSTEMS, INC.,
Celerity Systems, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase up to Five
Million ($5,000,000) Dollars of Debentures for a total purchase price of Five
Million ($5,000,000) Dollars, and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and the Regulation D ("Regulation D") of the
Securities Act of 1933, as amended, and the regulations promulgated there under
(the "Securities Act"), and or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments in the Debentures to be made hereunder; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "ADVANCE" shall mean each occasion the Company elects to
exercise its right to tender an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement.
Section 1.2 "ADVANCE DATE" shall mean the date of an Advance by the
Investor to the Company.
Section 1.3 "ADVANCE NOTICE" shall mean a written notice to the
Investor setting forth the Advance Amount that the Company requests from the
Investor and Compliance Certification from the Company as attached hereto as
Exhibit B.
Section 1.4 "BID PRICE" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market, or
if the Common Stock is not traded on a Principal Market, the highest reported
bid price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc, for the five trading days immediately preceding such
date.
Section 1.5 "CLOSING" shall mean one of the closings of a purchase and
sale of the Debentures pursuant to Section 2.1.
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Section 1.6 "COMMITMENT AMOUNT" shall mean the $5,000,000 up to which
the Investor has agreed to provide to the Company in order to purchase the
Debentures pursuant to the terms and conditions of this Agreement.
Section 1.7 "COMMITMENT PERIOD" shall mean the period commencing on the
earlier to occur of the Effective Date, or (ii) such earlier date as the Company
and the Investor may mutually agree in writing, and expiring on the earliest to
occur of (x) the date on which the Investor shall have purchased Debentures
pursuant to this Agreement in the amount of at least $5,000,000 unless such date
is extended by the Investor, (y) the date this Agreement is terminated pursuant
to Section 2.4, or (z) the date occurring one year from the date hereof.
Section 1.8 "COMMON STOCK" shall mean the Company's common stock, par
value $0.001 per share.
Section 1.9 "CONDITION SATISFACTION DATE" shall have the meaning set
forth in Section 7.2.
Section 1.10 "DAMAGES" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.11 "DEBENTURES" shall mean the Debenture in the form of
Exhibit C annexed hereto.
Section 1.12 "EFFECTIVE DATE" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13 "ESCROW AGENT" shall be Butler Gonzalez, L.L.P. or its
successors.
Section 1.14 "ESCROW AGREEMENT" shall mean the document which is
annexed hereto and referenced in Section 7.1 (j) of this Agreement.
Section 1.15 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated there under.
Section 1.16 "LEGEND" shall mean that "legend" as set forth in Section
9.1.
Section 1.17 "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the ability
of the Company to enter into and perform any of its obligations under this
Agreement, the Debenture, the Registration Rights Agreement or the Escrow
Agreement in any material respect.
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Section 1.18 "MAXIMUM ADVANCE AMOUNT" on any Advance Date shall be
equal to the difference between (i) the amount indicated opposite the range of
the 30 Day Average Daily Trading Volume on such Advance Date, as set forth in
the table below and (ii) the sum of the Advances made pursuant to this
Agreement, in the 30 calendar days immediately preceding the Advance Notice:
30-DAY AVERAGE DAILY TRADING (1) MAXIMUM ADVANCE AMOUNT (2)
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$25,000 - $50,000 $100,000
$50,001 - $100,000 $200,000
$100,001 - $200,000 $350,000
$200,001 and Over $500,000
(1) The 30-Day Average Trading Volume shall be equal to the average of the Bid
Price multiplied by the volume for each of the 30 calendar days preceding the
Advance Date.
(2) Assuming that no Advances have been made pursuant to this Agreement during
the preceding 30 calendar days.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.21 "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.22 "REGISTRABLE SECURITIES" shall mean the shares of Common
Stock (i) in respect of which the Registration Statement has not been declared
effective by the SEC, (ii) which have not been sold under circumstances under
which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act ("Rule 144") are met or (iii) which have
not been otherwise transferred to holder who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
Section 1.23 "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor on the
Subscription Date annexed hereto as Exhibit D.
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Section 1.24 "REGISTRATION STATEMENT" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered there under in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.25 "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.26 "SEC" shall mean the Securities and Exchange Commission.
Section 1.27 "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28 "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC DOCUMENTS" shall meant the Form 10-KSB, Form
10-QSB's, Form 8-K's, Proxy Statements of the Company as supplemented to the
date hereof, filed by the Company for a period of at twelve (12) months
immediately preceding the date hereof or the Advance Date, as the case may be,
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.30 "SUBSCRIPTION DATE" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.31 "TRADING DAY" shall mean any day during which the New York
Stock Exchange shall be open for business.
ARTICLE II
ADVANCES
Section 2.1 INVESTMENTS.
(a) ADVANCES. Upon the terms and conditions set forth herein
(including without limitation, the provisions of Article VII hereof), on any
Advance Date the Company may request an Advance by the Investor by the delivery
of an Advance Notice. The amount of the Debenture that the Investor shall
receive pursuant to such Advance shall be equal to the amount of the Advance
specified in the Advance Notice, which Advance shall not exceed the Maximum
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Advance Amount on such date.
Section 2.2 MECHANICS.
(a) ADVANCE NOTICE. At any time during the Commitment Period,
the Company may deliver an Advance Notice to the Investor, subject to the
conditions set forth in Section 2.4; provided, however, the amount for each
Advance as designated by the Company in the applicable Advance notice shall not
be (i) less than $25,000, or (ii) more than the Maximum Advance Amount. The
aggregate amount of the Advances pursuant to this Agreement shall not exceed the
Commitment Amount, unless otherwise agreed by the Investor in the Investor's
sole and absolute discretion.
(b) DATE OF DELIVERY OF ADVANCE NOTICE. An Advance Notice
shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior
to 12:00 noon Easter Time, or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon
Eastern Time on a Trading Day or at any time on a day which is not a
Trading Day. No Advance Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 CLOSINGS. On each Advance Date for an Advance, which shall
be within five (5) Trading Days of an Advance Notice, (i) the Company shall
deliver to the Escrow Agent one or more Debentures at the Investor's option,
representing the amount of the Advance by the Investor pursuant to Section 2.1
herein, registered in the name of the Investor and (ii) the Investor shall
deliver to escrow the amount of the Advance specified in the Advance Notice by
wire transfer of immediately available funds to the Escrow Agent on or before
the Advance Date. In addition, on or prior to the Advance Date, each of the
Company and the Investor shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company and delivery
of the Debentures to the Investor shall occur out of escrow in accordance with
the conditions set forth above and those contained in the Escrow Agreement
referred to in Section 7.2(j); provided, however, that to the extent the Company
has not paid the fees, expenses, and disbursements of the Investor's counsel,
Escrow Agent, and the Placement Agent in accordance with Section 13.4, the
amount of such fees, expenses, and disbursements must be paid by the Company in
immediately available funds from the Amount of the Advance held by the Escrow
Agent, at the direction of the Investor, to Investor's counsel, the Escrow
Agent, and the Placement Agent with no reduction in the amount of Debenture on
such Advance Date.
Section 2.4 TERMINATION OF INVESTMENT. The obligation of the Investor
to make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of twenty
(20) Trading Days during the Commitment Period, for any reason other than
deferral or suspensions in accordance with the Registration Rights Agreement as
a result of corporate developments subsequent to the Subscription Date that
would require such Registration
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Statement to be amended to reflect such event in order to maintain its
compliance with the disclosure requirements of the Securities Act or (ii) the
Company shall at any time fail materially to comply with the requirements of
Section 6.3, 6.4 or 6.6.
Section 2.5 AGREEMENT TO ADVANCE FUNDS.
(a) The Investor agrees to advance the amount specified in the
Advance Notice to the Company within five Trading Days after the completion of
each of the following conditions and the other conditions set forth in this
Agreement:
(i) the execution and delivery by the Company, and the
Investor, or this Agreement, and all Exhibits and Attachments hereto;
(ii) delivery into escrow by the Company of the original
Debenture;
(iii) the Company's Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of
the Registration Rights Agreement shall have been declared effective by
the SEC;
(iv) the Company shall have obtained all permits and
qualifications required by any applicable state for the offer and sale
of the Registrable Securities, or shall have the availability of
exemptions therefrom. The sale and issuance of the Registrable
Securities shall be legally permitted by all laws and regulations to
which the Company is subject; and
(v) payment of fees as set forth in Section 13.4 below.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to, and agrees with, the Company that:
Section 3.1 ORGANIZATION AND AUTHORIZATION. Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
all right, power and authority to execute and deliver this Agreement and all
other instruments ( including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.
