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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 28, 1998
LAHAINA ACQUISITIONS, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-27480 84-1325695
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
102 South Tenth Street, Fernandina Beach, Florida 32034
(Address of Principal Executive Offices)
(904) 277-4438
(Registrant's telephone number, including area code)
5459 S. Iris Street, Littleton, Colorado 80123
(Former name or former address, if changed since last report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
The Annual Report on Form 10-K filed by Lahaina
Acquisitions, Inc. ("Lahaina" or the "Company") on December 28, 1998 for the
fiscal year ended September 30, 1998, Part I, Item 1 "Business, History,
Organization and Change of Control" sets forth the history, organization and
previous changes of control at the Company.
CHANGE IN CONTROL
On December 14, 1998, the Company purchased all of the outstanding stock of
Beachside Commons I, Inc. from Mongoose Investments, LLC. The Company deemed
the purchase effective as of December 7, 1998. Beachside is the owner of a
commercial real estate development located on Fernandina Beach, Florida in the
resort area of Amelia Island, Northeast Florida.
The Company paid for the Beachside Stock:
- 1,250,000 shares of the Common Stock of the Company;
- 1,910,000 shares of Series A Preferred Stock of the Company which is
convertible into 1,910,000 shares of Common Stock and;
- $667,500 in cash which was a portion of $750,000 borrowed by the
Company under a Convertible Note.
The Series A Preferred Stock has a liquidating preference of $1.00 per share
and, if declared by the Board of Directors, receives dividends annually at
$0.095 per share. The Common Stock and the Series A Preferred Stock held by
Mongoose are not registered under the Securities Act. At the same time,
Mongoose purchased 750,000 shares of Common Stock from Paxford Investments,
Ltd., an existing shareholder, for $300,000. The source of the $300,000 was a
portion of the $667,500 cash paid by the Company to Mongoose for the Beachside
Stock. See: Item 2, Acquisition or Disposition of Assets, which describes this
transaction in more detail. The Stock Purchase Agreement related to the Common
Stock and Series A Preferred Stock, the Series A Preferred Stock Terms and the
Convertible Note and the related Securities Purchase Agreement, Registration
Rights Agreement, Stock Pledge Agreement and Warrant are attached as Exhibits
to this Form 8-K.
As a result of the above transactions, a change in the control of the Company
has occurred in that Mongoose owns 2,000,000 shares of the 2,246,500 shares of
Common Stock currently outstanding, or approximately 89% of such shares.
Mongoose could own additional 1,910,000 shares of Common Stock upon conversion
of the Series A Preferred Stock. The conversion of the $750,000 Convertible
Note and the exercise of a related Warrant for 60,000 shares is estimated to
result in an additional 600,000 - 800,000 shares of Common Stock being issued.
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Thus, after conversion of all convertible securities, it is likely that the
Company will remain in the control of Mongoose for the foreseeable future. The
Managing Member of Mongoose is Richard P. Smyth.
EFFECTS OF CHANGE IN CONTROL
CHANGE IN BOARD OF DIRECTORS
The previous directors of the Company resigned, but, before resigning,
elected Richard P. Smyth, Gerald F. Sullivan, Sidney E. Brown, and
D. Nelson Lester as Directors of the Company. The Directors will be
paid $500 per meeting held telephonically and $1,000 per meeting held
in person. Further, each Director has been allowed to purchase 10,000
shares of the Company's Common Stock at $.40 per share, the price paid
by Mongoose for the Common Stock purchased from Paxford.
The Company is interviewing other persons for membership on the Board
of Directors.
The Company indemnifies the past and present Directors to the maximum
extent permitted by Colorado law.
CHANGE IN MANAGEMENT
The Company has new management. The staff will be small, initially
consisting of the Chairman, CEO and Treasurer, Richard Smyth; a
property manager, a professional real estate analyst and a
receptionist/secretary. Financial services will be provided by outside
services pending the hiring of a Chief Financial Officer. Other staff
will be added on an as-needed basis, though it is anticipated that the
staff will remain small in the near term.
CHANGE IN FINANCIAL AND BUSINESS POSITION
As a result of the change in control, there has been a change in the
financial position of the Company. Prior to December 7, 1998, the
Company had no operations and virtually no assets. The Company now has
a positive net worth and significant assets, primarily in the form of
the commercial real estate holdings of Beachside.
BRIDGE FUNDING
In order to raise the cash portion of the purchase price for the
Beachside Stock and related transaction costs, the Company borrowed
$750,000 from GCA Strategic Investment Fund Limited in the form of a
$750,000 Convertible Note. See: Item 2, Acquisition or Disposition of
Assets for the description of the conversion features of the
Convertible Note. The costs associated with the transaction were the
payment of $82,500 to affiliates of the Fund and the issuance of a
Warrant to purchase 60,000 shares of Common Stock to LKB Financial,
LLC. See: Item 2. Acquisition or Disposition of Assets and the
Exhibits to this Form 8-K.
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BALANCE SHEET IMPACT
The Company has liabilities of approximately $2,400,000, consisting
primarily of a first mortgage ($1,550,000) on the Beachside Property,
and the $750,000 Convertible Note. Its assets consist primarily of the
Beachside Property, which includes two fully developed ocean view
structures and two ocean front sites for future development.
Management believes that the total value of the site is approximately
$4.5 million, with $2.7 million of the total value assigned to the two
fully developed structures.
INCOME STATEMENT IMPACT
The Company derives revenues from the rental income associated with
the two fully developed structures at the Beachside Property. The
current rent collections from the structures is approximately $22,000
per month, before expenses and debt service with respect to the first
mortgage.
The Company is evaluating the proposals for a mortgage with lower
interest rates and a longer term.
The Company expects this site to generate sufficient revenues to
offset this site's operating expenses and generate a profit on an
ongoing basis, but it does not expect that this site alone will
generate sufficient cash flow or profits to offset the expense of the
ongoing operations of the Company or other operations such as future
developments at this and other sites, or other acquisitions, or
provide funding for the payment of dividends or interest as required
by other obligations of the Company.
Accordingly, the Company expects to report operating losses for the
near term until it increases the size and the nature of its
operations. Future income is expected in the form of a) rental income
from Company owned properties, b) income related to the sale or resale
of properties which the Company expects to acquire, develop or
redevelop, and c) income from other operations which the Company may
develop or acquire, including businesses which may not be directly
related to the resort real estate business.
FUTURE FUNDING PLANS
The Company expects to pursue a strategy of continued investment in
other real estate related projects through a newly formed subsidiary,
Resort Strategies, Inc. Further, the Company intends to continue to
evaluate other acquisitions, both in the area of real estate and in
other business areas, as a method of increasing its size of operation
and value.
The Company anticipates the need for further funding as it grows its
operations, in order to purchase additional real estate properties or
operating companies and to make the payments which may be required as
a result of other funding activities, including fees, interest or
dividends. It expects to accomplish such funding through a combination
of debt and equity, from both private and public sources.
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As a result of these activities, the Company expects that additional
shares of Common Stock and preferred stock in the Company will be
issued at future dates, and that these activities will likely have a
dilutive effect on the Company and its shareholders. Management
believes that debt funding from conventional sources such as banks and
real estate lending sources, combined with the issuance of preferred
convertible equities, or the use of Common Stock as a form of payment,
will be sufficient to fund its operations during this growth period.
Success in the implementation of the current business plan is
contingent of the availability of such funding sources.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As described in Item 1, on December 14, 1998, the Company purchased
all the Beachside stock from Mongoose. The Company paid Mongoose: 1,250,000
shares of Common Stock, 1,910,000 shares of Series A Preferred Stock
(convertible into 1,910,000 shares of Common Stock) and $667,500 cash. A copy
of the Stock Purchase Agreement between the Company and Mongoose is filed as an
Exhibit to this Form 8-K.
The assets of Beachside consist of two buildings and unimproved real
estate, leases to tenants in the buildings and minimal operating capital. The
property is subject to (1) a first mortgage securing a loan in the amount of
$1,550,000 bearing interest at 15% per annum, principal and interest due and
payable on December 1, 2001 and (2) a second mortgage in favor of GCA Strategic
Investments Fund securing repayment of the $750,000 Convertible Note.
The Managing Member of Mongoose is Richard P. Smyth who is now the
Chairman, CEO and Treasurer of the Company. See: Item 1: Changes of Control.
Prior to the change of control, there was no relationship between the Company
and Mongoose or Smyth.
The Company intends to continue operating the developed portion of the
Beachside property and intends to initiate and complete the development of the
currently undeveloped portion of the Beachside property when appropriate
financing can be obtained.
The Beachside property is estimated to have a value of approximately
$4.5 million. This value is supported by an appraisal on the improved portion
of the property, and an estimated value for the unimproved property. The
Company has engaged an appraiser to appraise the unimproved portion of the
property. If this valuation is materially less than the estimated value, the
number of shares of Series A Preferred Stock owned by Mongoose will be reduced
on a dollar for dollar basis.
In order to fund the cash portion of purchase, the Company borrowed
$750,000 from GCA Strategic Investment Fund Limited evidenced by a Convertible
Note. As previously indicated, a copy of the Convertible Note and the related
Securities Purchase Agreement, Registration Rights Agreement, Warrant and Stock
Pledge Agreement are filed as Exhibits to this
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Form 8-K. The Convertible Note bears interest of 9% per annum and matures on
January 31, 2001, if not sooner converted or redeemed. Interest is payable
quarterly in cash or, at the option of the Company, in Common Stock on the last
days of March, June, September and December, on January 31, 2001, or on a
Conversion Date (as defined in the Convertible Note), which is the date on
which all or a portion of the Convertible Note is converted into Common Stock.
Interest payable on a Conversion Date is paid in shares of Common Stock.
Up to 50% of the outstanding principal amount of the Convertible Note
is convertible at price per share of Common Stock ("Conversion Price") of the
lesser of $0.875 (the quoted price on December 7, 1998) or based on a formula
("Formula Price") F/P, where F = the principal amount of the Convertible Note
being converted plus accrued and unpaid interest thereon through the date of
conversion plus Default Interest, if any, on such interest, and P = the product
of 85% multiplied by the average of the five consecutive DWASP for the Common
Stock for the five Trading Days ending on the day prior to the Conversion Date
(subject, in each case, to equitable adjustments for stock splits, stock
dividends or rights offerings by the Company relating to the Company's
securities or the securities of any subsidiary of the Company, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events as contemplated by Article XI of the Securities Purchase Agreement). The
term "DWASP" means, for any security as of any date, the daily-weighted average
sales price on the Nasdaq Market as reported by Bloomberg or, if the Nasdaq
Market is not the principal trading market for such security, the
daily-weighted average sales price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the daily-weighted average
sales price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no
daily-weighted average sales price is reported for such security by Bloomberg,
then the average of the bid prices of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
DWASP cannot be calculated for such security on such date on any of the
foregoing bases, the DWASP or such security on such date shall be the fair
market value as mutually determined by the Company and the holders of a
majority in interest of Convertible Notes being converted for which the
calculation of the closing bid price is required in order to determine the
Conversion Price of such Convertible Notes.
At a Conversion Price of $0.875 and if $375,000 of the Convertible
Note were converted, approximately 429,000 shares of Common Stock would be
issued to the holder of the Convertible Note.
At the option of the Company, the balance of $375,000 on the
Convertible Note could be redeemed for cash by the Company paying a fee equal
to 117% of the outstanding principal amount plus accrued interest or permitting
conversion of the balance of the Convertible Note at the Formula Price.
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If the price of the Common Stock declines prior to a Conversion Date,
the holder of the Convertible Note will be entitled to a greater number of
shares; if the price of the Common Stock increases prior to a Conversion Date,
the Conversion Price will be not greater than 85% of the first day DWASP.
ITEM 5. OTHER EVENTS
CHANGE IN COMPANY HEADQUARTERS LOCATION
As of the date of this filing the Company has relocated its Corporate Offices
to 102 South Tenth Street, Fernandina Beach, Florida 32034. Its phone number is
(904)277-4438.
INTENTION TO FILE FORM S-1
In conjunction with the issuance of the Convertible Note and the Warrant, the
Company intends to file a registration statement on Form S-1 with the
Securities and Exchange Commission within the next 30 days. The Form S-1 will
further detail the Company's business strategy and is expected to cover the
registration of 1,000,000 shares of the Common Stock, to cover conversion of
the Convertible Note and the exercise of the Warrant. The number of shares was
determined based on both the current requirements for registration contained in
the Convertible Note and Warrant.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Information
The following sets forth, as of December 14, 1998, the only persons
known to the Company to be the beneficial owners of more than 5% of the
outstanding shares of Common Stock and Series D Preferred Stock.
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NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS(2)
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
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Mongoose Investments, LLC Common Series A Common Series A
7276 Sanctuary Lane Preferred Preferred
Fernandina, FL 32034 -------------------------------------------------
2,000,000 1,910,000 82.9% 100%
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GCA Strategic Investment 500,000 -0- 10.6% -0-
Fund Limited
Mechanics Building
12 Church Street
Hamilton HM 11 Bermuda
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(1) For the purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3
under the Securities Exchange Act of 1934, as amended, under
which, in general, a person is deemed to be the beneficial
owner of a security if he or she has or shares the power to
vote or to direct the voting of the security or the power to
dispose or to direct the disposition of the security, or if
he or she has the right to acquire beneficial ownership of
the security within 60 days of December 15, 1998.
(2) Assumes (a) GCA Strategic Investment Fund Limited Convertible
Note converts to 500,000 shares of Common Stock (b) a Warrant
converts to 60,000 shares of Common Stock, in accordance with
Management's current expectations and (c) the Series A
Preferred Stock converts to 1,910,000 shares of Common Stock.
The following table set forth, as of December 14, 1998, certain information
regarding the ownership of the Company's shares of Common Stock and Series A
Preferred Stock by the Company's directors and each executive officer and the
Company's directors and executive officers as a group.
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NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS(2)
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
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Common Series A Common Series A
Preferred Preferred
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Richard D. Smyth, Director, 2,000,000 1,910,000 82.9% 100%
Chairman and CEO
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Gerald F. Sullivan, Director -0- --- ---
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Sidney E. Brown, Director -0- --- ---
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D. Nelson Lester, Director -0- --- ---
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All Directors and Officers as 2,000,000 1,910,000 82.9% 100%
a group (4 persons)
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(1) For the purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3
under the Securities Exchange Act of 1934, as amended, under
which, in general, a person is deemed to be the beneficial
owner of a security if he or she has or shares the power to
vote or to direct the voting of the security or the power to
dispose or to direct the disposition of the security, or if
he or she has the right to acquire beneficial ownership of
the security within 60 days of December 15, 1998.
(2) Assumes (a) GCA Strategic Investment Fund Limited Convertible
Note converts to 500,000 shares of Common Stock (b) a Warrant
converts to 60,000 shares of Common Stock, in accordance with
Management's current expectations and (c) the Series A
Preferred Stock converts to 1,910,000 shares of Common Stock.
(b) Exhibits (See following page.)
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EXHIBITS
Exhibit Number
2.1 Stock Purchase Agreement by and between Lahaina Acquisitions, Inc. and
Mongoose Investments, LLC, dated as of December 3, 1998.
2.2 Series A Preferred Stock Terms
2.3 Securities Purchase Agreement by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund Limited, dated as of December
7, 1998.
2.4 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA
Strategic Investment Fund Limited in the principal amount of $750,000.
2.5 Registration Rights Agreement by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund Limited, dated as of December
7, 1998.
2.6 Common Stock Purchase Warrant in the amount of 60,000 shares to be
issued by Lahaina Acquisitions, Inc. and purchased by LKB Financial,
LLC, expiring on December 20, 2003.
2.7 Stock Pledge Agreement by and between Mongoose Investments, LLC and
GCA Strategic Investment Fund Limited, dated as of December 7, 1998
99.1 Form of Press Release dated December __, 1998.
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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.
LAHAINA ACQUISITIONS, INC.