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Section 3.2 EVALUATION OF RISKS. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk. The Investor acknowledges that it has been furnished with,
and has carefully read the applicable form of Debenture and form of Registration
Rights Agreement.
Section 3.3 INDEPENDENT COUNSEL. The Investor acknowledges that it has
been advised to consult with its own attorney regarding legal matters concerning
the Company and to consult with its tax advisor regarding the tax consequences
of acquiring the securities issuable hereunder.
Section 3.4 NO REGISTRATION. The Investor understands that the
Debenture and Common Stock underlying the Debenture issuable hereunder have not
been registered under the Act or any other securities laws but are being offered
and sold to it in reliance upon specific exemptions from the registration
requirements of Federal and State securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investor set forth herein
in order to determine the applicability of such exemptions and the suitability
of the Investor to acquire the securities hereunder.
Section 3.5 INVESTMENT INTENT. The securities are being purchased by
the Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor is neither an underwriter, nor a dealer in, the Debenture or
the Common Stock issuable on conversion thereof. The Investor agrees not to
assign or in any way transfer the Investor's rights to the securities or any
interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer. No other person has or will have a direct or
indirect beneficial interest in the securities. The Investor agrees not to sell,
hypothecate or otherwise transfer the Investor's securities unless the
securities are registered under Federal and applicable state securities law or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.
Section 3.6 ACCREDITED INVESTOR. All of the information that the
Investor has heretofore furnished to the Company or which is set forth herein
with respect to the Investor's financial position and business experience, is
correct, complete and not misleading as of the date hereof and the Investor will
advise the Company immediately in writing of any change in any response hereto.
The Investor understands that this investment is suitable for an is available
only to "Accredited Investors," as that term is defined in Regulation D
promulgated under the 1993 Act as set forth in Exhibit E and that the Investor
satisfies at least one of the categories set forth below (please check all
applicable boxes).
[ ] a corporation, business trust, or partnership not formed for
the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000.
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[ ] any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
who has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits
and risks of the prospective investment.
an individual, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a director,
executive officer or general partner of a general partner of
that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
[ ] had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in
the current year.
[ ] any entity in which all of the equity owners are "accredited
investors."
The Investor acknowledges that the information set forth herein is not intended
to be exhaustive and is provided only as a guide to assist each potential
investor in making an independent investigation of the Company and the
Securities being offered.
Section 3.7 SEC DOCUMENTS. The Investor has carefully read and is
familiar with and has carefully reviewed the SEC Documents. The Investor has
evaluated the merits and risks of the Investor's investment in the securities,
and has determined that the securities are a suitable investment. The Investor
has availed itself of the opportunity to ask question of the Company concerning
the terms and conditions of this offering and obtained such additional
information as the Investor has deemed necessary. The Company has answered all
inquiries concerning the terms and conditions of this offering and has afforded
the Investor the opportunity to obtain any additional information (to the extent
that the Company possesses such information or can acquire it without
unreasonable effort expense) necessary to verify the accuracy of the
information.
Section 3.8 REGISTRATION RIGHTS. The parties have entered into the
Registration Rights Agreement.
Section 3.9 NO ADVERTISEMENTS. The Investor is not entering into this
Agreement as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3.10 NOT AN AFFILIATE. The Investor is not an officer, director
or "affiliate" (as
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that term is defined in Rule 405 of the Securities Act) of the Company. The
Investor agrees that following the date of the Agreement it will not, and will
cause its Affiliates not to engage in any short sales, swaps, purchasing of
puts, or other hedging activities with respect to the Common Stock or any
activity that involves the direct or indirect use of Common Stock to hedge its
investment in the Debentures until the expiration of the conversion period of
the Debentures.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below or on the Disclosure Schedule attached hereto as
Exhibit F (the "Disclosure Schedule"), the Company hereby represents and
warrants to, and covenants with, the Investors that the following are true and
correct as of the date hereof and as of the Advance Date:
Section 4.1 ORGANIZATION: QUALIFICATION. The Company is a corporation
duly organized and validly existing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority to own, lease and
operate its properties and assets, and to carry on its business as presently
conducted. The Company is qualified to do business as a foreign corporation in
each jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Company.
Section 4.2 CAPITALIZATION. The authorized capital stock of the Company
consists of Fifteen Million (15,000,000) shares of Common Stock, $0.001 par
value per share, of which, Four Million Seven Hundred and Sixty Three Four
Hundred and Twelve (4,763,412) on the date hereof, are outstanding, and Three
Million (3,000,000) shares of preferred stock, $.01 par value per share, of
which no shares are outstanding on the date hereof. All issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
Section 4.3. AUTHORIZATION. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, deliver and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the securities
issuable hereunder and the performance of the Company's obligations hereunder
have been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy as they may apply to the indemnification
provisions set forth in of this Agreement. Upon their issuance and delivery
pursuant to this Agreement, the shares of Common Stock issuable upon the
conversion of the Debentures will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances other than those
created hereunder or by the actions of the Investors; PROVIDED, however that the
securities are subject to restrictions on transfer under this Agreement or state
and/or federal securities laws. The issuance
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and sale of the securities hereunder will not give rise to any preemptive right
or right of first refusal or right to participation on behalf of any person.
Section 4.4 NO CONFLICT. Except as listed on the Disclosure Schedule
the execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default, or give rise to a right of termination, cancellation
or acceleration of any material obligation or to a loss of a material benefit,
under, any provision of the Articles of Incorporation, and any amendments
thereto, Bylaws, Stockholders Agreements and any amendments thereto of the
Company or any material mortgage, indenture, lease or other agreement, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Company, its properties or assets and which
would have a material adverse effect on the Company's business and financial
condition.
Section 4.5 NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no
MATERIAL liabilities or obligations other than those disclosed in the SEC
Documents filed by the Company for a period of twelve (12) months immediately
preceding the date hereof, or the Advance Date as the case may be, except for
(i) this Agreement or (ii) those incurred in the ordinary course of the
Company's business since, and, in each case, which individually or in the
aggregate, do not or would not have a material adverse effect on the properties,
business, condition (financial or otherwise), results of operations or prospects
of the Company. No event or circumstances has occurred or exists with respect to
the Company or its properties, business, condition (financial or otherwise),
results of operations or prospects, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed.
Section 4.6 NO DEFAULT. Except as described in the disclosure the
Disclosure Schedule, the Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its properly is bound,
and neither the execution, nor the delivery by the Company, nor the performance
by the Company of its obligations under this Agreement or any of the Exhibits or
attachments hereto, including the conversion provision of the Debentures, will
conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound, other than anti-dilution provisions of certain agreements and
instruments with respect to warrants and other Common Stock equivalents, or any
statute or the memorandum or Articles of the Company, or any decree, judgment,
order, other than anti-dilution provisions of certain agreements and instruments
with respect to warrants and other Common Stock equivalents, rules of regulation
of any court or governmental agency or body having jurisdiction over the Company
or its properties, in each case which default, lien or charge is likely to cause
a material adverse effect on the Company's business and financial condition.
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Section 4.7 ABSENCE OF EVENTS OF DEFAULT. Except for matters described
in the SEC Documents, the Disclosure Schedule and/or this Agreement, no Event of
Default, as defined in the respective agreement to which the Company is a party,
and no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (as so defined), has occurred and is
continuing, which would have a material adverse effect on the Company's
business, properties, prospects, financial condition or results of operations.
Section 4.8 GOVERNMENTAL CONSENT, ETC. Except for matters described in
the Disclosure Schedule, no consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the securities hereunder,
or the consummation of any other transaction contemplated hereby.
Section 4.9 INTELLECTUAL PROPERTY RIGHTS. Except as disclosed in the
SEC Documents, the Company has sufficient trademarks, trade names, patent
rights, copyrights and licenses to conduct its business as presently conducted
in the SEC Documents, except where failure to have any such intellectual
property would not cause a material adverse effect on the business and financial
condition of the Company. To the Company's knowledge, neither the Company nor
its products ARE infringing or will infringe any trademark, trade name, patent
right, copyright, license, trade secret or other similar right of others
currently in existence; and there is no claim being made against the Company
regarding any trademark, trade name, patent, copyright, license, trade secret or
other intellectual property right which could have a material adverse effect on
the business or financial condition of the Company.
Section 4.10 MATERIAL CONTRACTS. Except as set forth in the SEC
Documents or the Disclosure Schedule, the agreements to which the Company is a
party described in the SEC Documents are valid agreements, constitute all of the
Company's material agreements and are in full force and effect and the Company
is not in material breach or material default under any of such agreements,
except where such breach or default would not cause a material adverse effect on
the business and financial condition of the Company.
Section 4.11 LITIGATION. Except as disclosed in the SEC Documents and
the Disclosure Schedule, there is no action, proceeding or investigation
pending, or to the Company's knowledge threatened, against the Company which
might result, either individually or in the aggregate, in any material adverse
change in the business, prospects, financial conditions or operations of the
Company. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.
Section 4.12 TITLE TO ASSETS. Except as set forth in the SEC Documents,
the Company has good and marketable title to all properties and material assets
described in the SEC Documents as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company.
Section 4.13 SUBSIDIARIES. Except as disclosed in the SEC Documents,
the Company
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does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
Section 4.14 REQUIRED GOVERNMENTAL PERMITS. Except as set forth in the
SEC Documents, the Company is in possession of and operating in compliance with
all authorizations, licenses, certificates, consents, orders and permits from
state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect.
Section 4.15 OTHER OUTSTANDING SECURITIES/FINANCING RESTRICTIONS. As of
the date hereof only, other than warrants and options to acquire shares of
Common Stock as disclosed in the SEC Documents, there are no other warrants and
options registered with the SEC, which are available for sale as unrestricted
("free trading") stock.
Section 4.16 USE OF PROCEEDS. The Company represents that the net
proceeds from this offering will be used for working capital purposes and/or
general corporate purposes. However, in no event shall the net proceeds from
this offering be used by the Company for the payment (or loaned to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director, or employee of the Company.
Section 4.17 FURTHER REPRESENTATION AND WARRANTIES OF THE COMPANY. For
so long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will use commercially reasonable efforts to maintain the listing of its Common
Stock on the NASDAQ Small Cap Stock Market.
Section 4.18 SEC FILINGS/FULL DISCLOSURE. For a period of at least
twelve (12) months immediately preceding the date hereof or the Advanced Date,
as the case may be, none of the Company's filing with the Securities and
Exchange Commission have been amended or supplemented as provided in the SEC
Documents) contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statement
therein in light of the circumstances under which they were made, not misleading
as of the date of such filing (or in such amendment or supplement, as the case
may be). The Company has timely, subject to permitted extensions, filed all
requisite forms, reports and exhibits thereto with the Securities and Exchange
Commission.
Section 4.19 FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been disclosed in writing to the Investor that (i) could reasonably be
expected to have a material adverse effect on the financial condition or in the
earnings, business affairs, business prospects, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
Section 4.20 OPINION OF COUNSEL. Investor shall receive an opinion
letter from counsel to the Company (updated where applicable) prior to each
Closing substantially to the effect that:
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(a) the Company is incorporated and validly existing in the
jurisdiction of its incorporation. The Company and/or its subsidiaries are duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where, to such counsel's knowledge, the Company and/or its
subsidiaries owns or leases properties, maintains employees or conducts
business, except for jurisdictions in which the failure to so qualify would not
have a material adverse effect on the Company, and has all requisite corporate
power and authority to own its properties and conduct its business.
(b) to such counsel's knowledge, except for matters disclosed
in the SEC Documents, there is no action, proceeding or investigation pending,
or threatened against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business or financial
condition of the Company.
(c) to such counsel's knowledge, except for matters disclosed
in the SEC Documents, the Company is not a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.
(d) the shares of Common Stock issuable upon the conversion of
the Debentures, based on the Bid Price on the day of such closing, have
been duly authorized and upon issuance will be validly issued under the
laws of the Company's state of incorporation.
(e) this Agreement, the issuance of the Debentures hereunder,
and the shares of Common Stock issuable upon conversion of the Debentures, have
been duly approved by all required corporate action and that all such shares of
Common Stock, upon execution and delivery that shall be validly issued and
outstanding, fully paid and nonassessable.
(f) the issuance of the Debentures and the shares of Common
Stock issuable upon conversion thereof, does not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed.
(g) the authorized capital stock of the Company consists of
Fifteen Million (15,000,000) shares of Common Stock, $0.001 par value per share,
and Three Million (3,000,000) shares of preferred stock, $0.01 par value per
share.
(h) the Common Stock is registered pursuant to Section 12(g)
of the Securities and Exchange Act of 1934
Section 4.21 OPINION OF COUNSEL. The Company will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to convert, exercise or sell the securities
issuable hereunder, including, but not limited to, obtaining for Investors, at
the Company's expense an opinion of counsel, subject only to receipt of a Notice
of Conversion in the form of Exhibit F, duly executed by the Investor which
shall be satisfactory to the Transfer Agent, directing the Transfer Agent to
remove the self-liquidating
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legend.
Section 4.22 DILUTION. The Company is aware and acknowledges that
conversion of the Debentures could cause dilution to existing shareholder and
could significantly increase the outstanding number of shares of Common Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND INVESTOR
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1 LINE OF CREDIT AGREEMENT. This Agreement has been duly
authorized, validly executed and delivered on behalf of the Company and the
Investor and is a valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
Section 5.2 NON-CONTRAVENTION. Subject to the exceptions referred to
elsewhere in this Agreement (including the Disclosure Schedule) the execution
and delivery of this Agreement along with all Exhibits and Attachments, and the
consummation of the issuance of the securities and the transactions contemplated
by this Agreement do not and will not conflict with or result in a breach by the
Company or the Investor of any of the terms or provisions of, or constitute a
default under, the articles of incorporation or by-laws of the Company or the
Investor, or any indenture, mortgage, deed of trust of other material agreement
or instrument to which the Company or the Investor is a party or by which it or
any of its properties or assets are bound, or any existing applicable law, rule
or regulation or any applicable decree, judgment or order of any court, Federal
or State regulatory body, administrative agency or other governmental body
having jurisdiction over the Company or Investor or any of its properties or
assets.
Section 5.3 APPROVALS. Neither the Company nor Investor is aware of any
authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the securities.
Section 5.4 INDEMNIFICATION. Each of the Company and the Investors
agree to indemnify the other and to hold the other harmless from and against any
and all losses, damages, liabilities, costs and expenses (Including reasonable
attorneys' fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
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Section 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. The Company shall authorize
and reserve and keep available at all times, free of preemptive rights, shares
of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue shares of Common Stock underlying the Debentures, such
number of shares of Common Stock to be reserved shall be calculated based upon
the Bid Price of the Common Stock from time to time while such Debentures are
outstanding. The number of shares so reserved from time to time, while such
Debentures are outstanding, as theretofore increased or reduced as hereinafter
provided, may be limited to shares issuable under outstanding Debentures at the
Bid Price reduced by the number of shares actually delivered pursuant to the
Debentures and the number of shares so reserved shall be increased or decreased
to reflect potential increases or decreases in the Common Stock that the Company
may thereafter be so obligated to issue.
Section 6.3 LISTING OF COMMON STOCK. The Company further agrees, if the
Company applies to have the Common Stock traded on any Principal Market, other
than the Nasdaq Small Cap Market, it will include in such application the shares
of Common Stock issuable upon the conversion of the Debentures and will take
such other action as is necessary or desirable in the opinion of the investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible and will use commercially reasonable efforts to comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company will cause its
Common Stock to continue to be registered under Section 12(g) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules there under
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth herein.
Section 6.6 CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
SECTION 6.7 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION: SUSPENSION
OF RIGHT TO MAKE AN ADVANCE. The Company will immediately notify the Investor
upon its becoming aware of the occurrence of any of the following events in
respect of a registration statement or related prospectus relating to an
offering of Registrable Securities; (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or
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state governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose; (iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) subject to the Registration Rights Agreement
the happening of any event that makes any statement made in the Registration
Statement or related prospectus of any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any
Advance Notice during the continuation of any of the foregoing events.
Section 6.8 EXPECTATIONS REGARDING ADVANCE NOTICES. Within ten (10)
days after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.9 CONSOLIDATION: MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.10 ISSUANCE OF DEBENTURES. The sale of the Debentures and the
issuance of the shares of Commons Stock pursuant to conversion hereof shall be
made in accordance with the provision and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state securities law.