Date: December 23, 1998 By /s/
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Richard P. Smyth, Chairman
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of this 7th day of December, 1998 by and between Lahaina
Acquisitions, Inc., a Colorado corporation (the "SELLER"), and Mongoose
Investments, LLC, a Georgia limited liability company (the "PURCHASER").
RECITALS:
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to buy from Seller, 1,250,000 shares of the no par value per share
common stock ("Common Stock") of the Seller, 1,910,000 shares of the no par
value per share Series A Preferred Stock ("Preferred Stock") of the Seller and
the Note (as defined below) of Seller, and in consideration therefor, Purchaser
shall deliver all the stock of Beachside Commons I, Inc. ("Beachside Stock")
owned by Purchaser, and upon the terms and subject to the conditions
hereinafter set forth (the "ACQUISITION").
NOW, THEREFORE, in consideration of the mutual promises,
agreements and covenants set forth herein, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending legally to be bound,
hereby agree as follows:
1. Definitions. For purposes of this Agreement and the Schedules
attached hereto, the following terms shall have the meaning specified or
referred to below unless the context requires otherwise:
(a) Acquisition. Has the meaning assigned to such terms in
the Recitals.
(b) AFFILIATE. With respect to any Person, another Person
controlling, controlled by, or under common control with such a designated
Person and shall include, by way of illustration and without limiting the
generality of the foregoing, any association, partnership, trust, corporation,
enterprise or other entity in which such Person is a director, officer, limited
partner or general partner or in which such designated Person together with
Affiliates of such designated Person own in the aggregate a beneficial interest
in assets, profits or losses equal to at least ten percent (10%) thereof.
(c) BREACH. A Breach of a representation, warranty, covenant,
obligation or other provision of this Agreement will be deemed to have occurred
if there is or has been any inaccuracy in or breach of, or any failure to
perform or comply with such representation, warranty, covenant, obligation or
other provision.
(d) CODE. The Internal Revenue Code of 1986, as amended.
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(e) CONTEMPLATED TRANSACTIONS. Collectively, all of the
transactions contemplated by this Agreement.
(f) CONTRACT. Any agreement or contract, whether written or
oral, that is legally binding, including any commitment to purchase, to which
the Company is a party.
(g) ENCUMBRANCE. Any mortgage, charge, claim, equitable
interest, lien, option, pledge, security interest, right of first refusal or
other encumbrance.
(h) ERISA. The Employee Retirement Income Security Act of
1974, as amended, or any successor law, and the regulations and rules issued
pursuant to that act or to any successor law.
(i) ERISA Affiliate. Has the meaning assigned to such term in
Section 5. 1 6(a) hereof.
(j) FINANCIAL STATEMENTS. Collectively, the Seller's most
recent Form 10-K and 10-Q filed with the Securities and Exchange Commission.
(k) GAAP. At any particular time, generally accepted
accounting principles as in effect in the United States at such time; provided,
however, that, if it was permissible to use more than one principle at such
time in respect of a particular accounting matter, GAAP shall refer to the
principle which was then employed by the Company.
(1) IRS. The Internal Revenue Service.
(m) LIABILITIES. Collectively, any debt, obligation, or tax
of any nature or other liability as determined pursuant to GAAP.
(n) LOSS OR LOSSES. Have the meanings assigned to such terms
in Section 13(a) hereof.
(o) MATERIALITY. The terms "MATERIAL," "IN ALL MATERIAL
RESPECTS, "MATERIAL CHANGES" and like or similar phrases shall mean, as
the context requires, events or circumstances which do or could give rise to
negative economic consequences in an aggregate amount of at least ten thousand
dollars ($10,000).
(p) NOTE. A demand promissory note of Lahaina dated the date
hereof in the face amount of $700,000 payable to Mongoose.
(q) PERSON. Any individual, corporation, general or limited
partnership, limited liability company, limited liability partnership, joint
venture, estate, trust, association, organization, governmental body, or other
entity or body.
(r) PLANS. Has the meaning assigned to such term in Section
5.16(a) hereof.
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(s) PROCEEDING. Any action, arbitration, audit, complaint,
investigation, petition, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any governmental body or
administrator or any arbitrator.
(t) PROPERTIES. Has the meaning assigned to such term in
Section 7.9 hereof.
(u) RECIPIENT. Has the meaning assigned to such term in
Section 25 hereof.
(v) RELATED PERSON. (i) Any person related by blood, adoption
or marriage to any Seller, (ii) any corporation or other entity in which any
such person, or any Seller, director or officer has, directly or indirectly, at
least a five percent (5%) beneficial interest in the capital stock or other
type of equity interest in such corporation or other entity, or (iii) any
partnership in which any of the foregoing parties is a general or limited
partner.
(w) SUBSIDIARY. With respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other subsidiaries of that Person or a combination thereof.
(x) TAX RETURN. Any return, report, form or other documents
or information filed with or submitted to, or required to be filed with or
submitted to, any governmental body in connection with the determination,
assessment, collection or payment of any Tax (including all filings with
respect to employment-related Taxes).
(y) THREATENED. A Proceeding, claim, dispute or other matter
will be deemed to have been Threatened with respect to a Person, if such Person
has received any demand, statement or other notice with respect to such
Proceeding, claim, dispute or other matter.
2. Closing; Purchase and Sale of Common Stock, the Preferred
Stock and the Note.
(a) At the Closing, (x) Seller, in reliance on the
representations, warranties and covenants of Purchaser contained herein and
subject to the terms and conditions of this Agreement, shall sell to Purchaser
the Common Stock, the Preferred Stock and the Note; and (y) Purchaser, in
reliance on the representations, warranties and covenants of Seller contained
herein and subject to the terms and conditions of this Agreement, shall
purchase the Common Stock, the Preferred Stock and the Note from Seller by
delivering the Beachside Stock to Seller.
(b) Delivery of the Common Stock, the Preferred Stock and the
Note. At the Closing, Seller shall deliver to Purchaser, free and clear of all
Encumbrances thereon of every kind, the certificates for the shares of Common
Stock, the certificates for shares of Preferred Stock and the Note.
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(c) Delivery of Beachside Stock. At the Closing, Purchaser
shall deliver to Seller, free and clear of all Encumbrances thereon of every
kind, the certificates for the shares of Beachside Stock.
(d) Closing. The Closing shall take place at the Atlanta
offices of Sutherland, Asbill & Brennan LLP, Atlanta, Georgia, on December 7,
1998 (the "Closing Date") at 10:00 A.M., or at such other time and place as
shall be mutually agreed upon by Purchaser and Seller.
3. [RESERVED].
4. [RESERVED].
5. Representations and Warranties of the Seller. Seller
represents and warrants to Purchaser as follows:
5.1 Organization, Standing, Qualification and Capitalization.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of Colorado, and has all requisite corporate power and authority
to conduct its business as presently conducted and to own and lease the
properties and assets used in connection therewith. A complete and accurate
copy of (i) the Articles of Incorporation of Seller and (ii) the By-Laws of
Seller and all amendments thereto, have been delivered to Purchaser. Seller is
not required to be qualified to do business as a foreign corporation in any
state.
5.2 Capitalization; Ownership of Common Stock and Related
Matters. The total authorized capital stock of Seller the Company consists of
800,000,000 shares of Common Stock of which 996,500 shares are issued and
outstanding and 10,000,000 shares of Preferred Stock, none of which are
outstanding. All outstanding shares were duly authorized and validly issued and
are fully paid and non-assessable and the shares of Common Stock and Preferred
Stock to be issued and delivered pursuant to this Agreement will be duly
authorized, validly issued, fully paid and non-assessable. There are no shares
of capital stock of the Seller issued and outstanding except for such shares.
None of such shares was issued in violation of any preemptive or preferential
right. There are currently no stock options outstanding. Seller is not and, at
the Closing, will not be a party to or bound by any written or oral Contract or
agreement which grants to any Person an option or right of first refusal or
other right of any character to acquire at any time, or upon the happening of
any stated events, shares of capital stock or other securities of the Seller
whether or not presently issued or outstanding.
5.3 Subsidiaries of Seller. Seller does not own any shares of
any corporation nor has any interest in any partnership, limited liability
company, joint venture or other legal entity.
5.4 Financial Statements. Seller has delivered to Purchaser
true, complete and accurate copies of the Financial Statements. The Financial
Statements have been prepared in accordance with GAAP, except as otherwise
disclosed therein, applied on a basis consistent with that of the preceding
fiscal years.
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5.5 Properties. Seller has good and marketable title to all
its assets, free and clear of all Encumbrances of any nature whatsoever.
5.6 Taxes.
(a) Seller has duly and timely filed all Tax Returns which
were required to be filed by it, and paid, or has recorded adequate reserves on
the Financial Statements for the payment of, all Taxes shown on all Tax
Returns. All Tax Returns are true, correct and complete in all material
respects.
5.7 Litigation. There is no litigation, Proceeding or
governmental investigation pending or Threatened, or judgment against or
related to Seller or its properties, assets or business.
5.8 Intellectual Property Rights.
(a) Seller has no patents or patent applications,
trademarks, service marks, logos, trade names (whether registered or
unregistered) or applications for registration and registrations therefor, or
internet domain names or 1-800 and 1-888 telephone numbers; or any copyrights
(whether registered or unregistered) or applications for registration and
registrations therefor.
5.9 Contracts and Commitments. Seller has no Contracts other
than this Agreement.
5.10 [Reserved].
5.11 Absence of Undisclosed Liabilities. There are no
material Liabilities or obligations of Seller either accrued, absolute,
contingent or otherwise, including, but not limited to, any Liabilities for
Taxes due or to become due, except to the extent reflected on the Financial
Statements.
5.12 Absence of Default. Seller is not in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained in any debenture or note, or contained in any conditional sale or
equipment trust agreement, or loan or other borrowing agreement to which Seller
is a party.
5.13 Existing Condition. Since January 1, 1998, there has not
been any material adverse change in the business, operations, prospects,
properties, assets, liabilities, or condition, financial or otherwise, of
Seller.
5.14 Restrictions. Seller is not subject to any charter or
other corporate restriction, any agreement or any judgment, order, writ,
injunction or decree, which materially and adversely affects or, so far as
Seller can now foresee, may in the future materially and adversely affect, the
business, operations, prospects, properties, Assets, Liabilities, or condition,
financial or otherwise, of Seller.
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<PAGE> 6
5.15 Employee Benefits.
Seller does not maintain, and have not maintained, any bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit sharing, pension, or
retirement plan, program, agreement or arrangement, or other employee benefit
plan, program, agreement or arrangement (other than arrangements involving the
payment of wages) sponsored, maintained or contributed to or required to be
contributed to by Seller or by any trade or business, whether or not
incorporated (an "ERISA AFFILIATE") that together with Seller would be deemed a
"SINGLE EMPLOYER" within the meaning of Section 4001(a)(14) of ERISA, for the
benefit of any current or former employee, director, partner or independent
contractor of Seller or any ERISA Affiliate, whether formal or informal and
whether legally binding or not (the "PLANS") with respect to which Seller or
any ERISA Affiliate has or may in the future have any liability or obligation
to contribute or make payments of any kind.
5.16 Bank Accounts and Directors and Officers. Seller has
provided Purchaser with a true and complete list of the name and location of
each bank or other financial institution in which Seller has an account, each
safety deposit box or custody agreement and the names of the Persons authorized
to draw thereon or to withdraw therefrom and the names of all directors and
officers of Seller.
5.17 Compliance with Laws and Instruments. Seller has
complied with and is not in default under, or in violation of, any material
laws, ordinances, rules or regulations or orders (including, without
limitation, any safety, health, wage, hour, employment and trade laws,
ordinances, rules, regulations and orders) applicable to its business which
materially and adversely affects or, so far as Seller can foresee, may in the
future materially and adversely affect its business or condition, financial or
otherwise.
5.18 Environmental Compliance. Seller is not in violation of
any environmental laws.
5.19 [Reserved].
5.20 Validity of Contemplated Transactions. Neither the
execution and delivery of this Agreement by Seller nor the consummation by
Seller of the transactions provided for herein or therein will conflict with,
violate, or result in a breach, default or the creation of any Encumbrance
pursuant to, any agreement to which Seller is a party or by which it is bound
or any law, order, judgment or decree or any provision of the Articles of
Incorporation or Bylaws of Seller or any Contract to which Seller is a party.
Seller has the full power and legal authority to execute this
Agreement and to consummate and perform the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby and thereby are within the corporate
power of Seller and has been duly authorized by all necessary corporate action
on the part of Seller. This Agreement has been duly executed and delivered by
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<PAGE> 7
Seller and constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms.
5.21 Disclosure. No representation or warranty by Seller in
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary to make any
statement herein or therein not misleading.
5.22 Corporate Records. The stock records and minute books of
Seller finished to Purchaser by Seller fully reflect all issuances, transfers
and redemptions of its capital stock, correctly show the total number of shares
of its capital stock issued and outstanding on the date hereof, correctly show
all corporate action taken by the directors and shareholders of Seller
(including action taken by consent without a meeting) and contains true and
correct copies or originals of its articles of incorporation and all amendments
thereto, its by-laws as amended and currently in force and the minutes of all
meetings or consent actions of its directors and shareholders.
6. Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller that:
6.1 Organization, Good Standing and Authority. Purchaser is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Georgia, and has all requisite corporate power
and authority to conduct its business as presently conducted and to own and
lease the properties and assets used in connection therewith. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby are within the power of Purchaser and have been duly
authorized by all necessary action on the part of Purchaser. This Agreement to
which Purchaser is a party constitutes the legal, valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms.
6.2 Validity of Contemplated Transactions. Neither the
execution and delivery of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions provided for herein or therein will conflict
with, violate, or result in a breach of or default under any Contract to which
Purchaser is a party or by which it or its assets are bound or any law, order,
judgment or decree or any provision of the charter or operating agreement of
Purchaser or any Contract to which Purchaser is a party.
6.3 Litigation. There is no pending action or Proceeding that
has been commenced against Purchaser and that may have the effect of
preventing, delaying, or making illegal the Contemplated Transactions and, to
the best knowledge of Purchaser, no such action or Proceeding has been
threatened.
6.4 INVESTMENT REPRESENTATIONS. The Common Stock and
Preferred Stock being delivered pursuant to the provisions of this Agreement
will be held by Purchaser for its own account and not with a view to, or for
resale in connection with, the distribution thereof.
7. [Reserved].
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<PAGE> 8
8. Conditions Precedent to Purchaser's Obligations. All
obligations of Purchaser under this Agreement are subject to the fulfillment,
prior to or at the Closing Date, of each of the following conditions:
8.1 Representations and Warranties. Seller's representations
and warranties contained in this Agreement or in any list, certificate or
document delivered pursuant to the provisions hereof or in connection with the
Contemplated Transactions shall be true and correct at and as of the Closing
Date as though such representations and warranties were made at and as of such
time (except to the extent that they are stated therein to be true as of some
other date).
8.2 Compliance with Agreements and Conditions. Seller shall
have performed or complied with all agreements and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing
Date.
8.3 Certificate of Seller. Seller shall have delivered to
Purchaser a certificate, executed by Seller, dated as of the Closing Date,
certifying in such detail as Purchaser may reasonably request to (a) the
fulfillment and satisfaction of the conditions specified in Sections 8.1 and
8.2 above, and (b) the absence of any adverse change in the business of the
Seller prior to the Closing Date.
8.4 [Reserved].
8.5 [Reserved].
8.6 Approval of Counsel. All steps to be taken and all
resolutions, papers and documents to be executed, and all other legal matters
in connection with the purchase and sale of the Common Stock and Preferred
Stock and related matters, shall be subject to the reasonable approval of
Purchaser's counsel.
8.7 Certificates. Seller shall have furnished to Purchaser
(a) copies of the Articles of Incorporation of Seller, (b) copies of the
By-Laws of Seller, and (c) a certificate of the Secretary of Seller relating to
the incumbency and corporate proceedings in connection with the consummation
of the Contemplated Transactions, and the absence of changes in the Company's
Articles of Incorporation and By-Laws.