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ARTICLE VII
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL THE DEBENTURES. The obligation hereunder of the Company to issue
and sell the Debentures to the Investor incident to each Closing is subject to
the satisfaction, or waiver by the Company, at or before each such Closing, of
each of the conditions set forth below.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date of
each such Closing as though made at each such time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER
AN ADVANCE NOTICE AND THE OBLIGATION OF THE INVESTOR TO PURCHASE DEBENTURES. The
right of the Company to deliver an Advance Notice and the obligation of the
Investor hereunder to acquire and pay for the Debentures incident to a Closing
is subject to the satisfaction or waiver by the Investor, on (i) the date of
delivery of such Advance Notice and (ii) the applicable Advance Date (each a
"Condition Satisfaction Date"), of each of the following conditions:
(a) REGISTRATION OF THE COMMON STOCK WITH THE SEC. The Company
shall have filed with the SEC a Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement. As set forth in the Registration Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist. The Registration Statement must have been declared
effective by the SEC prior to the first Advance Date.
(b) AUTHORITY. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the Debentures and the
shares of Common Stock issuable
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upon the conversion thereof, or shall have the availability of exemptions
therefrom. The sale and issuance of the Debentures and the shares of Common
Stock issuable upon the conversion thereof shall be legally permitted by all
laws and regulations to which the Company is subject.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made at
each such time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Debenture and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company at or prior to each Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred, other than possible de-listing of the
Common Stock from the Nasdaq Smallcap Market.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
The trading of the Common Stock is not suspended by the SEC or the Principal
Market (if the Common Stock is traded on a Principal Market). The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder approval requirements of the Principal Market (if the
Common Stock is traded on a Principal market). The Company shall not have
received any notice threatening the listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
(h) MAXIMUM ADVANCE AMOUNT. The amount of the advance
requested by the Company does not exceed the Maximum Advance Amount.
(i) NO KNOWLEDGE. The Company has no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective (which event is more likely than not to
occur within the fifteen (15) Trading Days
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following the Trading Day on which such Notice is deemed delivered).
(j) ESCROW AGREEMENT. The parties hereto shall have entered
into the Escrow Agreement in the form annexed hereto.
(k) OTHER. On each Condition Satisfaction Date, the Investor
shall have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in order
for the Investor to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2, including, without limitation, a certificate in
substantially the form and substance of Exhibit "B" hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 DUE DILIGENCE REVIEW. Prior to the filing of the
Registration Statement the Company shall make available for inspection and
review by the Investor, advisors to and representatives of the Investor, any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investor pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2 NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose non-public information to
the Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
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(b) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
LEGENDS
Section 9.1 LEGENDS. The Debentures will bear, and the Common Stock
will also bear a similar a legend, substantially in the form below (the
"Legend"):
THESE SECURITIES AND THE SHARES ISSUABLE UPON CONVERSION
HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
ARTICLE X
CHOICE OF LAW/JURISDICTION
Section 10.1 CHOICE OF LAW: VENUE: JURISDICTION. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of Delaware, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the
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parties consents to the jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York or the state courts of the State of
New York sitting in Manhattan in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS to the bringing
of any such proceeding in such jurisdictions. Each party hereby agrees that if
another party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
ARTICLE XI
ASSIGNMENT; TERMINATION
Section 11.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall insure to the benefit of, and be enforceable by, any permitted transferee
of any of the Debentures purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) upon the prior written
consent of the Company, which consent shall not unreasonably be withheld, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the Investor)
who agrees to make the representations and warranties contained in Article III
and who agrees to be bound by the covenants of Article V.
Section 11.2 TERMINATION. The obligations of the Investor to make
Advances under Article II hereof shall terminate one (1) year after the date
hereof.
ARTICLE XII
NOTICES
Section 12.1 NOTICES. All notices, demands, requests, consents,
approvals and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice.
Any notice or other communication requested or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation
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generated by the transmitting facsimile machine, at the address or number
designed below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on upon actual receipt of any
mailing or delivery, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: 1400 Centerpoint Blvd.
Knoxville, Tennessee, 37932
If to the Investor, at the address listed on Schedule A.
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 COUNTERPARTS/FACSIMILE/AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original This Agreement may be amended only by a writing
executed by all parties.
Section 13.2 ENTIRE AGREEMENT. This Agreement, the Exhibits or
Attachments hereto, which include but are not limited to the Debenture, the
Escrow Agreement, and the Registration Rights Agreement set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understanding between the parties, both oral and writing relating to the line of
credit.
Section 13.3 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
Section 13.4 FEES AND EXPENSES. Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such
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party) in connection with this Agreement and the transactions contemplated
hereby, except that the Company will pay the sum of Twenty Thousand ($20,000)
Dollars, to Butler Gonzalez, L.L.P. for legal, administrative, and escrow fees,
on the first day the Registration Statement becomes effective. Subsequently on
each advance date, the Company will pay Butler Gonzalez, L.L.P., the Escrow
Agent, the sum of One Thousand Five Hundred ($1,500) Dollars for escrow fees. On
each advance date the Company shall pay the Placement Agent an amount equal to
10% of the advance. The Company hereby agrees that if such payment, as is
described above, is not made by the Company on the advance date, such payment
will be made at the direction of the Investor as outlined and mandated by
Section 2.3 of this Agreement.
Section 13.5 BROKERAGE. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment
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of any fee or commission from the other party, other than the Placement Agent.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.6 CONFIDENTIALITY. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
IN WITNESS WHEREOF, the parties hereto have caused this Line of Credit Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
PLACEMENT AGENT
May Davis Group, Inc.
BY: /s/ Michael Jacobs
-------------------
Name: Michael Jacobs
Title: Managing Director
CELERITY SYSTEMS, INC.
BY: /s/ Kenneth D. Van Meter
----------------------------
Name: Kenneth D. Van Meter
Title: President/CEO
INVESTOR
GMF Holdings
BY: /s/ Diego Davis
------------------
Name: Diego Davis
Title:
<PAGE>
Exhibit 99.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dates as of , 1999 between Celerity Systems,
Inc., a Delaware corporation, with executive offices at 1400 Centerpoint Blvd.,
Knoxville Tennessee 37932 (the "Company") and GMF Holdings,. (the "investor").
WITNESSETH
WHEREAS, the Company is offering the (the "Offering") up to
$5,000,000.00 of debentures (the "Debentures") to the Investor: and
WHEREAS, in connection with the sale of the Debentures the Company is
granting to the Investor the right to purchase upon the conversion of Debentures
the number of shares of common stock of the Company, par value $0.001 per share
(the "Common Stock") equal to (i) the principal amount of the Debentures (ii)
divided by 75% of the Bid Price of the Common Stock on the date of Conversion.
NOW THEREFORE, the parties hereto hereby agrees as follows:
I. DEFINITIONS
All capitalized terms not hereinafter defined shall have the meanings
ascribed to them in the Line of Credit Agreement.
"BID PRICE" shall mean , on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market, or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc., for the five trading days immediately preceding such
date.
"COMMISSION." United States Securities and Exchange Commission or any
successor regulatory body.
"COMMON STOCK." As defined in the third recital hereof.
"COMPANY." As defined in the Line of Credit Agreement.
"DEBENTURES." As defined in the Line of Credit Agreement.
"EXCHANGE ACT." Securities Exchange Act of 1934, as amended.
"INVESTOR." As defined in the first recital hereof.
<PAGE>
"OFFERING." As defined in the first recital hereof.
"PREFERRED STOCK." As defined in the first recital hereof.
"REGISTRATION." A registration effected by preparing and filing a
registration statement or statements or similar documents in compliance with the
Securities Act and the declaration or ordering of effectiveness of such
registration statement or document by the Commissioner; included in such
definition shall be correlative terms ARegister" and ARegistered".
"PREFERRED STOCK." As defined in the first recital hereof.
"REGISTRATION." A registration effected by preparing and filing a
registration statement or statements or similar documents in compliance with the
Securities Act and the declaration or ordering of effectiveness of such
registration statement or document by the Commission; included in such
definition shall be the correlative terms ARegister" and ARegistered".
"REGISTRABLE SECURITIES." The shares of Common Stock issuable upon the
conversion of the Debentures that have not previously been sold pursuant to a
Registration Statement or Rule 144 and that are not eligible for sale under Rule
144(k) (or any successor provision.).
"REGISTRATION STATEMENT." The registration statement under the
Securities Act covering the resale of the Registrable Securities.
"RULE 144". Rule 144 under the Securities Act.