9. Conditions Precedent to Seller's Obligations. All obligations
of Seller under this Agreement are subject to the fulfillment, prior to or at
the Closing Date, of each of the following conditions:
9.1 Representations and Warranties. Purchaser's
representations and warranties contained in this Agreement or in any
certificate or document delivered pursuant to the provisions hereof or in
connection with the Contemplated Transactions shall be true and correct at and
as of the Closing Date as though such representations and warranties were made
at and as of such time.
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<PAGE> 9
9.2 Compliance with Agreements and Conditions. Purchaser
shall have performed and complied with all agreements and conditions required
by this Agreement to be performed or complied with by it prior to or at the
Closing Date.
9.3 Certificate of Purchaser. Purchaser shall have delivered
to Seller a certificate, dated the Closing Date, certifying in such detail as
Seller may reasonably request to the fulfillment and satisfaction of the
conditions specified in Sections 9.1 and 9.2 above.
10. Survival of Representations and Warranties. All
representations and warranties made by Purchaser and Seller in this Agreement
or pursuant hereto shall survive the Closing for a period of one year.
11. [Reserved].
12. Indemnification.
(a) Seller shall indemnify and hold harmless Purchaser and
its officers, directors, employees, stockholders, representatives, agents,
successors and assigns from and against any claims, actions, judgments,
damages, losses, or other Liabilities of whatsoever nature, including fines,
penalties, costs and expenses (including, without limitation, settlement costs,
any reasonable legal, accounting or other expenses incurred in connection with
investigating or defending any actions or Threatened actions and court costs)
(a "Loss" or "Losses") sustained or required to be paid by reason of, arising
out of or caused by (i) any misrepresentation or Breach of any representation
or warranty made by Seller in this Agreement, or any other certificate,
instrument or document contemplated hereby, or (ii) any Breach of or failure to
perform any covenant, agreement or obligation of Seller or the Company
contained in this Agreement, or any other certificate, instrument or document
contemplated hereby.
(b) Purchaser shall indemnify and hold harmless Seller and
its officers, directors, employees, stockholder representatives, agents,
successors and assigns from and against any Loss or Losses sustained or
required to be paid by reason of, arising out of or caused by (i) any
misrepresentation or Breach of any representation or warranty made by Purchaser
in this Agreement or any other certificate, instrument or document contemplated
hereby; or (ii) of or failure to perform any Breach of any covenant, agreement
or obligation of Purchaser contained in this Agreement, or any other
certificate, instrument or document contemplated hereby.
13. [RESERVED].
14. [RESERVED]
15. Expenses. Seller shall bear its expenses incurred in
connection with this Agreement and the transactions contemplated hereby and
thereby. Seller agrees to pay all stamp and/or transfer taxes that become due
and payable as a result of the transactions contemplated by this Agreement.
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<PAGE> 10
16. Announcements. No announcements of the transactions
contemplated hereby shall be made to the general public by any of the parties
hereto or their respective officers, directors, employees, advisors, agents or
representatives, without the prior written consent of the other party unless,
in the written opinion of counsel for the disclosing party, such public
announcement is legally required and, in such event, the non-disclosing party
shall have been notified of the proposed public announcement and shall have
been given a reasonable opportunity to comment on the content thereof.
17. Cooperation; Further Actions and Assurances. Purchaser and
Seller will execute and deliver any and all documents, and will cause any and
all other action to be taken, either before or after the Closing, which may be
necessary or proper to effect or evidence the provisions of this Agreement and
the transactions contemplated hereby.
18. Counterparts. This Agreement may be executed in several
counterparts each of which is an original. This Agreement and any counterpart
so executed shall be deemed to be one and the same instrument. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
19. Governing Law; Venue. This Agreement shall be construed and
enforced in accordance with the laws of the State of Georgia without regard to
its principles of conflict of laws.
20. Section Headings and Gender. The section headings herein have
been inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of the masculine
pronoun herein when referring to any party has been for convenience only and
shall be deemed to refer to the particular party intended regardless of the
actual gender of such party.
21. Schedules and Exhibits. There are no schedules or Exhibits.
22. Notices. All notices, requests and other communications which
are required or permitted hereunder shall be sufficient if given in writing and
delivered personally or by registered or certified mail, postage prepaid, as
follows (or to such other address as shall be set forth in a notice given in
the same manner):
If to Purchaser to: Mongoose Investments, LLC
7276 Sanctuary Lane
Suite 400
Fernandina Beach, FL 32304
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<PAGE> 11
If to Seller: Lahaina Acquisitions, Inc.
2900 Atlantic Avenue
Suite 1000
Fernandina Beach, FL 32304
23. Modification and Waiver. Any of the terms or conditions of
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or amended
at any time by Purchaser or Seller. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof nor shall
such waiver constitute a continuing waiver.
24. Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from this
Agreement.
25. Third Party Beneficiaries. Except as otherwise expressly set
forth herein, no Person shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
LAHAINA ACQUISITIONS, INC.
By: /s/ GRAHAM M. COOPER
-----------------------------------
Name: GRAHAM M. COOPER
-----------------------------
Title: PRESIDENT
-----------------------------
MONGOOSE INVESTMENTS, LLC
By: /s/ RICHARD P. SMYTH
-----------------------------------
Name: RICHARD P. SMYTH
-----------------------------
Title: MANAGING MEMBER
-----------------------------
<PAGE> 1
EXHIBIT 2.2
12/7/98
SERIES A
PREFERRED STOCK TERMS
LAHAINA ACQUISITIONS, INC.
Rights, Preferences and Restrictions of Preferred Stock. The Preferred
Stock authorized by the Articles of Incorporation of Lahaina Acquisitions, Inc.
(the "Corporation") may be issued from time to time in one or more series. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock, which series shall consist of 3,000,000 shares of no
par value per share Preferred Stock (the "Series A Preferred Stock") are set
forth below.
1. Dividend Provisions.
(a) Subject to the rights of any series of Preferred
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock shall be entitled to receive dividends out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this Corporation) on the
Common Stock of this Corporation, at the rate of $0.095 per share, per annum (as
adjusted for any stock splits, stock dividends, recapitalizations or the like),
payable when, as, and if declared by the Board of Directors. Such dividends are
cumulative. The holders of the outstanding Series A Preferred Stock can waive
any dividend preference that such holders shall be entitled to receive under
this Section 1 upon the affirmative vote or written consent of the holders of a
majority of the Series A Preferred Stock.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this Corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
Corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of $1.00 for each outstanding share of
Series A Preferred Stock (the "Series A Liquidation Price"), plus declared but
unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like)
(b) Upon completion of the distribution required by
subsection (a) of this Section 2, all of the remaining assets of this
Corporation available for distribution to stockholders shall be distributed
among the holders of Series A Preferred
<PAGE> 2
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming full conversion of all shares of Series A Preferred
Stock).
(c) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this Corporation shall be deemed to be
occasioned by, or to include (unless the holders of a majority of the Series A
Preferred Stock then outstanding shall determine otherwise), (A) the acquisition
of this Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of this Corporation; or (B) a sale of all or
substantially all of the assets of this Corporation.
(ii) In any of such events, if the consideration
received by this Corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment
letter or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange
or through the Nasdaq National Market, the value shall be deemed to be the
average of the closing prices of the securities on such exchange or system over
the thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter,
the value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market,
the value shall be the fair market value thereof, as mutually determined by this
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Series A Preferred Stock.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A) (1), (2) or (3) to reflect the
approximate fair market value thereof as mutually determined by this Corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of such Series A Preferred Stock.
(iii) In the event the requirements of this
subsection 2(c) are not complied with, this Corporation shall forthwith either:
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<PAGE> 3
(A) cause such transaction to be postponed until
such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 2(c)(iv) hereof.
(iv) This Corporation shall give each holder of
record of Common Stock and Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and this Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after this Corporation has given
the first notice provided herein or sooner than ten (10) days after this
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Common Stock and Preferred Stock that are entitled to such
notice rights or similar notice rights and that represent at least a majority of
the voting power of all then outstanding shares of such Common Stock and Series
A Preferred Stock.
3. Redemption. The Series A Preferred Stock is redeemable only
at the election of the Board of Directors of this Corporation upon 20 days
notice to the holders of Series A Preferred Stock at a price per share equal to
the Series A Liquidation Price plus accrued (whether or not declared) but unpaid
dividends on each such share (subject to adjustment as set in Subsection 2(a)).
4. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights").
(a) Right to Convert. Each share of Series A Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, and until 5:00 p.m. Eastern Time of
the day fixed for redemption as set forth in Section 3, at the office of this
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the Series
A Liquidation Price by the Conversion Price applicable to such share, determined
as hereafter provided, in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share for shares of Series A
Preferred Stock shall be $1.00, subject to adjustment as set forth in subsection
4(d).
3
<PAGE> 4
(b) Automatic Conversion. Each share of Series A
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such Series A Preferred Stock
immediately upon the earlier of (i) this Corporation's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to a registration
statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $10.00 per share (as
adjusted for any stock splits, stock dividends, recapitalizations or the like)
and $10,000,000 in the aggregate or (ii) the date specified by written consent
or agreement of the holders of a majority of the then outstanding shares of
Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he or she shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series A Preferred Stock and shall give written notice to this Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the names or names in which the certificate or certificates for
shares of Common Stock are to be issued. This Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, the conversion may, at the option of any holder
tendering Series A Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the persons entitled to receive the Common Stock upon
conversion of the Series A Preferred Stock shall not be deemed to have converted
such Series A Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for
Certain Dilution Issuances, Splits and Combinations. The Conversion Price of the
Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) If this Corporation shall issue, after the date
upon which any shares of Series A Preferred Stock were first issued (the
"Purchase Date"), any Additional Stock (as defined below):
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<PAGE> 5
(A) If such Additional Stock is issued without
consideration or for a consideration per share less than the Conversion Price
for such Series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such Series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares of Common Stock
deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number
of shares of Common Stock that the aggregate consideration received by this
Corporation for such issuance would purchase at such Conversion Price and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock deemed to
be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares
of such Additional Stock.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments that are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 4(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance after the applicable
Purchase Date of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(i) and subsection 4(d)(ii):
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<PAGE> 6
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options. to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration, determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D), if any, received by this Corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for, any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this Corporation for any such
securities and related options. or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no other adjustment
shall be made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such option's or rights or the conversion
or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed
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<PAGE> 7
using such options, rights or securities or options or rights related to such
securities (unless such options or rights were merely deemed to be included in
the numerator and denominator for purposes of determining the number of shares
of Common Stock outstanding for purposes of subsection 4(d)(i)(A)), shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities that remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
relates to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(l) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection 4(d)(i)(E)
(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this Corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof, or
(B) up to 100,000 shares of Common Stock (excluding
shares repurchased at cost by this Corporation in connection with the
termination of service) issuable or issued to employees, consultants, directors
or vendors (if in transactions with primarily non-financing purposes) of this
Corporation directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of this Corporation; or,
(C) up to 1,000,000 shares of Common Stock issuable
upon conversion of this Corporation's convertible debentures and warrants
(subject to adjustment for any stock splits, stock dividends, combinations,
recapitalization or the like).
(iii) In the event this Corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
7
<PAGE> 8
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such Series shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding
at any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such Series shall be decreased in proportion to such
decrease in outstanding shares.
(e) Other Distributions. In the event this Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Series A Preferred Stock, as the case may be, shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this Corporation into which their shares
of Series A Preferred Stock, are convertible as of the record date fixed for the
determination of the holders of Common Stock of this Corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2), provision shall be made so that the holders of the
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock, the number of shares of stock or other
securities or property of this Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock shall be applicable after that event
as nearly equivalent as may be practicable.
(g) No Impairment. This Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the
8
<PAGE> 9
terms to be observed or performed hereunder by this Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock and the number
of shares of Common Stock to be issued shall be rounded to the nearest whole
share. Whether or not fractional shares are issuable upon such conversion shall
be determined on the basis of the total number of shares of Series A Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock pursuant to
this Section 4, this Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for such Series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by
this Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A
9
<PAGE> 10
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
Corporation shall take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to this Corporation's Articles
of Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
Corporation.
5. Voting Rights.
(a) General Voting Rights. The holder of each share of Series
A Preferred Stock shall have the right to one vote for each share of Common
Stock into which such Series A Preferred Stock, as the case may be, could then
be converted, and with respect to such vote, except as set forth in Section
5(b), such holder (i) shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, (ii) shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this Corporation, and (iii) shall be entitled to
vote, together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote. Fractional votes shall
not, however, be permitted and any fractional voting rights available on an
as-converted basis shall be rounded to the nearest whole number (with one-half
being rounded upward).
(b) Voting for the Election of Directors. The holders of
shares of Series A Preferred Stock shall be entitled to elect one (1) director
of this Corporation at each annual election of directors. The holders of Series
A Preferred Stock and Common Stock (voting together as a single class and not as
separate series, and on an as-converted basis) shall be entitled to elect any
remaining directors of this Corporation.
In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or Series of stock pursuant to this Section 5(b), the
remaining directors so elected by that class or Series may by affirmative vote
of a majority thereof (or the remaining director so elected if there be but one,
or if there are no such directors remaining, by the affirmative vote of the
holders of a majority of the shares of that class or series), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the
10
<PAGE> 11
holders of a class or Series of stock or by any directors so elected as provided
in the immediately preceding sentence hereof may be removed during the aforesaid
term of office, either with or without cause, by, and only by, the affirmative
vote of the holders of the shares of the class or Series of stock entitled to
elect such director or directors, given either at a special meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders, and any vacancy thereby created may be filled by the holders of
that class or Series of stock represented at the meeting or pursuant to
unanimous written consent.
6. Protective Provisions. Subject to the rights of Series of
Preferred Stock that may from time to time come into existence, so long as any
shares of Series A Preferred Stock are outstanding, this Corporation shall not:
(a) without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of a majority of the Series A
Preferred Stock then outstanding voting together as a single class:
(i) sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of this Corporation
is disposed of;
(ii) redeem, purchase or otherwise acquire (or pay into
or set aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction
shall not apply to the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for
this Corporation or any subsidiary pursuant to agreements under which this
Corporation has the option to repurchase such shares at cost or at cost
upon the occurrence of certain events, such as the termination of
employment;
(iii) amend this Corporation's Articles of Incorporation
or bylaws;
(iv) declare or pay any dividends on any shares of
capital stock;
(v) do any act or thing which would result in taxation
of the holders of shares of the Series A Preferred Stock under Section 305
of the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time
amended); or
11
<PAGE> 12
(vi) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series A Preferred Stock with respect to dividends,
liquidation or voting.
7. Status of Converted Stock. In the event any shares of Series
A Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by this Corporation. The
Articles of Incorporation of this Corporation shall be appropriately amended to
effect the corresponding reduction in this Corporation's authorized capital
stock.
12
<PAGE> 1
EXHIBIT 2.3
SECURITIES PURCHASE AGREEMENT
DATED AS OF
DECEMBER 7, 1998
BY AND BETWEEN
LAHAINA ACQUISITIONS, INC.