"RULE 415." Rule 415 under the Securities Act, or any successor rule
providing for offering securities on a continuous basis.
"SECURITIES ACT." As defined in the third recital hereof.
"VIOLATIONS." As defined in Section 4.01 (a) hereof.
II REGISTRATION RIGHTS.
SECTION 2.01 MANDATORY REGISTRATION .
(a) Registration is mandatory :
(i) On or prior to the issuance of the Debentures pursuant to the Line
of Credit Agreement, the Company shall have caused a Registration Statement
covering the resale of the Registrable Securities issuable upon the conversion
of the Debentures to be declared effective and the Company shall cause the
Registration Statement to remain effective until all of the Registrable
Securities have been sold. The Registration Statement shall cover no less than
the number of shares of Common Stock issuable upon the conversion of all
outstanding Debentures
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based upon the Bid Price of the Common Stock upon the date of the initial filing
with the SEC.
(ii) In the event that the Registration Statement does not at any time
cover the requisite number of Registrable Securities, as provided in 2.01 (a)
(i), the Company shall prepare and file with the Commission, no later than
thirty (30) days after such date, a Registration Statement covering the number
of shares of Common Stock, as provided in 2.01 (a) (i). If at any time the
number of shares of Common Stock into which the Debentures may be converted
exceeds the aggregate number of shares of Common Stock then registered, the
Company shall, within thirty (30) days after receipt of a written notice from
the Investor, either (a) amend the Registration Statement filed by the Company
pursuant to the preceding sentence, if such Registration Statement has not been
declared effective but the Commission at the time, to register additional shares
of Common Stock into which the Debentures as provided above may be converted, or
(b) if such Registration Statement has been declared effective by the Commission
at that time, file with the Commission an additional Registration Statement to
register such additional shares of Common Stock.
(b) In the event that the Registration Statement referred to in Section
2.01 (a) (i) does not cover the requisite number of Registrable Securities, as
provided in Section 2.01 (a) (i), then the Company shall pay to the Investor an
amount equal to two 2% percent of the principal amount and the accrued interest
on the Debentures (the "Outstanding Amount") for each month or portion thereof
and continuing each amount month thereafter until the date the Registration
Statement is declared effective by the Commission (the "2.01 (a) Payment"). The
2.01 (a) Payment shall be paid in immediately available funds with three (3)
business days after the end of each month. If the Investor elects to have the
2.01 (a) Payment paid in shares of Common Stock, then such amount may be
converted into shares of Common Stock in accordance with the terms of the
Debentures.
SECTION 2.02 PERIOD OF EFFECTIVENESS. The Company shall cause the
Registration Statement to become effective under the Securities Act and maintain
such effectiveness for the period terminating on the date on which the Investor
with respect to the Registrable Securities can sell the Registrable Securities
pursuant to Rule 144 under the Securities Act without restriction under Rule
144(e) thereof.
SECTION 2.03 OBLIGATIONS OF THE COMPANY. The Company Shall:
(a) Cause the Registration Statement to become effective under the
Securities Act and keep the Registration Statement effective under the
Securities Act pursuant to Rule 415 at all times until the date on which the
Investor with respect to the Registrable Securities can sell the Registrable
Securities pursuant to Rule 144 under the Securities Act without restriction
under Rule 144(e) thereof.
(b) Prepare and file with the Commission such amendments (including
post effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective under the Securities Act
at all times until the date on which the Investor can
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sell the Registrable Securities pursuant to Rule 144 of the Securities Act
without restriction under Rule 144 (e) thereof, and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement.
(c) Furnish promptly to the Investor such numbers of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as the Investor may reasonably request in order to
facilitate the disposition of Registrable Securities.
(d) Register and qualify the securities covered by the Registration
Statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably requested by the Investor, and prepare and file in those
jurisdictions such amendments (including post effective amendments) and
supplements and take such other actions as may be necessary to maintain such
registration and qualification in effect at all times until the date on which
the Investor can sell the Registrable Securities pursuant to Rule 144 of the
Securities Act without restriction under Rule 144(e) thereof and to take all
other actions necessary or advisable to enable the disposition of such
securities in such jurisdiction, provided that the Company shall not be required
in connection therewith, or as a condition thereto, to quality to do business or
to file a general consent to service of process in any such state or
jurisdictions or to provide any undertaking or make any change in its charter or
by-laws which the Board of Directors determines to be contrary to the best
interest of the Company and its stockholders.
(e) Notify the Investor, at any time when a prospectus relating to
Registrable Securities covered by the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Company shall promptly amend or supplement the Registration
Statement to correct any such untrue statements or omission.
(f) Notify the Investor of the issuance by the Commission or any state
securities commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceeding for such purpose. The
Company will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof at the
earliest possible time.
(g) Permit single firm of counsel designated by the holders of a
majority in interest of the Registrable Securities to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing, and not file any document in a form to which such counsel
reasonably objects.
(h) Make generally available to its security holders as soon as
practicable, but not later than 90 days after the close period covered thereby,
an earnings statement (in form complying with the provisions of Rule 158 under
the Securities Act ) covering a twelve-month period beginning not later that the
first day of the Company's fiscal quarter next following the
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effective date of the Registration Statement.
(i) Make available for inspection by the Investor, any underwriters
participating in offering pursuant to the registration, and the counsel,
accountants, or other agents retained by the Investor or any such underwriter,
all pertinent financial and other records, corporate documents, and properties
of the Company, and cause the Company's officers, directors, and employees to
supply all information reasonably requested by the Investor or any such
underwriters in connection with the registration.
(j) If the Common Stock in then listed on a national securities
exchange, cause the Registrable Securities to be listed on such exchange. If the
Common Stock is not then listed on a national securities exchange, facilitate
the reporting of the Registrable Securities on the Nasdaq Bulletin Board, the
Nasdaq SmallCap Market, or the Nasdag National Market, as applicable.
(k) Provide a transfer agent and register, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement under the Securities Act.
(l) Take all actions reasonable necessary to facilitate the timely
preparation and delivery of certificates representing the Registrable Securities
to be sold pursuant to the Registration Statement and to enable such
certificates to be in such denominations and Registered in such names as the
Investor or any Underwriters may reasonably request.
(m) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
III. FURNISH INFORMATION
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to each 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
such securities as shall be reasonably required to effect the registration of
the Registrable Securities and shall execute such documents in connection with
such registration as the Company may reasonably require to effect the
Registration of the Registrable Securities and shall execute such documents in
connection with the registration as the Company may reasonably request.
IV. INDEMNIFICATION AND CONTRIBUTION
SECTION 4.01 INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To extent permitted by law, the Company will indemnify and hold
harmless each Investor, the directors, if any, of such Investor, the officers,
if any, of such Investor who signed
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the Registration Statement, each person, if any, who controls such Investor, any
underwriter (as defined in the Securities Act) of any of the Registrable
Securities and each person, if any, who controls any such underwriter within the
meaning of the Securities Act or the Exchange Act against any losses, claims,
damages, expenses, or liabilities or actions or proceedings, whether commenced
or threatened, in respect thereof that arise out of, or are based upon, any of
the following statements, omissions or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of a material of fact
contained in the Registration Statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omissions to state therein a material of 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; or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law, or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse the Investor and each such underwriter or controlling
person, promptly as such expenses are incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding provided however, that
the indemnity agreement contained is this Section 4.01 (a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
or proceeding if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld, nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
or proceeding to the extent that it arises out of, or is based upon, a Violation
which occurs in reliance upon, and in conformity with, written information
furnished expressly for use in connection with such registration by the Investor
or any such underwriter or controlling person, as the case be. Such indemnity
shall remain in full force and effect regardless of any investigation made by,
or on behalf of, the Investor or any such underwriter or controlling person
shall survive the transfer of the Registrable Securities by the Investor.
(b) To the extent permitted by law, each Investor, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities Act or
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement, or any of its directors or officers or
any person who controls such holder or underwriter, against any losses, claims,
damages, or liabilities (joint or several) to which any of them may become
subject, under the Securities Act, the Exchange Act, or other federal or state
law, insofar as such losses, claims, damages, or liabilities or actions in
respect thereof arise out of, or are based upon, any 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 by such Investor expressly
for use in connection with such registration; and such investor will reimburse
any legal or other expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 4.01(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of such Investor, which consent shall not be unreasonably withheld; and
provided, further that the Investor shall be liable under this paragraph
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for only that amount of losses, claims, damages, and liabilities as does not
exceed the proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such registration.