AS THE ISSUER,
AND
GCA STRATEGIC INVESTMENT FUND LIMITED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS...........................................................................................1
SECTION 1.1 DEFINITIONS.................................................................................1
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS.........................................................9
ARTICLE II. PURCHASE AND SALE OF SECURITIES......................................................................9
SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTES......................................................9
SECTION 2.2 PURCHASE PRICE.............................................................................10
SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT...........................................................10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES.................................................................10
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS.......................................10
SECTION 3.2 PAYMENT OF INTEREST........................................................................10
SECTION 3.3 VOLUNTARY PREPAYMENT.......................................................................10
SECTION 3.4 MANDATORY PREPAYMENTS......................................................................11
SECTION 3.5 PREPAYMENT PROCEDURES......................................................................11
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS..............................................................12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................................................14
SECTION 4.1 ORGANIZATION AND QUALIFICATION.............................................................14
SECTION 4.2 AUTHORIZATION AND EXECUTION................................................................14
SECTION 4.3 CAPITALIZATION ............................................................................14
SECTION 4.4 GOVERNMENTAL AUTHORIZATION.................................................................15
SECTION 4.5 ISSUANCE OF SHARES.........................................................................15
SECTION 4.6 NO CONFLICTS...............................................................................15
SECTION 4.7 FINANCIAL INFORMATION......................................................................16
SECTION 4.8 LITIGATION.................................................................................16
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS..............................................16
SECTION 4.10 ENVIRONMENTAL MATTERS.....................................................................17
SECTION 4.11 TAXES.....................................................................................17
SECTION 4.12 INVESTMENTS, JOINT VENTURES...............................................................17
SECTION 4.13 NOT AN INVESTMENT COMPANY.................................................................17
SECTION 4.14 FULL DISCLOSURE...........................................................................17
SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS......................................18
SECTION 4.16 PERMITS...................................................................................18
SECTION 4.17 LEASES....................................................................................18
SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS...................................18
SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY............................................................18
SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS..............................................................19
SECTION 4.21 INSURANCE.................................................................................19
SECTION 4.22 TITLE TO PROPERTIES.......................................................................19
SECTION 4.23 INTERNAL ACCOUNTING CONTROLS..............................................................19
SECTION 4.24 YEAR 2000 COMPLIANCE......................................................................19
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4.25 FOREIGN PRACTICES.........................................................................20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................20
SECTION 5.1 PURCHASER..................................................................................20
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES......................................................21
SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE................................21
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS....................................................24
ARTICLE VII. AFFIRMATIVE COVENANTS..............................................................................24
SECTION 7.1 INFORMATION................................................................................24
SECTION 7.2 PAYMENT OF OBLIGATIONS.....................................................................25
SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE.........................................................25
SECTION 7.4 MAINTENANCE OF EXISTENCE...................................................................25
SECTION 7.5 COMPLIANCE WITH LAWS.......................................................................26
SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS..................................................26
SECTION 7.7 INVESTMENT COMPANY ACT.....................................................................26
SECTION 7.8 USE OF PROCEEDS............................................................................26
SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.................................26
SECTION 7.10 RESERVED SHARES AND LISTINGS..............................................................26
SECTION 7.11 IRREVOCABLE INSTRUCTIONS..................................................................27
SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.................................28
SECTION 7.13 FORM D; BLUE SKY LAWS.....................................................................28
ARTICLE VIII. NEGATIVE COVENANTS................................................................................28
SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES...................................................28
SECTION 8.2 TRANSACTIONS WITH AFFILIATES...............................................................28
SECTION 8.3 MERGER OR CONSOLIDATION....................................................................29
SECTION 8.4 LIMITATION ON ASSET SALES..................................................................29
SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS.........................................................29
SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS............................29
SECTION 8.7 LIMITATION ON STOCK REPURCHASES............................................................30
ARTICLE IX. RESTRICTIVE LEGENDS.................................................................................30
SECTION 9.1 RESTRICTIONS ON TRANSFER...................................................................30
SECTION 9.2 RESTRICTIVE LEGENDS........................................................................31
SECTION 9.3 NOTICE OF PROPOSED TRANSFERS...............................................................31
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES..............................................................31
SECTION 10.1 LIQUIDATED DAMAGES........................................................................31
SECTION 10.2 CONVERSION NOTICE.........................................................................32
SECTION 10.3 CONVERSION LIMIT..........................................................................32
SECTION 10.4 REGISTRATION RIGHTS.......................................................................33
SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES.....................................................34
</TABLE>
iii
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<TABLE>
<S> <C> <C>
ARTICLE XI. ADJUSTMENT OF FIXED PRICE...........................................................................34
SECTION 11.1 REORGANIZATION............................................................................34
SECTION 11.2 SHARE REORGANIZATION......................................................................34
SECTION 11.3 RIGHTS OFFERING...........................................................................35
SECTION 11.4 SPECIAL DISTRIBUTION......................................................................36
SECTION 11.5 CAPITAL REORGANIZATION....................................................................37
SECTION 11.6 PURCHASE PRICE ADJUSTMENTS................................................................37
SECTION 11.7 ADJUSTMENT RULES..........................................................................38
SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT..............................................................38
SECTION 11.9 NOTICE TO NOTEHOLDERS.....................................................................38
ARTICLE XII. EVENTS OF DEFAULT..................................................................................39
SECTION 12.1 EVENTS OF DEFAULT.........................................................................39
SECTION 12.2 POWERS AND REMEDIES CUMULATIVE............................................................41
ARTICLE XIII. MISCELLANEOUS.....................................................................................41
SECTION 13.1 NOTICES...................................................................................41
SECTION 13.2 NO WAIVERS; AMENDMENTS....................................................................41
SECTION 13.3 INDEMNIFICATION...........................................................................42
SECTION 13.4 EXPENSES: DOCUMENTARY TAXES..............................................................44
SECTION 13.5 PAYMENT...................................................................................44
SECTION 13.6 SUCCESSORS AND ASSIGNS....................................................................44
SECTION 13.7 BROKERS...................................................................................44
SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
APPOINTMENT OF AGENT......................................................................44
SECTION 13.9 ENTIRE AGREEMENT..........................................................................45
SECTION 13.10 SURVIVAL; SEVERABILITY...................................................................45
SECTION 13.12 REPORTING ENTITY FOR THE COMMON STOCK. .................................................45
SECTION 13.13 PUBLICITY................................................................................45
</TABLE>
iv
<PAGE> 5
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule 4.1 Financings
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 6.1(q) Beachside Property
Schedule 8.2 Transactions with Affiliates
Schedule 8.3 Merger or Consolidation
</TABLE>
v
<PAGE> 6
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Convertible Notes
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Company Counsel's Opinion
Exhibit F Form of Pledge Agreement
</TABLE>
vi
<PAGE> 7
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of December 7, 1998, between Lahaina Acquisitions,
Inc. (the "Company") and GCA Strategic Investment Fund Limited ("Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and
Purchaser desire to purchase from the Company, $750,000 aggregate principal
amount of the Company's 9% Convertible Notes due January 31, 2001 (the
"Convertible Notes"), with terms and conditions as set forth in the form of
Convertible Note attached hereto as Exhibit A; and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, no par value per share (the "Common Stock"); and
WHEREAS, Purchaser will have certain registration rights with respect
to such shares of Common Stock issuable as interest under, and upon conversion
of, the Convertible Notes (collectively, the "Conversion Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit B;
and
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Additional Shares of Common Stock" has the meaning set forth in
Section 11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary of the
Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Beachside" means Beachside Commons I, Inc.
<PAGE> 8
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to such
sections) other than Purchaser shall have acquired beneficial ownership (within
the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to
the Exchange Act) of 33 1/3% or more of the outstanding shares of Common Stock
of the Company; (ii) any sale or other disposition (other than by reason of
death or disability) to any Person of more than 50,000 shares of Common Stock of
the Company by any executive officers and/or directors of the Company
(including, but not limited to, Richard P. Smyth) (iii) individuals constituting
the Board of Directors of the Company on the date hereof (together with any new
Directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of at least
50.1% of the Directors still in office who are either Directors as of the date
hereof or whose election or nomination for election was previously so approved),
cease for any reason to constitute at least two-thirds of the Board of Directors
of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed or
traded or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date on which all of the conditions set forth
in Sections 6.1 and 6.2 shall have been satisfied and Convertible Notes in the
aggregate principal amount of $750,000 are issued by the Company to Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE> 9
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, no par value per share, of the
Company.
"Company" means Lahaina Acquisitions, Inc., a Colorado corporation, and
its successors.
"Company Corporate Documents" means the certificate of incorporation
and bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's
equity which would appear on a consolidated balance sheet of the Company
prepared as of such date.
"Consolidated Subsidiary" means at any date with respect to any Person
or Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of a Convertible
Note by the holder thereof to the Company as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's Convertible Notes substantially
in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with
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<PAGE> 10
the giving of notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Default Fee" has the meaning set forth in Section 10.4.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of
a controlled group of corporation and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
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<PAGE> 11
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"Guaranty" means a certain Guaranty dated as of the date hereof by and
between Company and Beachside.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of
share purchase, partnership interest, capital contribution, loan, time deposit
or otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii)
at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
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"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible
Notes; specifically, December 31, 2000.
"Maximum Number of Shares" shall mean that percentage that the Company
may issue without shareholder approval under the applicable rules of the
National Market or the applicable OTC Bulletin Board or equivalent entity, of
the then issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
stockholders of the Company may have previously approved.
"Mongoose" means Mongoose Investments, LLC.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market,
the New York Stock Exchange, Inc. or the American Stock Exchange, Inc..
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Non-Recourse Financing" means Debt of the Company or any Subsidiary
which, by its terms, bars the lender thereof from any action against the Company
or any Subsidiary, as borrower or guarantor, if the security value of the
project or asset pledged in respect thereof falls below the amount required to
repay such Debt.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Note.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of Exhibit D attached hereto.
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"OTC Bulletin Board" means the over-the-counter bulletin board operated
by the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock Company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
the Code and either (i) is maintained, or contributed to, by any member of the
ERISA group for employees of any member of the ERISA group or (ii) has at any
time within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA group for employees of the
Person which was at such time a member of the ERISA Group.
"Pledge Agreement" means the pledge agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit F
attached hereto.
"Pledged Shares" has the meaning set forth in Section 6.1(s).
"Preferred Stock" means the no par value per share Series A preferred
stock of the Company.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.2 hereof.
"Purchaser" means the entity listed on the signature page hereto and
its successors and assigns, including holders from time to time of the
Convertible Notes.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
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"Registration Rights Agreement" means the agreement between the Company
and Purchaser dated the date hereof substantially in the form set forth in
Exhibit B attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section
10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any
dividend or other distribution on any shares of capital stock of such Person
(except dividends payable solely in shares of capital stock of the same or
junior class of such Person and dividends from a wholly-owned direct or indirect
Subsidiary of the Company to its parent corporation), (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (a) any shares
of such Person's capital stock or (b) any option, warrant or other right to
acquire shares of such Person's capital stock or (iii) any loan, or advance or
capital contribution to any Person (a "Stockholder") owning any capital stock of
such Person other than relocation, travel or like advances to officers and
employees in the ordinary course of business, and other than reasonable
compensation as determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" has the meaning set forth in Section 7.1(a).
"Securities" means the Convertible Notes and, as applicable, the
Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the
treasurer of the Company as to the solvency of the Company, the adequacy of its
capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Notes and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith), which such Solvency Certificate shall be in the form of Exhibit C
attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which (x) a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person or (y) the results of operations, the assets
and the liabilities of which are consolidated with such Person under GAAP. For
purposes of this Agreement, Beachside shall be considered a Subsidiary of the
Company.
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"Subsidiary Corporate Documents" means the certificates of
incorporation and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the OTC Bulletin
Board, National Market or other automated quotation system or exchange on which
the Common Stock is then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Notes,
and the Registration Rights Agreement, the Pledge Agreement, the Guaranty and
the other agreements contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" has the meaning set forth in Section 13.7.
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
SECTION 2.1 PURCHASE AND SALE OF CONVERTIBLE NOTES.
(a) Subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase
from the Company, Convertible Notes in the aggregate principal amount of
$750,000.00.
(b) Purchaser shall acquire the Convertible Notes on the
Closing Date in an aggregate principal amount of Seven Hundred Fifty Thousand
Dollars ($750,000.00).
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SECTION 2.2 PURCHASE PRICE. The purchase price for the Convertible
Notes shall be 100% of the principal amount thereof. No part of the purchase
price of the Convertible Notes shall be allocated to the Warrant. Therefore, the
aggregate consideration payable by Purchaser to the Company for the Convertible
Notes shall be Seven Hundred Fifty Thousand Dollars ($750,000.00) (the "Purchase
Price").
SECTION 2.3 CLOSING AND MECHANICS OF PAYMENT.
(a) The Purchase Price shall be paid on the Closing Date by
wire transfer of immediately available funds on or before 5:00 p.m. (EST).
(b) The Convertible Notes issued on the Closing Date shall be
dated the date hereof; provided, however, interest shall accrue on the
applicable Convertible Notes only from and after the date of funding thereof.
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE NOTES
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The
Company will pay all amounts due on each Convertible Note by the method and at
the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of this Convertible
Note, the holder shall surrender the Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any Convertible
Note, the holder thereof will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender the Convertible Note to the Company in exchange for a
new Convertible Note or Convertible Notes. The Company will afford the benefits
of this Section 3.1 to any direct or indirect transferee of the Convertible Note
purchased under this Agreement and that has made the same agreement relating to
this Convertible Note as Purchaser has in this Section 3.1; provided that such
transferee is an "accredited investor" under Rule 501 of the Securities Act.
SECTION 3.2 PAYMENT OF INTEREST. Interest shall accrue on the
outstanding principal amount of each Convertible Note and shall be payable as
specified therein.
SECTION 3.3 VOLUNTARY PREPAYMENT. For so long as no Event of Default
shall have occurred and is continuing, the Company may, at its option, repay, in
whole or in part, the Convertible Notes, per the formula set forth in Section
5.1 of Exhibit A hereto, thereof following at least five (5) Business Days prior
written notice to Purchaser (the expiration of such five (5) Business Day period
being referred to as the "prepayment date"); provided, however, that if such
date is not a Business Day, the prepayment date shall be the next Business Day
thereafter.
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SECTION 3.4 MANDATORY PREPAYMENTS.
(a) Upon (i) the occurrence of a Change in Control of the
Company, (ii) a transfer of all or substantially all of the assets of
the Company to any Person in a single transaction or series of related
transactions, (iii) a consolidation, merger or amalgamation of the
Company with or into another Person in which the Company is not the
surviving entity (other than a merger which is effected solely to
change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock) (each of items (i),
(ii) and (iii) being referred to as a "Sale Event"), or (iv) the
occurrence of a Registration Default which continues uncured for a
period of forty-five (45) days, then, in each case, the Company shall,
upon request of the Majority Holders, redeem the Convertible Notes in
cash for the Formula Price.
(b) Upon the consummation of one or more Financings, the
Company shall use 100% of the Net Cash Proceeds therefrom (unless such
Net Cash Proceeds from each such Financing is less than $250,000) to
redeem the Convertible Notes. The redemption price payable upon any
such redemption shall be the Formula Price.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days of such issuance to obtain shareholder approval
to issue additional shares of Common Stock (the "Redemption Event"),
the Company shall redeem the outstanding balance of each Convertible
Note for the Formula price as set forth in Section 4.3 the Convertible
Notes.
SECTION 3.5 PREPAYMENT PROCEDURES.
(a) Any permitted prepayment or redemption of the Convertible
Notes pursuant to Sections 3.3 or 3.4 above shall be deemed to be
effective and consummated (for purposes of determining the Formula
Price and the time at which Purchaser shall thereafter not be entitled
to deliver a Notice of Conversion for the Convertible Notes) as
follows:
(i) A prepayment pursuant to Section 3.3, the
"prepayment date" specified therein;
(ii) A redemption pursuant to Section 3.4(a), the
date of consummation of the applicable Sale Event or the
Registration Default;
(iii) A redemption pursuant to Section 3.4(b), three
(3) Business Days following the date of consummation of the
applicable Financing (meaning closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), the
date specified in each Convertible Note.
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(b) On the Maturity Date and on the effective date of a
repayment or redemption of the Convertible Notes as specified in
Section 3.5(a) above, the Company shall deliver by wire transfer of
funds the repayment/redemption price to Purchaser of the Convertible
Notes subject to redemption. Should Purchaser not receive payment of
any amounts due on redemption of its Convertible Notes by reason of the
Company's failure to make payment at the times prescribed above for any
reason, the Company shall pay to the applicable holder on demand (x)
interest on the sums not paid when due at an annual rate equal to the
lesser of (I) the maximum lawful rate and (II) 18% per annum,
compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but
not limited to, reasonable attorneys' fees and costs, whether or not
suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be
redeemed in any redemption in which not all of the Convertible Notes
are to be redeemed so that the ratio of the Convertible Notes of each
holder selected for redemption to the total Convertible Notes owned by
that holder shall be the same as the ratio of all such Convertible
Notes selected for redemption bears to the total of all then
outstanding Convertible Notes. Should any Convertible Notes required to
be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Notes shall be
redeemed on the earliest possible dates thereafter to the maximum
extent permitted by law.
(d) Any Notice of Conversion delivered by Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a voluntary repayment pursuant to Section 3.3 or
a mandatory prepayment pursuant to Section 3.4 as specified in Section
3.5(a) above), shall be honored by the Company and the conversion of
the Convertible Notes shall be deemed effected on the Conversion Date.
In addition, between the effective date of a voluntary prepayment
pursuant to Section 3.3 or a mandatory prepayment pursuant to Section
3.4 as specified in Section 3.5(a) above and the date the Company is
required to deliver the redemption proceeds in full to Purchaser,
Purchaser may deliver a Notice of Conversion to the Company. Such
notice will be (x) of no force or effect if the Company timely pays the
redemption proceeds to Purchaser when due or (y) honored on or as of
the date of the Notice of Conversion if the Company fails to timely pay
the redemption proceeds to Purchaser when due.
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to Purchaser and each "qualified assignee" thereof
shall be made free and clear of and without deduction or withholding
for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto (all
such taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") unless such Taxes
are required by law or the administration thereof to be deducted or
withheld. If the Company shall be required by law or the administration
thereof to deduct or withhold any Taxes from or in respect of any sum
payable under the Convertible Notes (i) the holders of the Convertible
Notes subject to such Taxes shall have the right, but
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not the obligation, for a period of thirty (30) days commencing upon
the day it shall have received written notice from the Company that it
is required to withhold Taxes to transfer all or any portion of the
Convertible Notes to a qualified assignee to the extent such transfer
can be effected in accordance with the other provisions of this
Agreement and applicable law; (ii) the Company shall make such
deductions or withholdings; (iii) the sum payable shall be increased as
may be necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 3.6) Purchaser receives an
amount equal to the sum it would have received if no such deduction or
withholding had been made; and (iv) the Company shall forthwith pay the
full amount deducted or withheld to the relevant taxation or other
authority in accordance with applicable. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (I) the
United States or (II) any jurisdiction other than the United States or
any political subdivision thereof and that (y) represents and warrants
to the Company that payments of the Company to such assignee under the
laws in existence on the date of this Agreement would not be subject to
any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal Revenue
Service forms, and provides the Company with any information necessary
to establish such assignee's continued exemption from Taxes under
applicable law.
(b) The Company shall forthwith pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies (all such taxes, charges and levies
hereinafter referred to as "Other Taxes") which arise from any payment
made under any of the Transaction Agreements or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement other than Taxes payable solely as a result of the transfer
from Purchaser to a Person of any Security.
(c) The Company shall indemnify Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.6) paid by
Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made
within 30 days from the date Purchaser or assignee makes written demand
therefor. A certificate as to the amount of such Taxes or Other Taxes
submitted to the Company by Purchaser or assignee shall be conclusive
evidence of the amount due from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating
that it is a non- U.S. person, together with any additional tax forms
which may be required under the Code, as amended after the date hereof,
to allow interest payments to be made to it without deduction.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser, as of the Closing
Date, the following:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. The Company is qualified to conduct business as a
foreign corporation and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except where such failure would not have a Material Adverse Effect. A "Material
Adverse Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
SECTION 4.2 AUTHORIZATION AND EXECUTION.
(a) The Company has all requisite corporate power and
authority to enter into and perform each Transaction Agreement and to
consummate the transactions contemplated hereby and thereby and to
issue the Securities in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of
each Transaction Agreement and the issuance by the Company of the
Securities have been duly and validly authorized and no further consent
or authorization of the Company, its Board of Directors or its
shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and
delivery thereof by the Company, each of the Transaction Agreements
will constitute, a valid and binding agreement of the Company, in each
case enforceable against the Company in accordance with its respective
terms.
SECTION 4.3 CAPITALIZATION . As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth on Schedule
4.3 hereto and except as set forth on Schedule 4.3 no other shares of capital
stock of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
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<PAGE> 21
or exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Convertible Notes or Conversion Shares. The Company has
furnished to Purchaser true and correct copies of the Company's Corporate
Documents, and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
SECTION 4.4 GOVERNMENTAL AUTHORIZATION. The execution and delivery by
the Company of the Transaction Agreements does not and will not, the issuance
and sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Conversion Shares of
Common Stock issuable upon conversion of the Convertible Notes, and (d) the
filing of a "Form D" as described in Section 7.13 below.
SECTION 4.5 ISSUANCE OF SHARES. Upon conversion in accordance with the
terms of the Convertible Notes, the Conversion Shares shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of Purchaser herein are true and
correct in all material respects, each of the Securities will have been issued
in material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain circumstances,
the issuance of Conversion Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Convertible Notes
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 4.6 NO CONFLICTS. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien
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on any asset of the Company or any Subsidiary. The Company and each Subsidiary
is in compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
SECTION 4.7 FINANCIAL INFORMATION. Since June 30, 1998 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries for the periods ending September 30, 1997, and
June 30, 1998, respectively, and the related consolidated statements of income,
changes in stockholders' equity and changes in cash flows for the periods then
ended, including the footnotes thereto, except as indicated therein, (i)
complied in all material respects with applicable accounting requirements and
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods indicated, except that the unaudited financial statements do not
contain notes and may be subject to normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial condition of
the Company and its Subsidiaries at the dates indicated and the consolidated
results of their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all Debts and
liabilities of the Company and its Subsidiaries, fixed or contingent.
SECTION 4.8 LITIGATION. Except as set forth on Schedule 4.8, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which as resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or
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the Code or (iii) incurred any liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 4.10 ENVIRONMENTAL MATTERS. The costs and liabilities
associated with Environmental Laws (including the cost of compliance therewith)
are unlikely to have a material adverse effect on the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts
its businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 4.11 TAXES. All United States federal, state, county,
municipality, local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes and other governmental charges have been established in accordance with
GAAP.
SECTION 4.12 INVESTMENTS, JOINT VENTURES. Other than as set forth in
Schedule 4.12, the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
SECTION 4.13 NOT AN INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
SECTION 4.14 FULL DISCLOSURE. The information heretofore furnished by
the Company to Purchaser for purposes of or in connection with this Agreement or
any transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to
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Purchaser will not (in each case taken together and on the date as of which such
information is furnished), contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 4.15 NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to Purchaser will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the OTC Bulletin Board.
SECTION 4.16 PERMITS. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; (c) no event has occurred
which allows, or after notice of lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
SECTION 4.17 LEASES. Except for leases to tenants of the real property
of Beachside, neither the Company nor any Subsidiary is a party to any capital
lease obligation with a value greater than $100,000 or to any operating lease
with an aggregate annual rental greater than $100,000 during the life of such
lease.
SECTION 4.18 ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which would reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and referred to on Schedule 4.3 and Schedule 6.1(q) hereof and (ii)
other undisclosed liabilities which, individually or in the aggregate, would not
have a Material Adverse Effect.
SECTION 4.19 PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor
any Subsidiary is, or will be upon issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the
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Federal Power Act, the Interstate Commerce Act or to any federal or state
statute or regulation limiting its ability to issue and perform its obligations
under any Transaction Agreement.
SECTION 4.20 INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 4.21 INSURANCE. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
SECTION 4.22 TITLE TO PROPERTIES. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7 and Section 6.1(q), free and
clear of all Liens.
SECTION 4.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 4.24 YEAR 2000 COMPLIANCE.
(a) COMPUTER AND OTHER SYSTEMS. (i) All software programs and computer
hardware that are owned, leased or licensed by the Company and each Subsidiary,
or used by third parties on behalf of the Company and each Subsidiary ("Computer
Systems"), are designated to be used prior to, during and after the calendar
year 2000 A.D., including leap years; (ii) all other operational systems that
use software or equipment that are owned, leased, or licensed by the Company and
each Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Other Systems"), are designated to be used prior to, during or
after the calendar year 2000 A.D., including leap years; (iii) the Computer
systems and Other Systems will properly operate during each such period without
error or degradation of performance caused by a lack of Year 2000 Capabilities;
and (iv) the Computer Systems and Other Systems will properly operate during
each such period without requiring intervention or modification to Date Data.
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(b) CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the best of
the Company's knowledge after specific inquiry of all of its material suppliers,
vendors and landlords, the Company and each Subsidiary will not suffer a loss
from interruption or cessation of business operations, in whole or in part, as a
result of such suppliers, vendors or landlords failing to provide materials,
labor, supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having Year 2000
Capabilities.
(c) CAPABILITIES. For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data involving
dates, including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or generate incorrect values
or invalid results involving such dates; (ii) include the indication of proper
century dates in all date-related user interface functions and date fields; and
(iii) operate with proper century dates in date-related software or hardware
interface functions; and (y) "Date Data" means any existing data or input of
date which includes an indication of or reference to date.
SECTION 4.25 FOREIGN PRACTICES. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of any
law, rule or regulation.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 5.1 PURCHASER. Purchaser hereby represents and warrants to the
Company that:
(a) Purchaser is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act and the Securities to be
acquired by it pursuant to this Agreement are being acquired for its
own account and, as of the date hereof, not with a view toward, or for
sale in connection with, any distribution thereof except in compliance
with applicable United States federal and state securities law;
provided that the disposition of Purchaser's property shall at all
times be and remain within its control;
(b) the execution, delivery and performance of this Agreement
and the purchase of the Securities pursuant thereto are within
Purchaser's corporate or partnership powers, as applicable, and have
been duly and validly authorized by all requisite corporate or
partnership action;
(c) this Agreement has been duly executed and delivered
by Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of
applicable law or regulation, or (ii) any agreement, judgment,
injunction, order, decree or other instrument binding upon Purchaser;
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(e) Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement or the remaining Transaction
Agreements;
(f) this Agreement constitutes a valid and binding agreement
of Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability;
(g) Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and
risks of its investment in the Securities and Purchaser is capable of
bearing the economic risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced
in business and financial matters; Purchaser has previously invested in
securities similar to the Securities and fully understands the
limitations on transfer described herein; Purchaser has been afforded
access to information about the Company and the financial condition,
results of operations, property, management and prospects of the
Company sufficient to enable it to evaluate its investment in the
Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and the risks of
investing in the Securities; and Purchaser has been afforded the
opportunity to obtain such additional information which the Company
possesses or can acquire that is necessary to verify the accuracy and
completeness of the information given to Purchaser concerning the
Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to
acquire the Securities constitutes assets allocated to any separate
account maintained by Purchaser in which any employee benefit plan (or
its related trust) has any interest; and
(j) Purchaser is a corporation organized under the laws of
Bermuda.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO
PURCHASE. The obligation of Purchaser hereunder to purchase the Convertible
Notes at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
Purchaser's sole benefit and may be waived by Purchaser at any time in its sole
discretion:
(a) The Company shall have duly executed this Agreement, the
Registration Rights Agreement and the Guaranty, and delivered the same
to Purchaser;
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(b) The Company shall have delivered to Purchaser duly
executed certificates representing the Convertible Notes in accordance
with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company
contained in each Transaction Agreement shall be true and correct in
all material respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and
warranties that speak as of a specified date) and the Company shall
have performed, satisfied and complied with all covenants, agreements
and conditions required by such Transaction Agreements to be performed,
satisfied or complied with by it at or prior to the Closing Date.
Purchaser shall have received an Officer's Certificate executed by the
chief executive officer of the Company, dated as of the Closing Date,
to the foregoing effect and as to such other matters as may be
reasonably requested by Purchaser, including but not limited to
certificates with respect to the Company Corporate Documents,
resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company. The form
of such certificate is attached hereto as Exhibit D;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals
necessary or desirable in connection with the issuance and sale of the
Securities and the consummation of the transactions contemplated by the
Transaction Agreements;
(f) All applicable waiting periods in respect to the issuance
and sale of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent or
impose any materially adverse conditions thereon or that could seek or
threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted
that, in the judgment of Purchaser, could adversely affect the
transactions set forth herein or in the other Transaction Agreements,
and no law or regulation shall have been proposed that in the
reasonable judgment of Purchaser could reasonably have any such effect;
(h) Purchaser shall have received opinions, dated the Closing
Date, of Florida, Colorado and other counsel to the Company, in form
and substance satisfactory to Purchaser;
(i) All fees and expenses due and payable by the Company on or
prior to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary
Corporate Documents, if any, shall be in full force and effect and no
term or condition thereof shall have been amended, waived or otherwise
modified without the prior written consent of Purchaser;
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(k) There shall have occurred no material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or any Subsidiary
since December 31, 1997;
(l) There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before
any arbitrator or governmental instrumentality that challenges the
validity of or purports to affect this Agreement or any other
Transaction Agreement, or other transaction contemplated hereby or
thereby or that could reasonably be expected to have a Material Adverse
Effect, or any material adverse effect on the enforceability of the
Transaction Agreements or the Securities or the rights of the holders
of the Securities or Purchaser hereunder;
(m) Purchaser shall have confirmed the receipt of the
Convertible Notes to be issued, duly executed by the Company in the
denominations and registered in the name of Purchaser;
(n) There shall not have occurred any disruption or adverse
change in the financial or capital markets generally, or in the market
for the Common Stock (including but not limited to any suspension or
delisting), which Purchaser reasonably deems material in connection
with the purchase of the Securities;
(o) Immediately before and after the Closing Date, no Default
or Event of Default shall have occurred and be continuing;
(p) Purchaser shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents
as they shall reasonably request;
(q) The Company or its Subsidiary shall have acquired in a
manner satisfactory to Purchaser the stock of Beachside and Beachside
shall be the owner of the real property described in Schedule 6.1(q)
(the "Beachside Property") subject to only those Liens approved by
Purchaser in its sole discretion; and
(r) Purchaser shall have received a second mortgage and title
insurance commitment on the Beachside Property satisfactory in form and
substance to Purchaser in its sole discretion.
(s) Mongoose shall have (A) pledged as collateral for the
Convertible Notes 750,000 shares of Common Stock represented by
Certificate No. 490 (the "Pledged Shares") to Purchaser pursuant to the
terms of the Pledge Agreement and (B) delivered to Purchaser duly
executed certificates representing the Pledged Shares.
(t) The terms of the Preferred Stock is not in conflict with
the Transaction Agreements.
(u) Purchaser shall have received an appraisal of the
Beachside Property
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satisfactory in form and substance to the Purchaser in its sole
discretion.
(v) Mongoose shall have purchased all shares of Common Stock
owned by Paxford Investments, Ltd. for $300,000.
(w) The Company shall have acquired 100% of the stock of
Beachside from Mongoose in exchange for (i) a demand note of Lahaina in
favor of Mongoose for $682,500 (ii) 1,250,000 shares of Common Stock
and (iii) 1,910,000 shares of Preferred Stock newly issued to Mongoose.
SECTION 6.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of
the Company to issue and sell the Securities to Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of Purchaser contained
herein shall be true and correct in all material respects on the
Closing Date and Purchaser shall have performed and complied in all
material respects with all agreements required by this Agreement to be
performed or complied with by Purchaser at or prior to the Closing
Date;
(b) The issue and sale of the Securities by the Company shall
not be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of
this Agreement and the Registration Rights Agreement signed by
Purchaser;
(d) The Company shall have received payment of Purchase Price,
less the Expense Reimbursement Fee.