(c) Promptly after receipt by an indemnified party under this Article
IV of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Article IV, 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
reasonably satisfactory to the indemnified party; provided, however, that an
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 for the indemnified party, representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding; notwithstanding the
foregoing, the indemnifying party or parties shall be responsible for only one
counsel representing the indemnified party or parties. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Article IV only to the extent
prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to nay indemnified party otherwise than under this Article IV.
The indemnification required by this Article IV shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, promptly as such expense, loss, damage, or liability is incurred.
SECTION 4.02 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 4.01 hereof to the extent permitted by
law, provided that (i) no contribution shall be made under circumstances where
the contributor would not have been liable for indemnification under the fault
standards set forth in Section 4.01 hereof, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty or such fraudulent
misrepresentation, and (iii) 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.
V. REPORT UNDER EXCHANGE ACT.
With a view to making available to the Investor the benefits of Rule
144 and any other rule or regulation of the Commission that may at any time
permit the Investor to sell securities of the Company to the public without
registration, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144;
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(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) Furnish to each Investor, so long as such Investor owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act, and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing the Investor of any rule or regulation of the Commission which permits
the selling of any such securities without registration.
VI. ASSIGNMENT OF REGISTRATION RIGHTS.
The right to have the Company register Registrable Securities under the
Securities Act pursuant to this Agreement may be assigned by the Investor to
permitted transferees or assignees of such securities; provided, that such
transferee or assignee, within a reasonable time after such transfer, furnishes
the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; provided, further, that such assignment shall be effective only
if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
The term "Investor" as used in this Agreement shall included permitted
assignees.
VII. EXPENSES OF REGISTRATION.
All expenses other than the underwriting discounts and commissions
incurred in connection with registration, filings, or qualifications pursuant to
Article II hereof, including, without limitation, all registration, listing,
filing, and qualification fees, printers, accounting fees, fees and
disbursements of counsel for the Company shall be borne by the Company.
VIII. MISCELLANEOUS.
SECTION 8.01 FURTHER ACTIONS. At any time and from time to time, each
party agrees, at its expense, to take such actions and to execute and deliver
such documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
SECTION 8.02 ENTIRE AGREEMENT; MODIFICATION. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements among them concerning such subject
matter, and may be modified only by a written instrument duly executed by each
party hereto.
SECTION 8.03 NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing, and, if sent to any
Investor, shall be mailed,
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delivered, or telexed or telegraphed and confirmed by letter, to such Investor
at the address set forth on the signature page hereof, or if sent to the
Company, shall be mailed, delivered, or telexed or telegraphed and confirmed by
letter, to 1400 Centerpoint Boulevard, Knoxville, Tennessee 37932. All notices
hereunder shall be effective upon receipt by the party to which it is addressed.
SECTION 8.04 WAIVER. Any waiver by any party of a breach of any term of
this Agreement shall not operate as, or be construed to be, a waiver of any
other breach of that term or of any breach of any other term of this Agreement.
The failure of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions will not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement. Any waiver hereunder must be in writing.
SECTION 8.05 BINDING EFFECT. The provisions of this Agreement shall be
binding upon, and inure to the benefits of, the parties hereto and their
respective successors and assigns; PROVIDED, HOWEVER, that, except as otherwise
provided herein, no party hereto shall have the right to assign its rights and
obligations hereunder without the prior written consent of the other parties
hereto.
SECTION 8.06 NO THIRD-PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement, except as otherwise provided herein.
SECTION 8.07 SEPARABILITY. If any provision of this Agreement is
invalid, illegal, or unenforceable, the balance of this Agreement shall remain
in effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and circumstances.
SECTION 8.08 HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 8.09 COUNTERPARTS; GOVERNING LAW. This Agreement may be
executed in any number of counterparts, each of which shall be deemed as
original, but all of which together shall constitute one and the same
instrument. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to conflicts of
laws. Each of the parties consents to the jurisdiction of the U.S. District
Court sitting in the Southern District of the State of New York or the state
courts of the State of New York sitting in Manhattan in connection with any
dispute arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on FORUM NON
CONVENIENS to the bringing of any such proceeding in such jurisdictions.
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IN WITNESS WHEREOF, the parties have executed this instrument as of the
day and year first above written.
COMPANY
CELERITY SYSTEMS, INC.
By: /s/ Kenneth D. Van Meter
--------------------------
Name: Kenneth D. Van Meter
Title: President/CEO
INVESTOR
GMF HOLDINGS
By: /s/ Diego Davis
-----------------------
Name: Diego Davis
Title:
Address:
<PAGE>
Exhibit 99.3
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of September 30, 1999 (this "Escrow
Agreement") among Butler Gonzalez, L.L.P., as escrow agent (the "Escrow Agent"),
and Celerity Systems, Inc., a Delaware corporation, having an address at 1400
Centerpoint Boulevard, Knoxville, Tennessee, 37932 (the "Company"), and GMF
Holdings, ("Investor").
WHEREAS, Investor and the Company have entered into line of credit
agreement (the "Agreement") date as of the 30th of September 1999 whereby
Investor agreed to grant bridge financing to the Company, subject to the terms
and conditions of the Agreement.
WHEREAS, pursuant to Agreement, Investor and the Company agreed to
enter into this Escrow Agreement with Escrow Agent in order for Escrow Agent to
hold the Advance Amount (as delivered to Escrow Agent by Investor) and the
certificates representing the shares (as delivered to Escrow Agent by the
Company) for release to the Company and Investor, respectively, in accordance
with this Agreement; and
NOW, THEREFORE, Investor, the Company and the Escrow Agent hereby agree
as follows:
1. APPOINTMENT OF ESCROW AGENT; DEPOSIT OF ESCROW AMOUNT AND
DEBENTURES. The Company and Investor hereby constitute and appoint the Escrow
Agent as, and the Escrow Agent hereby agrees to assume and perform the duties of
the escrow agent under and pursuant to this Escrow Agreement. The Escrow Agent
acknowledges that he will receive from the Company Debentures corresponding to
such Advance Amount, as provided in the Agreement.
2. ESCROW FUND; DEBENTURES. The Escrow Fund shall be held by the Escrow
Agent in a separate account maintained for the purpose of effecting the
Closings, on the terms and subject to the conditions of this Escrow Agreement.
The Escrow Agent shall hold in escrow the Debentures separately from the Escrow
Fund and agrees that the Debentures shall be held on the terms and subject to
the conditions set forth herein. The Debentures and the Escrow Fund shall not be
subject to lien or attachment by any creditor of any part hereto and shall be
used solely for the purpose set forth in this Escrow Agreement. The Debentures
and the Escrow Fund shall not be available to, and shall not be used by, the
Escrow Agent to set off any obligations of either Investor or the Company owing
to the Escrow Agent in any capacity, except as expressly provided in Section 2.1
of the Agreement.
3. DELIVERIES TO EFFECT CLOSING. Upon the receipt by the Escrow Agent
of the Debentures, Investor and the Company shall irrevocably instruct the
Escrow Agent to pay over to the Company the amount of the advance in the Escrow
Fund, in immediately available funds to a bank account of the Company's
designation, except as expressly provided in Section 2.3 of the agreement.
<PAGE>
4. RELEASE OF ESCROW FUND AND DEBENTURES UPON FAILURE TO CLOSE. If upon
the expiration of two (2) Trading Days after any Closing Date, the Escrow Agent
has not received the Debentures with respect to such Closing Date, the Investor
and the Company irrevocably instruct the Escrow Agent to pay over to Investor
all amounts of the Escrow Fund, in immediately available funds, to a bank
account or Investor's designation.
5. DUTIES AND OBLIGATIONS OF THE ESCROW AGENT. The duties and
obligations of the Escrow Agent are purely ministerial and shall be limited to
and determined solely by the provisions of this Agreement. The Escrow Agent is
not charged with knowledge of or any duties or responsibilities in respect of
any other agreement or document. In furtherance and not in limitation of the
foregoing:
(i) the Escrow Agent shall not be liable for any loss of
interest sustained as a result of investments made hereunder
in accordance with the terms hereof, including any liquidation
of any investment of the Escrow Fund prior to its maturity
effected in order to make a payment required by the terms of
this Escrow Agreement;
(ii) the Escrow Agent shall be fully protected in relying in
good faith upon any written certification, notice, direction,
request, waiver, consent, receipt or other document that the
Escrow Agent reasonably believes to be genuine and duly
authorized, executed and delivered;
(iii) the Escrow Agent shall not be liable for any error of
judgment, or for any act done or omitted by it, or for any
mistake in fact or law, or for anything that if may do or
refrain from doing in connection herewith; PROVIDED, HOWEVER,
that notwithstanding any other provision in this Agreement,
the Escrow Agent shall be liable for its willful misconduct or
gross negligence or breach of this Agreement.