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Notes remain outstanding and for the benefit of
Purchaser:
SECTION 7.1 INFORMATION. The Company will deliver to each holder of the
Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (ii) all
reports of Forms 10-K, 10-Q and 8-K (or other equivalents) which the
Company or any Subsidiary has filed with the Commission (collectively,
"SEC Reports");
(b) simultaneously with the delivery of each item referred to
in clause (a) above, a certificate from the chief financial officer of
the Company stating that no Default or Event of Default has occurred
and is continuing, or, if as of the date of such delivery a Default
shall
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have occurred and be continuing, a certificate from the Company setting
forth the details of such Default or Event of Default and the action
which the Company is taking or proposes to take with respect thereto;
(c) within two (2) days after any officer of the Company
obtains knowledge of a Default or Event of Default, or that any Person
has given any notice or taken any action with respect to a claimed
Default hereunder, a certificate of the chief financial officer of the
Company setting forth the details thereof and the action which the
Company is taking or proposed to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally distributed
to shareholders;
(e) at least two (2) Business Days prior to the consummation
of any Financing or other event requiring a repayment of the
Convertible Notes under Section 3.4, notice thereof together with a
summary of all material terms thereof and copies of all documents and
instruments associated therewith;
(f) notice promptly upon the occurrence of any event by which
the Reserved Amount becomes less than the sum of (i) 1.5 times the
maximum number of Conversion Shares issuable pursuant to the
Transaction Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to
which the Company or any Subsidiary is a party in which the amount
involved is $250,000 or more and not covered by insurance or in which
injunctive or similar relief is sought.
SECTION 7.2 PAYMENT OF OBLIGATIONS. The Company will, and will cause
each Subsidiary to, pay and discharge, at or before maturity, all their
respective material obligations, including, without limitation, tax liabilities,
except where the same may be contested in good faith by appropriate proceedings
and will maintain, in accordance with GAAP, appropriate reserves for the accrual
of any of the same.
SECTION 7.3 MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and
will cause each Subsidiary to, keep all property useful and necessary in its
business in good working order and condition, ordinary wear and tear excepted.
In addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
SECTION 7.4 MAINTENANCE OF EXISTENCE. The Company will, and will cause
each Subsidiary to, continue to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
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SECTION 7.5 COMPLIANCE WITH LAWS. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
SECTION 7.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company
will, and will cause each Subsidiary to, keep proper books of record and account
in which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser' Representative or an affiliate
thereof, as representatives of Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its
Subsidiaries), all at such reasonable times.
SECTION 7.7 INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 7.8 USE OF PROCEEDS. The proceeds from the issuance and sale of
the Convertible Notes by the Company shall be used to finance the Company's (i)
acquisition of 100% of the stock of Beachside (together with the issuance of
Common Stock and Preferred Stock of the Company to Mongoose), (ii) payment of
fees, and (iii) working capital. None of the proceeds from the issuance and sale
of the Convertible Notes by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
SECTION 7.9 COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject.
SECTION 7.10 RESERVED SHARES AND LISTINGS.
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time) (the "Reserved Amount"). The
Company shall not reduce the Reserved Amount without the prior written consent
of Purchaser. With respect to all Securities which contain an indeterminate
number of shares of Common Stock issuable in
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connection therewith (such as the Convertible Notes), the Company shall include
in the Reserve Amount, no less than two (2) times the number of shares that is
then actually issuable upon conversion or exercise of such Securities. If at any
time the number of shares of Common Stock authorized and reserved for issuance
is below the number of Conversion Shares issued or issuable upon conversion of
the Convertible Notes, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, either (x) calling a special meeting of shareholders to
authorize additional shares, in the case of an insufficient number of authorized
shares or (y) in lieu thereof, consummating the immediate repurchase of the
Convertible Notes contemplated in Section 4.3 of each Convertible Note and
Sections 3.4(c) and 10.3 hereof, respectively.
(b) The Company shall promptly file the Listing Applications and secure
the listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion or exercise of the
Convertible Notes. The Company will maintain the listing and trading of its
Common Stock on the OTC Bulletin Board. The Company will use its commercially
reasonable best efforts to obtain as soon as practicable and maintain the
listing and trading of its Common Stock on a National Market. The Company will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall
promptly provide to Purchaser copies of any notices it receives regarding the
continued eligibility of the Common Stock for listing on the OTC Bulletin Board
or any National Market.
SECTION 7.11 IRREVOCABLE INSTRUCTIONS. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of Purchaser or its nominee, for the Conversion Shares,
in such amounts as specified from time to time by Purchaser to the Company upon
proper conversion of the Convertible Notes or exercise of the Warrants. Upon
conversion of any Convertible Notes in accordance with their terms and/or
exercise of any Warrants in accordance with their terms, the Company will, and
will use its best lawful efforts to cause its transfer agent to, issue one or
more certificates representing shares of Common Stock in such name or names and
in such denominations specified by a Purchaser in a Notice of Conversion or
Notice of Exercise, as the case may be. As long as the Registration Statement
contemplated by the Registration Rights Agreement shall remain effective, the
shares of Common Stock issuable upon conversion of any Convertible Notes shall
be issued to any transferee of such shares from Purchaser without any
restrictive legend upon appropriate evidence of transfer in compliance with the
Securities Act and the rules and regulations of the Commission; provided that
for so long as the Registration Statement is effective, no opinion of counsel
will be required to effect any such transfer. The Company further warrants and
agrees that no instructions other than these instructions have been or will be
given to its transfer agent. Nothing in this Section 7.11 shall affect in any
way a Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
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SECTION 7.12 MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION.
So long as any of the Securities are outstanding, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act. The Company shall not terminate its status as an issuer required to file
reports under the Exchange Act, even if the Exchange Act or the rules and
regulations thereunder would permit such termination. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the benefit
of the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 7.13 FORM D; BLUE SKY LAWS. The Company agrees to file a "Form
D" with respect to the Securities as required under Regulation D of the
Securities Act and to provide a copy thereof to Purchaser promptly after such
filing. The Company shall, on or before the Closing Date, take such action as
the Company shall reasonably determine is necessary to qualify the Securities
for sale to Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to Purchaser on or prior to the Closing Date.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that after the date hereof for so long as any
Convertible Notes remain outstanding and for the benefit of Purchaser:
SECTION 8.1 LIMITATIONS ON DEBT OR OTHER LIABILITIES. Neither the
Company nor any Subsidiary will create, incur, assume or suffer to exist (at any
time after the Closing Date, after giving effect to the application of the
proceeds of the issuance of the Securities) (i) any Debt except (x) Debt
incurred in a Permitted Financing, (y) Debt incurred in connection with
equipment leases to which the Company or its Subsidiaries are a party incurred
in the ordinary course of business; and (z) Debt incurred in connection with
trade accounts payable, imbalances and refunds arising in the ordinary course of
business and (ii) any equity securities (including Derivative Securities) (other
than those securities that are issuable (x) under or pursuant to stock option
plans, warrants or other rights programs that exist as of the date hereof, (z)
in connection with the acquisition (including by merger) of a business or of
assets otherwise permitted under this Agreement), unless the Company complies
with the mandatory prepayment terms of Section 3.4(b) hereof.
SECTION 8.2 TRANSACTIONS WITH AFFILIATES. The Company and each
Subsidiary will not, directly or indirectly, pay any funds to or for the account
of, make any investment (whether by acquisition or stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, and Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
(with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary
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from a Person that is not an Affiliate of the Company upon negotiation at arms'
length, as determined in good faith by the Board of Directors of the Company;
provided that no determination of the Board of Directors shall be required with
respect to any such transactions entered into in the ordinary course of
business.
SECTION 8.3 MERGER OR CONSOLIDATION. Except for those transactions, if
any, set forth in Schedule 8.3, all of which are contemplated to be consummated
prior to or simultaneously with the transactions contemplated by this Agreement,
the Company will not, in a single transaction or a series of related
transactions (i) consolidate with or merge with or into any other Person, or
(ii) permit any other Person to consolidate with or merge into it, unless the
Company shall be the survivor of such merger or consolidation and (x)
immediately before and immediately after given effect to such transaction
(including any indebtedness incurred or anticipated to be incurred in connection
with the transaction), no Default or Event of Default shall have occurred and be
continuing; and (y) the Company has delivered to Purchaser an Officer's
Certificate stating that such consolidation, merger or transfer complies with
this Agreement, and that all conditions precedent in this Agreement relating to
such transaction have been satisfied.
SECTION 8.4 LIMITATION ON ASSET SALES. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
SECTION 8.5 RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor
any Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
SECTION 8.6 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION
RIGHTS.
(a) In addition to and not in lieu of the covenant specified
in Section 8.1 above, until such time as all of the Convertible Notes
have been either redeemed or converted into Conversion Shares in full,
the Company agrees that it will not issue any of its equity securities
(or securities convertible into or exchangeable or exercisable for
equity securities (the "Derivative Securities")) on terms that allow a
holder thereof to acquire such equity securities (or Derivative
Securities) at a discount to the Market Price of the Common Stock at
the time of issuance or, in the case of Derivative Securities at a
conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later
than the date of issuance so long as such conversion is not below the
Market Price
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on the date of issuance (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be
limited to, (i) any warrant, right or other security granted or offered
in connection with such issuance which, on the applicable date of
grant, is offered with an exercise or conversion price, as the case may
be, at less than the then current Market Price of the Common Stock or,
if such security has an exercise or conversion price based on any
formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance, then at a price
below the Market Price on such date of exercise or conversion, as the
case may be, or (ii) any commissions, fees or other allowances paid in
connection with such issuances (other than customary underwriter or
placement agent commissions, fees or allowances). For the purposes of
determining the Market Price at which Common Stock is acquired under
this Section, normal underwriting commissions and placement fees
(including underwriters' warrants) shall be excluded.
(b) Until such time as all of the Convertible Notes have been
either redeemed or converted into Conversion Shares in full, the
Company agrees it will not issue any of its equity securities (or
Derivative Securities), unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities." As used
herein "restricted securities" shall mean securities which may not be
sold by virtue of contractual restrictions imposed by the Company
either pursuant to an exemption from registration under the Securities
Act or pursuant to a registration statement filed by the Company with
the Commission, in each case prior to twelve (12) months following the
date of issuance of such securities.
(c) The restrictions contained in this Section 8.6 shall not
apply to the issuance by the Company of (or the agreement to issue)
Common Stock or Derivative Securities in connection with (i) the
acquisition (including by merger) of a business or of assets otherwise
permitted under this Agreement, or (ii) stock option or other
compensatory plans.
SECTION 8.7 LIMITATION ON STOCK REPURCHASES. Except as otherwise set
forth in the Convertible Notes, the Company shall not, without the written
consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
any shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares.
ARTICLE IX. RESTRICTIVE LEGENDS
SECTION 9.1 RESTRICTIONS ON TRANSFER. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
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SECTION 9.2 RESTRICTIVE LEGENDS.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.11 and Section
9.1 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
Transfer of the Securities (other than a Transfer (i) registered or exempt from
registration under the Securities Act, (ii) to an affiliate of a Purchaser which
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (a) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1 LIQUIDATED DAMAGES.
(a) The Company shall, and shall use its commercially
reasonable best efforts to cause its transfer agent to, issue and
deliver shares of Common Stock consistent with Section 7.11 hereof
within five (5) Trading Days of delivery of a Notice of Conversion or
Notice of Exercise, as applicable (the "Deadline") to Purchaser (or any
party receiving Securities by transfer from Purchaser) at the address
of Purchaser set forth in the Notice of Conversion or Notice of
Exercise, as the case may be. The Company understands that a delay in
the issuance of such certificates after the Deadline could result in
economic loss to Purchaser.
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(b) Without in any way limiting Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the
Company agrees that if delivery of the Conversion Shares is more than
one (1) Business Day after the Deadline (other than a failure due to
the circumstances described in Section 4.3 of the Convertible Notes,
which failure shall be governed by such Section) the Company shall pay
to Purchaser, as liquidated damages and not as a penalty, $500 for each
$100,000 of Convertible Notes then outstanding per day in cash, for
each of the first ten (10) days beyond the Deadline, and $1,000 for
each $100,000 of Convertible Notes then outstanding per day in cash for
each day thereafter that the Company fails to deliver such Common
Stock. Such cash amount shall be paid to Purchaser by the fifth day of
the month following the month in which it has accrued or, at the option
of Purchaser (by written notice to the Company by the first day of the
month following the month in which it has accrued), shall be added to
the principal amount of the Convertible Note (if then outstanding)
payable to Purchaser, in which event interest shall accrue thereon in
accordance with the terms of the Convertible Notes and such additional
principal amount shall be convertible into Common Stock in accordance
with the terms of the Convertible Notes.
SECTION 10.2 CONVERSION NOTICE. The Company agrees that, in addition to
any other remedies which may be available to Purchaser, including, but not
limited to, the remedies available under Section 10.1, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates with
or without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Notes, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion, as applicable, by delivering a
notice to such effect to the Company whereupon the Company and Purchaser shall
each be restored to their respective positions immediately prior to delivery of
such Notice of Conversion.
SECTION 10.3 CONVERSION LIMIT. Notwithstanding the conversion rights
under the Convertible Notes, unless Purchaser delivers a waiver in accordance
with the immediately following sentence, in no event shall Purchaser be entitled
to convert any portion of the Convertible Notes, in excess of that portion of
the Convertible Notes, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by Purchaser and its Affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Convertible Note or other Derivative
Securities convertible into or exchangeable for shares of Common Stock which
contain a limitation similar to that set forth in this Section 10.3), and (ii)
the number of shares of Common Stock issuable upon the conversion of the portion
of the Convertible Note with respect to which this determination is being made,
would result in beneficial ownership by Purchaser and its Affiliates of more
than 9.99% of the outstanding shares of Common Stock. For purposes of Section
10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3
of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise
provided in this Section 10.3. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and upon the
occurrence of any voluntary or mandatory redemption or repayment transaction
described herein or in the Convertible Notes, (ii) immediately preceding and
upon any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence
of any Event
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of Default which is not cured within the greater of the applicable time period
specified in either (A) such written notice of Purchaser or (B) Section 12.1
hereof.
SECTION 10.4 REGISTRATION RIGHTS.
(a) The Company shall grant Purchaser registration rights
covering the Conversion Shares and the Shares issued upon exercise of
the Warrant (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
(b) The Company shall prepare and file on or before December
30, 1998 a registration statement (the "Registration Statement") on
Form S-1 (or such other form as is then available for registration)
covering the resale of the Registrable Securities. The Company shall
use its best efforts to cause the Registration Statement to be declared
effective by the Commission no later than February 12, 1999 following
the filing of the Registration Statement (the "Required Effectiveness
Date"). The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such Registration Statement by
Purchaser).
(c) If the Registration Statement is not declared effective by
the Commission by the Required Effectiveness Date, the Company shall
pay to Purchaser, as liquidated damages and not as a penalty, an amount
equal to 2% of the outstanding principal amount of the Convertible
Notes, prorated, for each 30 day period the Registration Statement is
not declared effective by the Commission, which amount will be
increased to 3% of the outstanding principal amount of the Convertible
Notes in the event that the Registration Statement is not declared
effective by the Commission within 90 days of the Closing Date. In
addition, commencing 120 days following the Closing Date, the
Conversion Price of the Convertible Notes will decrease by 1% for each
30-day period in which the Registration Statement is not declared
effective, up to a maximum discount of 30%. In the event the Company
fails to obtain a valid Registration Statement by the 180th day
following the Closing Date, the Company will redeem the Convertible
Notes as set forth in Section 5 of the Convertible Notes. Additionally,
the Company will grant to Purchaser first priority piggyback
registration rights in the event the Company proposes to effect a
registered offering of Common Stock or warrants or both prior to the
filing of the Registration Statement referenced above.
(d) Any such liquidated damages shall be paid in cash by the
Company to Purchaser by wire transfer in immediately available funds on
the last day of each calendar week following the event requiring its
payment.