(iv) the Escrow Agent may seek the advice of legal counsel
selected with reasonable care in the event of any dispute or
question as to the construction of any of the provisions of
this Agreement or its duties hereunder, and it shall incur no
liability and shall be fully protected in respect of any
action taken, omitted or suffered by it in good faith in
accordance with the opinion of such counsel;
(v) in the event that the Escrow Agent shall in any instance,
after seeking the advice of legal counsel pursuant to the
immediately preceding clause, in good faith be uncertain as to
its duties or rights hereunder, it shall be entitled to
refrain from taking any action in that instance and its sole
obligation, in addition to those of its duties hereunder as to
which there is no such uncertainty, shall be to keep safely
all property held in the Escrow Fund until it shall be
directed otherwise in writing by each of the parties hereto or
by a final, nonappealable order of a court
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<PAGE>
of competent jurisdiction; PROVIDED, HOWEVER, in the event
that the Escrow Agent has not received such written direction
or court order within one hundred eighty (180) calendar days
after requesting the same, it shall have the right to
interplead Investor and the Company in any court of competent
jurisdiction and request that such court determine its rights
and duties hereunder; and
(vi) the Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder
either directly or by or through agents or attorneys selected
with reasonable care, nothing in this Agreement shall be
deemed to impose upon the Escrow Agent any duty to qualify to
do business or to act as fiduciary or otherwise in any
jurisdiction other than the State of New York and the Escrow
Agent shall not be responsible for and shall not be under a
duty to examine into or pass upon the validity, binding
effect, execution or sufficiency of this Agreement or of any
agreement amendatory or supplemental hereto.
6. COOPERATION. Investor and the Company shall provide to the Escrow
Agent all instruments and documents within their respective powers to provide
that are necessary for the Escrow Agent to perform its duties and
responsibilities hereunder.
7. EXPENSES: INDEMNITY. The company hereby agrees to pay or reimburse
the Escrow Agent upon request for all expenses, disbursement and advances,
including reasonable attorney's fees, incurred or made by it in connection with
the preparation, execution, performance, delivery, modification and termination
of this Agreement; provided that Investor shall bear all expenses of the
investment and reinvestment of the Escrow Fund. The Company hereby agrees to
indemnify the Escrow Agent for, and to hold it harmless against any loss,
liability or expense arising out of or in connection with this Agreement and
carrying out its duties hereunder, including the costs and expenses of defending
itself against any claim of liability, except in those cases where the Escrow
Agent has been guilty of gross negligence, willful misconduct or in breach of
this Agreement. Anything in this Agreement to the contrary notwithstanding, in
no event shall the Escrow Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits) even if the Escrow Agent has been advised of the likelihood of such
loss or damage and regardless of the form of action. The provisions of this
Section shall survive any termination of this Agreement, whether by disbursement
of the collateral held, resignation of the Escrow Agent, or otherwise.
8. RESIGNATION AND REMOVAL OF THE ESCROW AGENT.
(a) The Escrow Agent may resign as such thirty (30) calendar days
following the giving of prior written notice thereof to the Company and
Investor. In addition, the Escrow Agent may be removed and replaced on a date
designated in a written instrument signed by the Company and Investor and
delivered to the Escrow Agent. Notwithstanding the foregoing, no such
resignation or removal shall be effective until a successor escrow agent has
acknowledged its appointment as such as provided in paragraph (c) below. In
either event, upon the effective date of such resignation or removal, the Escrow
Agent shall deliver the property comprising the Escrow Fund and the Stock
Certificate to such successor escrow agent, together with such
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<PAGE>
records maintained by the Escrow Agent in connection with its duties hereunder
and other information with respect to the Escrow Fund as such successor may
reasonably request.
(b) If a successor escrow agent shall not have acknowledged its
appointment as such provided in paragraph (c) below, in the case of a
resignation, prior to the expiration of thirty (30) calendar days following the
date of a notice of resignation or in the case of a removal, on the date
designated for the Escrow Agent's removal, as the case may be, because the
Company and Investor are unable to agree on a successor escrow agent, or for any
other reason, the Escrow Agent may select a successor escrow agent and any such
resulting appointment shall be binding upon all of the parties to this
Agreement, provided that any such successor selected by the Escrow Agent shall
be a depository institution or trust company that is designated in writing by
the Investor and is incorporated under the laws of the United States of America,
any State thereof or the District of Columbia and has total assets in excess of
U.S. $500 million.
(c) Upon written acknowledgment by a successor escrow agent appointed
in accordance with the foregoing provisions of this Section of its agreement to
serve as escrow agent hereunder and the receipt of the property then comprising
the Escrow Fund and the Debentures, the Escrow Agent shall be fully released and
relieved of all duties, responsibilities and obligations under this Agreement,
subject to the provisions contained in clause (iii) of Section 5, and such
successor escrow agent shall for all purposes hereof be the Escrow Agent.
9. NOTICES. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given if delivered
personally or by facsimile transmission (with confirmation generated by the
sending machine) or mailed (first class postage prepaid) to the parties at the
following addresses or facsimile numbers:
If to the Company:
CELERITY SYSTEMS, INC.
1400 Centerpoint Boulevard
Knoxville, Tennessee, 37932
If to the Investor:
GMF Holdings
131 Fredrick Street
Nassau, Bahamas
If to the Escrow Agent:
Butler Gonzalez, L.L.P.
1000 Stuyvesant Avenue
Union, New Jersey 07083
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<PAGE>
All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section, be deemed given
upon delivery, (ii) if delivered by facsimile transmission to the facsimile
number as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given upon receipt (in each case regardless of whether
such notice, request or other communication is received by any other Person to
whom a copy of such notice is to be delivered pursuant to this Section). Any
party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
10. AMENDMENTS, ETC. This Agreement may be amended or modified, and any
of the terms hereof may be waived, only by a written instrument duly executed by
or on behalf of Investor and the Company and, with respect to any amendment that
would adversely affect the Escrow Agent. No waiver by any party of any term or
condition contained of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion.
11. GOVERNING LAW. This Agreement shall be construed under the laws of
the State of New York. Each of the parties consents to the jurisdiction of the
U.S. District Court sitting in the Southern District of the State of New York or
the state courts of the State of New York sitting in Manhattan in connection
with any dispute arising under this Debenture and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on FORUM
NON CONVENIENS to the bringing of any such proceeding in such jurisdictions.
12. BUSINESS DAY. For all purposed of this Agreement, the terms
"business day" shall mean a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
13. ENTIRE AGREEMENT. It is understood and agreed that this Escrow
Agreement supersedes all understandings and agreements heretofore had between
the parties hereto with respect to the subject matter hereof, and contains the
sole and entire agreement between the parties with respect to the subject matter
hereof.
14. ASSIGNMENT. Neither this Agreement nor any right, interest, or
obligation hereunder may be assigned by any party without the prior written
consent of the other parties and any attempt to do so will be void, except that
Investor may assign all of its rights, interest and obligations hereunder at any
time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) upon the prior written consent of the Company, which
consent shall not be unreasonably withheld. Investor and the Company shall
provide to the Escrow Agent written notice of such an assignment by Investor.
15. MISCELLANEOUS. This Agreement is binding upon and will inure to the
benefits of the
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<PAGE>
parties hereto and their respective successor and permitted assigns. The
headings used in this Agreement have been inserted for convenience of reference
only and do not define or limit the provisions hereof. This Escrow Agreement may
be signed by facsimile copy (followed by originals) and, in addition, may be
executed in several counterparts, each of which shall be deemed an original but
all of which shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
6
<PAGE>
/s/ Kenneth D. Van Meter
-----------------------------------
Celerity Systems, Inc.
By: Kenneth Van Meter
Chief Executive Officer
/s/ David Gonzalez
-----------------------------------
Butler Gonzalez, L.L.P.
By: David Gonzalez, Esq.
/s/ Diego Davis
-----------------------------------
GMF Holdings
By: Diego Davis
Chief Executive Officer
<PAGE>
Exhibit 99.4
FORM OF
DEBENTURE
CELERITY SYSTEMS, INC.