(e) If, following the declaration of effectiveness of the
Registration Statement, the Registration Statement (or any prospectus
or supplemental prospectus contained therein) shall cease to be
effective for any reason (including but not limited to the occurrence
of any event that results in any prospectus or supplemental prospectus
containing an untrue statement of a material fact or omitting a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
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they were made, not misleading) (a "Registration Default"), the Company
shall immediately take all necessary steps to cause the Registration
Statement to be amended or supplemented so as to cure such Registration
Default. Failure to cure a Registration Default within ten (10)
business days shall result in the Company paying to Purchaser
liquidated damages at the rate of $1,000 per day from the date of such
Registration Default until the Registration Default is cured.
SECTION 10.5 RESTRICTION ON ISSUANCE OF SECURITIES. For a period of
sixty (60) days following the sooner to occur of (i) the effective date of the
Registration Statement or (ii) the date that the Convertible Notes are converted
in full, the Company will not sell, or offer to sell, any securities (including
credit facilities which are convertible into securities which may be issued at a
discount to the then current Market Price) other than borrowings under
conventional credit facilities existing as of the date hereof, stock issued or
credit facilities to be established in connection with acquisitions, employee
and director stock options of the Company, existing rights and warrants of the
Company and securities issued under the Convertible Notes. In addition, the
Company shall not issue any securities in connection with a strategic alliance
entered into by the Company unless such securities are the subject of a one year
statutory or contractual hold period or, if not subject to such a hold period,
unless the Purchaser has fully converted all outstanding Convertible Notes.
Notwithstanding the foregoing, the Company may enter into the following types of
transactions (collectively referred to as "Permitted Financings"): (1)
"permanent financing" transactions, which would include any form of debt or
equity financing (other than an underwritten offering), which is followed by a
reduction of the said financing commitment to zero and payment of all related
fees and expenses; (2) "project financing" which provide for the issuance of
non-recourse debt instruments in connection with the operation of the Company's
business as presently conducted or as proposed to be conducted; and (3) an
underwritten offering of Common Stock, provided that such offering provides for
the registration of the Common Stock to be received by Purchaser as a result of
the conversion of the Convertible Notes held by the Purchaser.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
SECTION 11.1 REORGANIZATION. The Conversion Price and the dollar amount
set forth in (collectively, the "Fixed Prices") shall be adjusted, as
applicable, as hereafter provided.
SECTION 11.2 SHARE REORGANIZATION. If and whenever the Company
shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into
a smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
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(iv) make a distribution on the outstanding Common Stock to
all or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving
effect to the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of
Common Stock that would have been outstanding if such securities had
been converted into or exchanged for Common Stock on such record or
effective date.
SECTION 11.3 RIGHTS OFFERING. If and whenever the Company shall issue
to all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of securities convertible into or exchangeable for Common Stock, at an
exchange or conversion price per share at the date of issue of such securities)
of less than 95% of the Market Price of the Common Stock on such record date
(any such event being herein called a "Rights Offering"), then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which holders of Common Stock are determined for the purposes of
the Rights Offering, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the price at
which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be converted or
exchanged and the conversion or exchange price of such securities, or,
as the case may be, by
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(B) the Market Price of the Common Stock on such record
date; and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities, the
maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
SECTION 11.4 SPECIAL DISTRIBUTION. If and whenever the Company shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common
Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of Common
Stock of the shares, rights, options, warrants, evidences of
indebtedness or other assets issued or distributed in the Special
Distribution (net of any consideration paid therefor by the holders of
Common Stock), and
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(ii) the denominator shall be the product of the number of
shares of Common Stock outstanding on such record date and the Market
Price of the Common Stock on such date.
SECTION 11.5 CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of
Common Stock or any change of the shares of Common Stock into other
shares, other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company
with, or into another body corporate; or
(iii) the transfer of all or substantially all of the assets
of the Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes after
the effective date of such Capital Reorganization shall be entitled to receive
and shall accept, upon the exercise of such right, in lieu of the number of
shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
SECTION 11.6 PURCHASE PRICE ADJUSTMENTS. In case at any time and from
time to time the Company shall issue any shares of Common Stock or Derivative
Securities convertible or exercisable for shares of Common Stock (the number of
shares so issued, or issuable upon conversion or exercise of such Derivative
Securities, as applicable, being referred to as "Additional Shares of Common
Stock") for consideration less than the then Market Price at the date of
issuance of such shares of Common Stock or such Derivative Securities, in each
such case the Conversion Price shall, concurrently with such issuance, be
adjusted by multiplying the Conversion Price immediately prior to such event by
a fraction: (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
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<PAGE> 44
SECTION 11.7 ADJUSTMENT RULES. The following rules and procedures shall
be applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be
required unless such adjustment would result in a change of at least 1%
in the applicable Fixed Price then in effect, provided, however, that
any adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(b) if any event occurs of the type contemplated by the
adjustment provisions of this Article XI but not expressly provided for
by such provisions, the Company will give notice of such event as
provided herein, and the Company's board of directors will make an
appropriate adjustment in the Fixed Price so that the rights of the
holders of the applicable Security shall not be diminished by such
event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered
accountants selected by the Directors and any such determination shall
be binding upon the Company and Purchaser.
SECTION 11.8 CERTIFICATE AS TO ADJUSTMENT. The Company shall from time
to time promptly after the occurrence of any event which requires an adjustment
in the applicable Fixed Price deliver to Purchaser a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 11.9 NOTICE TO NOTEHOLDERS. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification
or redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
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the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
SECTION 12.1 EVENTS OF DEFAULT. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or
any part of the principal on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the Convertible
Notes);
(b) failure by the Company to pay (i) within five (5) Business
Days of the due date thereof any interest on any Convertible Notes or
(ii) within five (5) Business Days following the delivery of notice to
the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this
Agreement or any other Transaction Agreement;
(c) failure by the Company to timely comply with the
requirements of Section 7.11 or 10.1 hereof, which failure is not cured
within five (5) Business Days of such failure;
(d) failure on the part of the Company to observe or perform
any covenant contained in Section 7.10 or Article VIII of this
Agreement;
(e) failure on the part of the Company to observe or perform
any covenant or agreement contained in any Transaction Agreement (other
than those covered by clauses (a), (b), (c), (d) or (e) above) for 30
days from the date of such occurrence;
(f) the trading in the Common Stock shall have been suspended
by the Commission, OTC Bulletin Board or any National Market (except
for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company and except
if, at the time there is any suspension on any National Market, the
Common Stock is then listed and approved for trading on another
National Market within ten (10) Trading Days thereof);
(g) failure of the Company to file the Listing Applications
within twenty (20) Business Days of the Closing Date, which failure is
not cured within five (5) Business Days of such failure;
(h) the Company shall have its Common Stock delisted from the
OTC Bulletin Board or a National Market for at least ten (10)
consecutive Trading Days and is unable to obtain a listing on a
National Market within such ten (10) Trading Days;
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<PAGE> 46
(i) the Registration Statement shall not have been declared
effective by the Commission by the Required Effectiveness Date, or such
effectiveness shall not be maintained for the Registration Maintenance
Period, in each case which results in the Company incurring the Default
Fee for a period in excess of 45 days;
(j) the Company or any Subsidiary has commenced a voluntary
case or other proceeding seeking liquidation, winding-up,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency, moratorium or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or has
made a general assignment for the benefit of creditors, or has failed
generally to pay its debts as they become due, or has taken any
corporate action to authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days, or an order for relief has been entered against the Company or
any Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(l) default in any provision (including payment) or any
agreement governing the terms of any Debt of the Company or any
Subsidiary in excess of $1,000,000, which has not been cured within any
applicable period of grace associated therewith;
(m) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days; or
(n) any representation, warranty, certification or statement
made by the Company in any Transaction Agreement or which is contained
in any certificate, document or financial or other statement furnished
at any time under or in connection with any Transaction Agreement shall
prove to have been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Notes to be, and the Convertible Notes shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (k) or (l) above with respect to the Company or
any Subsidiary, then, without any notice to the Company or any other act by
Purchaser, the entire amount of the Convertible Notes shall become immediately
due and payable, provided, further, if any Event of Default has occurred
40
<PAGE> 47
and is continuing, and irrespective of whether any Convertible Note has been
declared immediately due and payable hereunder, any Purchaser of Convertible
Notes may proceed to protect and enforce the rights of Purchaser by an action at
law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default, the amount
declared due and payable on the Convertible Notes shall be the Formula Price
thereof.
SECTION 12.2 POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by Purchaser.
ARTICLE XIII. MISCELLANEOUS
SECTION 13.1 NOTICES. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
SECTION 13.2 NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising
any right, power or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b) Any provision of this Agreement may be amended,
supplemented or waived if, but only if, such amendment, supplement or
waiver is in writing and is signed by the Company and the Majority
Holders; provided, that without the consent of each holder of any
Convertible Note affected thereby, an amendment or waiver may not (a)
reduce the aggregate principal amount of Convertible Notes whose
holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c)
reduce the principal amount of or extend the stated maturity of any
Convertible
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<PAGE> 48
Note or (d) make any Convertible Note payable in money or property
other than as stated in such Convertible Note. In determining whether
the holders of the requisite principal amount of Convertible Notes have
concurred in any direction, consent, or waiver as provided in any
Transaction Agreement, Convertible Notes which are owned by the Company
or any other obligor on or guarantor of the convertible Notes, or by
any Person Controlling, Controlled by, or under common Control with any
of the foregoing, shall be disregarded and deemed not to be outstanding
for the purpose of any such determination; and provided further that no
such amendment, supplement or waiver which affects the rights of
Purchaser and their affiliates otherwise than solely in their
capacities as holders of Convertible Notes shall be effective with
respect to them without their prior written consent.
SECTION 13.3 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
Purchaser, its Affiliates, and each Person, if any, who controls
Purchaser, or any of its Affiliates, within the meaning of the
Securities Act or the Exchange Act (each, a "Controlling Person"), and
the respective partners, agents, employees, officers and Directors of
Purchaser, their Affiliates and any such Controlling Person (each an
"Indemnified Party") and collectively, the "Indemnified Parties"), from
and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation and as incurred, reasonable
costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto,
provided that the Company shall not be obligated to advance such costs
to any Indemnified Party other than Purchaser unless it has received
from such Indemnified Party an undertaking to repay to the Company the
costs so advanced if it should be determined by final judgment of a
court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which
may be incurred by such Indemnified Party in connection with any
investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection with
any activities contemplated by any Transaction Agreement or any other
services rendered in connection herewith; provided that the Company
will not be responsible for any claims, liabilities, losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified
Party with respect to which indemnity may be sought against the Company
under this Agreement, such Indemnified Party shall promptly notify the
Company in writing and the Company, at its option, may, assume the
defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party
under this Agreement or otherwise unless the Company is materially
adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party, unless (i) the Company has
failed to assume the defense and employ counsel or (ii) the named
parties to
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<PAGE> 49
any such action (including any impleaded parties) include such
Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified
Party notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be responsible hereunder for the reasonable fees and
expenses of more than one such firm of separate counsel, in addition to
any local counsel, which counsel shall be designated by Purchaser. The
Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability
by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of Purchaser, settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, labilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and by Purchaser on the other from the transactions contemplated by
this Agreement or (ii) if the allocation provided by clause (i) is not
permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Company on the
one hand and Purchaser on the other, but also the relative fault of the
Company and Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 13.3,
the aggregate contribution of all Indemnified Parties shall not exceed
the amount of interest and fees actually received by Purchaser pursuant
to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state
a material fact related to information supplied by the Company or by
Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section
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<PAGE> 50
11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(d) The indemnification, contribution and expense
reimbursement obligations set forth in this Section 13.3 (i) shall be
in addition to any liability the Company may have to any Indemnified
Party at common law or otherwise; (ii) shall survive the termination of
this Agreement and the other Transaction Agreements and the payment in
full of the Convertible Notes and (iii) shall remain operative and in
full force and effect regardless of any investigation made by or on
behalf of Purchaser or any other Indemnified Party.
SECTION 13.4 EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay to
Purchaser a fee of $15,000.00 (the "Expense Reimbursement Fee") in full
satisfaction of all obligations of the Company to Purchaser and its agents in
connection with the negotiation and preparation of the Transaction Agreements,
relevant due diligence, and fees and disbursements of legal counsel. In
addition, the Company agrees to pay any and all stamp, transfer and other
similar taxes, assessments or charges payable in connection with the execution
and delivery of any Transaction Agreement or the issuance of the Securities to
Purchaser, excluding their assigns.
SECTION 13.5 PAYMENT. The Company agrees that, so long as Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (New York City time).
SECTION 13.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
SECTION 13.7 BROKERS. Except for a fee payable in the form of
$67,500.00 in cash and a warrant (the "Warrant") for 60,000 shares of the Common
Stock to LKB Financial, LLC, the Company represents and warrants that it has not
employed any broker, finder, financial advisor or investment banker who would be
entitled to any brokerage, finder's or other fee or commission payable by the
Company or Purchaser in connection with the sale of the Securities.
SECTION 13.8 GEORGIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF GEORGIA. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF GEORGIA AND OF ANY FEDERAL DISTRICT COURT SITTING IN
ATLANTA, GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
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<PAGE> 51
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
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. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
SECTION 13.9 ENTIRE AGREEMENT. This Agreement, the Exhibits or
Schedules hereto, which include, but are not limited to the Convertible Note,
the Registration Rights Agreement and the Pledge 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
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Schedules to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
SECTION 13.10 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
SECTION 13.11 TITLE AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
SECTION 13.12 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
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Purchaser and the Company shall be required to employ any
other reporting entity.
SECTION 13.13 PUBLICITY. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of Purchaser without the prior written consent of Purchaser,
except to the extent required by law, in which case the Company shall provide
Purchaser with prior written notice of such public disclosure.
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
LAHAINA ACQUISITIONS, INC.
By: /s/ GRAHAM M. COOPER
----------------------------------
Name: GRAHAM M. COOPER
----------------------------------
Title: PRESIDENT
----------------------------------
Address: P. O. BOX N8160
----------------------------------
NASSAU
----------------------------------
BAHAMAS
----------------------------------
----------------------------------
Fax: 242-322-6949
----------------------------
Tel.: 242-322-2504
----------------------------
GCA STRATEGIC INVESTMENT FUND LIMITED
By: /s/ LEWIS N. LESTER
---------------------------------
Name: Lewis N. Lester
Title: Director
Address: 106 Colony Park Drive
Suite 900
Cumming, Georgia 30040
Fax: 678 947-6499
Tel.: 678 947-0028
Securities Purchase Agreement
<PAGE> 1
EXHIBIT 2.4
FORM OF CONVERTIBLE NOTE
<PAGE> 2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY
AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG
THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE
CONVERSION RIGHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT,
PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE
ACCELERATED.
No. 1 $750,000
9% CONVERTIBLE NOTE
of
LAHAINA ACQUISITIONS, INC., a Colorado corporation (together with its
successors, the "Company"), for value received hereby promises to pay to:
GCA STRATEGIC INVESTMENT FUND LIMITED
(The "Holder") and registered assigns, the principal sum of Seven Hundred Fifty
Thousand ($750,000) or, if less, the principal amount of this Note then
outstanding, on the Maturity Date by wire transfer of immediately available
funds to the Holder in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts, and to pay interest, quarterly in arrears, on (i) the last day
of March, June, September and December of each year until the Maturity Date,
commencing December 31, 1999 (unless such day is not a Business Day, in which
event on the next succeeding Business Day) (each an "Interest Payment Date"),
(ii) the Maturity Date, (iii) each Conversion Date, as hereafter defined, and
(iv) the date the principal amount of the Convertible Notes shall be declared
to be or shall automatically become due and payable, on the principal sum
hereof outstanding in like coin or currency, at the rates per annum set forth
below, from the most recent Interest Payment Date to which interest has been
paid on this Convertible Note, or if no interest has been paid on this
Convertible Note, from the date of this Convertible Note until payment in full
of the principal sum hereof has been made.
The Maturity Date is January 31, 2001.