1999 4% Subordinated Convertible Debenture
Due September 1, 2004
No.000_______________ $ _________________
This Debenture is issued by Celerity Systems, Inc., (The "Company") to
GMF Holdings (the "Debenture holder") pursuant to exemptions from registration
under the U.S. Securities Act of 1933.
ARTICLE I
1.01 PRINCIPAL AND INTEREST. The Company, for value received hereby
confers the right upon Debenture holder to convert the sum of
___________________ dollars ($_____________) into the common stock of the
Company (the "Common Stock") on or before September 1, 2004 ("Maturity Date") as
set forth herein, and upon the Maturity Date to pay interest thereon from the
date of issue at the rate of four percent (4%) per annum. The Company shall pay
such interest on the outstanding principal amount of the Debenture from the date
of issue until the Maturity Date or conversion; the Company shall pay interest
only upon the outstanding balance of the Debenture at the rate of four percent
(4%) per annum. Interest will be computed based on a 365 day year.
1.02 RESERVATION OF COMMON STOCK. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Debenture, such number of shares
of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon 75% of the Bid Price, (Bid Price shall mean on any date
the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the
Principal Market, or if the Common Stock is not traded on a Principal Market,
the highest reported bid price for the Common Stock, as furnished by the
National Association of Securities Dealers, Inc., for the five trading days
immediately preceding such date of the Common Stock.
1.03 INTEREST PAYMENTS. The interest so payable will be paid at the
time of Conversion to the person in whose name this Debenture is registered.
At the time such interest is payable, the Company, in its sole discretion,
may elect to pay interest in cash (via wire transfer or certified funds)
or in the form of Common Stock. If paid in the form of Common Stock, the
amount of
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stock to be issued will be calculated as follows: the value of the stock shall
be the Bid Price on: (i) the date the interest payment is due; or (ii) if the
interest payment is not made when due, the date the interest payment is made. A
number of shares of Common Stock with a value equal to the amount of interest
due shall be issued. No fractional shares will be issued; therefore, in the
event that the value of the Common Stock per share does not equal the total
interest due, the Company will pay the balance in cash.
1.04 PAYING AGENT AND REGISTRAR. Initially, the Company will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar,
or Company-registrar without notice. The Company may act in any such capacity.
1.05 SUBORDINATED NATURE OF DEBENTURE. This Debenture and all payments
hereon, including principal or interest, shall be subordinate and junior in
right of payment to all Company Debt (as defined hereinafter), but only to the
extent set forth as follows:
(a) upon the maturity of any Company Debt, or any installment thereof
then due by lapse of time, acceleration or otherwise, all Company Debt then due
shall first be paid in full (or provision made for payment in full thereof)
before any additional payment on account of principal or interest is made on
this Debenture; and
(b) in the event of any insolvency or bankruptcy proceedings affecting
the Company, or any receivership, liquidation, reorganization or other similar
proceedings affecting the Company, and, in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company, whether
or not involving insolvency or bankruptcy, then the holders of Company Debt
shall be entitled to receive payment in full of all principal of and interest on
all Company Debt before the holder of this Debenture is entitled to receive any
payment on account of principal, interest or premium on this Debenture.
The provisions of the preceding paragraphs are solely for the purpose
of defining the relative rights of the holders of Company Debt on the one hand
and the holder of this Debenture on the other hand and nothing herein shall
impair, as between the Company and the holder of this Debenture, the obligation
of the Company, which is unconditional and absolute, to pay the holder of this
Debenture the principal, interest and premiums hereon in accordance with its
terms, nor shall anything herein prevent the holder of this Debenture from
exercising all remedies otherwise permitted by law or hereunder upon default
hereunder, subject to the relative rights of the holders of Company Debt
expressed in the preceding paragraphs.
For the purpose of this Notice, the term "Company Debt" shall mean and
include current bank debt and all indebtedness acquired by the Company
subsequent to the date hereof, other than indebtedness to any officer, director
or other person who has beneficial ownership of 10% or more of the Company's
issued and outstanding shares of Common Stock.
ARTICLE II
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2.01 AMENDMENTS AND WAIVER OF DEFAULT. The Debenture may be amended
with the consent of the Debenture holder. Without the consent of the Debenture
holder, the Debenture may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of the Company obligations to the
Debenture holder or to make any change that does not adversely affect the rights
of the Debenture holder.
ARTICLE III
3.01 EVENTS OF DEFAULT. An Event of Default is defined as follows:
failure by the Company to pay amounts due hereunder within two (2) days of the
Maturity Date failure by the Company to advise its transfer agent to issue
Common Stock to the Debenture holder within two (2) business days of the
Company's receipt of the attached Notice of Conversion from Debenture holder; or
failure by the Company for thirty (30) days after notice to it to comply with
any of its other agreements in the Debenture; and events of bankruptcy or
insolvency. The Debenture holder may not enforce the Debenture except as
provided herein.
3.02 SUCCESSOR CORPORATION. If a successor corporation assumes all the
obligations of this predecessor, Celerity Systems, Inc., the predecessor
corporation will be released from those obligations under the Debenture.
3.03 WAIVER AND RELEASE. A director, officer, employee or stockholders,
as such, of the Company shall not have any liability for any obligations of the
Company under the Debenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. The Debenture holder, by accepting
a Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Debenture.
ARTICLE IV
4.01 RIGHTS AND TERMS OF CONVERSION. This Debenture, in whole or in
part, may be converted at any time beginning fifteen (15) days following the
date of closing, into shares of Common Stock at a price equal to following
Conversion Price: 75% of the Bid Price on the date of conversion.
In lieu of any fractional share to which the Debenture holder would
otherwise be entitled, the Company will pay the balance in cash.
4.02 REISSUANCE OF DEBENTURE. When the Debenture holder elects to
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.
4.03 TERMINATION OF CONVERSION RIGHTS. The Debenture holder's right to
convert the Debenture into the Common Stock in accordance with paragraph 4.01
shall terminate on September 1, 2004 shall be automatically converted on that
date in accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of common stock and amount of
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interest shall be issued to the Debenture holder.
4.04. Notwithstanding any other provision contained herein, the parties
agree that in no event shall the Company be required to issue (i) an aggregate
number of shares constituting more than 19.99% of the number of shares of Common
Stock outstanding on the date of such issuance or (ii) a number of shares that
would result in a change of control of the Company, unless the shareholders of
the Company approve such issuance of additional Common Shares or NASDAQ waives
the applicable requirements of Market Place Rule 4310(H)(i). The Company agrees
to use commercially reasonable efforts to obtain such approval or waiver on or
prior to the 90th day following the date that more than 19.99% of the Common
Stock would otherwise be issuable pursuant to outstanding Debentures or that an
issuance would otherwise result in a change of control by scheduling a
shareholders meeting as soon as practicable after such date.
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ARTICLE V
5.01 NOTICE. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:
If to the Company: CELERITY SYSTEMS, INC.
1400 Centerpoint Blvd.
Knoxville, Tennessee 37932.
Attention: President
If to Debenture holder: GMF
131 Frederick Street
Nassau, Bahamas
5.02 GOVERNING LAW. This Debenture shall be deemed to be made under and
shall be construed in accordance with the laws of the Commonwealth of Delaware
without giving effect to the principals of conflict of laws thereof. Each of the
parties consents to the jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York or the state courts of the State of
New York sitting in Manhattan in connection with any dispute arising under this
Debenture and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS to the bringing
of any such proceeding in such jurisdictions.
5.03 SEVERABILITY. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
5.04 ENTIRE AGREEMENT AND AMENDMENTS. This Debenture represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and there are no representations, warranties or commitments, except as
set forth herein. This Debenture may be amended only by an instrument in writing
executed by the parties hereto.
5.05 COUNTERPARTS. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
5.06 ASSIGNMENT. Neither this Debenture nor any rights of the Investor
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Debenture shall insure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Debentures purchased or acquired by the Investor hereunder with respect to the
Common Stock held by such person, and (b) upon the prior written consent of the
Company, which consent shall not unreasonably be withheld, the Investor's
interest in this Debenture may be assigned at any time, in whole or in part, to
any other person or entity (including any affiliate of the Investor).
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IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
parties hereto have executed this Debenture as of _________________________,
1999.
ATTEST: CELERITY SYSTEMS, INC.
- ------------------------------ ---------------------------------
Title: __________________________
7