<PAGE> 3
The interest rate shall be nine percent (9%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default
Interest"). Interest on this Convertible Note will be calculated on the basis
of a 360-day year of twelve 30 day months. All payments of principal and
interest hereunder shall be made for the benefit of the Holder pursuant to the
terms of the Agreement (hereafter defined). At the option of the Company,
interest may be paid in cash or in shares of Common Stock. If the Company
determines to pay interest in shares of Common Stock, it shall be required to
notify the Holder of such election at least five (5) Business Days prior to the
applicable Interest Payment Date. On each Conversion Date, interest shall be
paid in shares of Common Stock on the portion of the principal balance of the
Convertible Note then being converted. The number of shares of Common Stock
issued as interest shall be determined by dividing the dollar amount of
interest due on the applicable Interest Payment Date by the product of 9%
multiplied by the Conversion Price then in effect.
This Convertible Note (this "Convertible Note") is one of a duly
authorized issuance of $750,000 aggregate principal amount of Convertible Notes
of the Company referred to in that certain Securities Purchase Agreement dated
as of the date hereof between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements among the
parties with respect to the terms of this Convertible Note, including, without
limitation, provisions which (A) limit the conversion rights of the Holder, (B)
specify voluntary and mandatory repayment, prepayment and redemption rights and
obligations and (C) specify Events of Default following which the remaining
balance due and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein by
reference. This Convertible Note is transferable and assignable to one or more
Persons, in accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as registered holder of such Convertible
Notes. The ownership of this Convertible Note shall be proven by the Register.
1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and
not otherwise defined herein shall have for purposes hereof the meanings
provided for in the Agreement.
2. COVENANTS. Unless the Majority Holders otherwise consent in
writing, the Company covenants and agrees to observe and perform each of its
covenants, obligations and undertakings contained in the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the holder hereof.
2
<PAGE> 4
3. PAYMENT OF PRINCIPAL. The Company shall repay the remaining
unpaid balance of this Convertible Note on the Maturity Date. The Company may,
and shall be obligated to, prepay all or a portion of this Convertible Note on
the terms specified in the Agreement.
4. CONVERSION.
4.1 CONVERSION OF CONVERTIBLE NOTE. Subject to Section 5 hereof,
the Holder shall have the right, at its option, at any time from and
after the date of issuance of this Convertible Note, convert the
principal amount of this Convertible Note, or any portion of such
principal amount, into that number of fully paid and nonassessable
shares of Common Stock (as such shares shall then be constituted)
determined pursuant to this Section 4.1. The number of shares of
Common Stock to be issued upon each conversion of this Convertible
Note shall be determined by dividing the Conversion Amount (as defined
below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion is delivered to the Company by the
Holder by facsimile or other reasonable means of communication
dispatched prior to 5:00 p.m., New York City Time. The term
"Conversion Amount" means, with respect to any conversion of this
Convertible Note, the sum of (1) the principal amount of this
Convertible Note to be converted in such conversion plus (2) accrued
and unpaid interest, if any, on such principal amount at the interest
rates provided in this Convertible Note to the Conversion Date plus
(3) Default Interest, if any, on the interest referred to in the
immediately preceding clause (2) plus (4) at the Holder's option, any
amounts owed to the Holder pursuant to Section 4.3 hereof, Section
10.1 of the Agreement or Section 10.4 of the Agreement.
4.2 CONVERSION PRICE. Up to 50% of the outstanding principal
amount of this Convertible Note shall be converted into a number of
shares of Common Stock at a conversion price (the "Conversion Price")
equal to the lesser of (i) the average bid price of the Common Stock
for the twenty (20) Trading Days prior to the Closing Date, not
including the Closing Date, and (ii) based on a formula F/P, where F =
the principal amount of the Convertible Note being converted plus
accrued and unpaid interest thereon through the date of conversion plus
Default Interest, if any, on such interest, and P = the product of 85%
multiplied by the average of the five (5) consecutive DWASP for the
Common Stock for the five (5) Trading Days ending on the day prior to
the Conversion Date ("Floating Conversion Price") (subject, in each
case, to equitable adjustments for stock splits, stock dividends or
rights offerings by the Company relating to the Company's securities or
the securities of any subsidiary of the Company, combinations,
recapitalization, reclassifications, extraordinary distributions and
similar events as contemplated by Article XI of the Agreement). The
remaining 50% of the outstanding principal amount is convertible based
on the formula set forth in Section 4.2(ii) herein. The term "DWASP"
means, for any security as of any date, the daily-weighted average
sales price on the Nasdaq Market as reported by Bloomberg or, if the
Nasdaq Market is not the principal trading market for such security,
the daily-weighted average sales price of such security on the
principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the daily-weighted average sales price of such security in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no daily-
3
<PAGE> 5
weighted average sales price is reported for such security by
Bloomberg, then the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the DWASP cannot be calculated for such
security on such date on any of the foregoing bases, the DWASP of such
security on such date shall be the fair market value as mutually
determined by the Company and the Holders of a majority in interest of
Convertible Notes being converted for which the calculation of the
closing bid price is required in order to determine the Conversion
Price of such Convertible Notes.
4.3 AUTHORIZED SHARES.
(a) Consistent with Section 7.11 of the Agreement, the
Company (i) shall promptly irrevocably instruct its transfer agent to
issue certificates for the Common Stock issuable upon conversion of
this Convertible Note and (ii) agrees that its issuance of this
Convertible Note shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with the terms and conditions of this Convertible
Note.
(b) If at any time a Holder of this Convertible Note submits a
Notice of Conversion (x) the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in full in accordance with the provisions of this Article 4
or (y) the Company is prohibited by the applicable rules of the OTC
Bulletin Board or the National Market on which the Common Shares are
listed and traded at that time to effect such conversion in full as
provided in subsection (d) below, without stockholder approval (each, a
"Conversion Default"), the Company shall issue to the Holder all of the
shares of Common Stock which are then available to effect such
conversion. The portion of this Convertible Note which the Holder
included in its Conversion Notice and which exceeds the amount which is
then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the Company,
or its stockholders, as applicable, at which time the Conversion Price
in respect thereof shall be the lower of (i) the Conversion Price on
the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in
respect thereof. The Company shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount
of (N/365) x .24 x the Excess Amount on the Conversion Date in respect
of the Conversion Default (the "Conversion Default Date"), where N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company, or its stockholders, as
applicable, authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Convertible Note. The Company shall use its best efforts to authorize,
or cause its stockholders to authorize within 90 days of the
4
<PAGE> 6
occurrence of a Conversion Default, as applicable, a sufficient number
of shares of Common Stock as soon as practicable following the earlier
of (i) such time that the Holder notifies the Company or that the
Company otherwise becomes aware that there are or likely will be
insufficient shares to allow full conversion thereof and (ii) a
Conversion Default. The Company shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization
Date and the amount of Holder's accrued Conversion Default Payments.
The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time
as there are sufficient authorized shares of Common Stock) at the
Market Price, at the Holder's option, as follows:
(i) In the event the Holder elects to take such
payment in cash, cash payment shall be made to Holder by the
fifth Business Day of the month following the month in which
it has accrued; and
(ii) In the event the Holder elects to take such
payment in Common Stock, the Holder may convert such payment
amount into Common Stock at the Conversion Price (as in
effect at the time of conversion) at any time after the fifth
Business Day of the month following the month in which it has
accrued (at such time as there are sufficient authorized
shares of Common Stock) in accordance with the terms of this
Article 4.
(c) The Holder's election pursuant to this Section 4.3 shall
be made in writing to the Company at any time prior to 5:00 p.m., New
York City Time, on the third Business Day of the month following the
month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to
receive cash. Nothing herein shall limit the Holders right to pursue
actual damages (to the extent in excess of the Conversion Default
Payments) due to the Company's failure to maintain a sufficient number
of authorized shares of Common Stock.
(d) In no event shall the Company issue more than the Maximum
Number of Shares upon conversion of this Convertible Note, unless the
Company shall have obtained approval by the stockholders of the
Company ("Stockholder Approval") or a waiver of such requirement by
the OTC Bulletin Board or the National Market on which the Common
Shares are listed and traded at that time. Once the Maximum Number of
Shares has been issued (the date of which is hereinafter referred to
as the "Maximum Conversion Date"), unless the Company shall have
obtained Stockholder Approval or a waiver of such requirement by the
OTC Bulletin Board or the National Market on which the Common Shares
are listed and traded at that time within 90 days of the Maximum
Conversion Date, the Company shall pay to the Holder within five (5)
Business Days of the Maximum Conversion Date (or, if the Company is,
in good faith, using its best efforts to obtain Stockholder Approval,
then the earlier of (x) 90 days following the Maximum Conversion Date,
and (y) such date that it becomes reasonably apparent that Stockholder
Approval will
5
<PAGE> 7
not be obtained within such 90 days period), the Formula Price plus
accrued and unpaid Default Interest, if any. The Maximum Number of
Shares shall be subject to adjustment from time to time for stock
splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the date
hereof as contemplated by Article XI of the Agreement. With respect to
each Holder of Convertible Notes, the Maximum Number of Shares shall
refer to such Holder's pro rata share thereof based upon the aggregate
principal balance of the Convertible Notes then outstanding. In the
event that the Company obtains Stockholder Approval, approval of the
OTC Bulletin Board or the National Market on which the Common Shares
are listed and traded at that time, or otherwise is able to increase
the number of shares to be issued above the Maximum Number of Shares
(such increased number being the "New Maximum Number of Shares"), the
references to Maximum Number of Shares above shall be deemed to be,
instead, references to the New Maximum Number of Shares.
4.4 METHOD OF CONVERSION.
(a) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Convertible Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this
Convertible Note to the Company unless the entire unpaid principal
amount of this Convertible Note is so converted. Rather, records
showing the principal amount converted (or otherwise repaid) and the
date of such conversion or repayment shall be maintained on a ledger
substantially in the form of Annex A attached hereto (a copy of which
shall be delivered to the Company or transfer agent with each Notice
of Conversion). It is specifically contemplated that the Holder hereof
shall act as the calculation agent for conversions and repayments. In
the event of any dispute or discrepancies, such records maintained by
the Holder shall be controlling and determinative in the absence of
manifest error or failure of Holder to record the principal amount
converted (or otherwise repaid) from time to time, in which events the
record of the Company shall be controlling and determinative. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be less
than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property on
conversion of this Convertible Note in a name other than that of the
Holder (or in street name), and the Company shall not be required to
issue or deliver any such shares or other securities or property
unless and until the person or persons (other than the Holder or the
custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to
the Company the amount of any such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
6
<PAGE> 8
(c) Subject to Section 5 hereof, upon receipt by the Company
of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid
interest on this Convertible Note shall be deemed reduced to reflect
such conversion, and, unless the Company defaults on its obligations
under this Article 4, all rights with respect to the portion of this
Convertible Note being so converted shall forthwith terminate except
the right to receive the Common Stock or other securities, cash or
other assets, as herein provided, on such conversion. Subject to
Section 5 hereof, if the Holder shall have given a Notice of
Conversion as provided herein, the Company's obligation to issue and
deliver the certificates for shares of Common Stock shall be absolute
and unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to any
provisions thereof, the recovery of any judgment against any person or
any action by the Holder to enforce the same, any failure or delay in
the enforcement of any other obligation of the Company to the Holder
of record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder of any
obligation to the Company, and subject to Section 4.4(a) irrespective
of any other circumstance which might otherwise limit such obligation
of the Company to the Holder in connection with such conversion. The
date of receipt (including receipt via telecopy) of such Notice of
Conversion shall be the Conversion Date so long as it is received
before 5:00 p.m., New York City Time, on such date.
(d) Notwithstanding the foregoing, if a Holder has not
received certificates for all shares of Common Stock prior to the
expiration of the Deadline with respect to a conversion of any portion
of this Convertible Note for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock by
so notifying the Company), the Holder shall regain the rights of a
Holder of this Convertible Note with respect to such unconverted
portions of this Convertible Note and the Company shall, as soon as
practicable, return such unconverted Convertible Note to the holder
or, if the Convertible Note has not been surrendered, adjust its
records to reflect that such portion of this Convertible Note not been
converted. In all cases, the Holder shall retain all of its rights and
remedies (including, without limitation, (i) the right to receive
Conversion Default Payments to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the
right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 4.3 for the
Company's failure to convert this Convertible Note.
(e) In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of
the Holder and its compliance with the provisions contained in Section
4.1 and in this Section 4.4, the Company shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the Holder by
7
<PAGE> 9
crediting the account of Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission System.
5. REDEMPTION BY COMPANY.
5.1 COMPANY'S RIGHT TO REDEEM. The Company shall have the right,
in its sole discretion, upon receipt of a Notice of Conversion at any
time after at least $375,000 of this Convertible Note has been
converted, to redeem in whole or in part, the remaining unpaid
principal amount of this Convertible Note, for cash at a redemption
price of 117.5% of the unpaid principal amount plus accrued but unpaid
interest as of the date of redemption.
5.2 MECHANICS OF REDEMPTION. The Company shall effect each such
redemption by giving notice of its election to redeem, by facsimile
within 2 business days following receipt of a Notice of Conversion,
with a copy by either overnight or 2-day courier, with a copy by U.S.
Air Mail to the Holder of this Convertible Note to be redeemed at the
address and facsimile number of such Holder appearing in the Company's
register for the Convertible Notes. Such redemption notice shall
indicate whether the Company will redeem all or part of such portion
of the Convertible Note to be redeemed and the applicable redemption
price. The Company shall not be entitled to send any notice of
redemption and begin the redemption procedure unless it has (i) the
full amount of the redemption price, in cash, available in a demand or
other immediately available account in a bank or similar financial
institution or (ii) immediately available credit facilities, in the
full amount of the redemption price, with a bank or similar financial
institution on the date the redemption notice is sent to the Holders
of this Convertible Note.
5.3 REDEMPTION PRICE. The redemption price shall be paid to the
Holder of this Convertible Note within 21 business days of the
delivery of the notice of such redemption to such Holder.
6. HOLDER'S RIGHT TO ADVANCE NOTICE OF ELECTION REDEEM.
6.1 HOLDER'S RIGHT TO ELECT TO RECEIVE NOTICE OF CASH REDEMPTION
BY COMPANY. The Holder of this Convertible Note shall have the right
to require Company to provide advance notice stating whether the
Company will elect to redeem all or part of the redeemable portion in
cash, pursuant to the Company's redemption rights discussed in Section
5.1 above.
6.2 MECHANICS OF HOLDER'S ELECTION NOTICE. Holder shall give notice to
the Company by facsimile (the "Election Notice"), requiring that the
Company disclose whether the Company would elect to redeem the
redeemable portion of this Convertible Note (in whole or in part) if
the Holder were to provide a Notice of Conversion and sought to
convert the Convertible Note in such principal amount as is specified
in the Notice of Election.
8
<PAGE> 10
6.3 COMPANY'S RESPONSE. Company must respond, disclosing its
election, within two (2) business days of receipt of Holder's Election
Notice via facsimile. If Company does not respond to Holder within two
(2) business days (by 12:00 noon, if required above) via facsimile,
Company shall be deemed to have forfeited its right to exercise
redemption pursuant to Section 5(a) upon its receipt of (but only with
respect to) that Notice of Conversion.
7. MISCELLANEOUS. This Convertible Note shall be deemed to be a
contract made under the laws of the State of Georgia, and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible Note, except as specifically provided herein, and asset to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of the United
States District Court for the Northern District of Georgia and of any Georgia
state court sitting in Atlanta, Georgia for purposes of all legal proceedings
arising out of or relating to this Convertible Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. The Company hereby irrevocably waives
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible
Note agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
9
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: December 4th, 1998
LAHAINA ACQUISITIONS, INC.
By: /s/ GRAHAM M. COOPER
-----------------------
Name: GRAHAM M. COOPER
---------------------
Title: PRESIDENT
--------------------
<PAGE> 12
ANNEX A
CONVERSION AND REPAYMENT LEDGER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST PRINCIPAL CONVERTED
DATE PRINCIPAL BALANCE CONVERTED OR PAID OR PAID NEW PRINCIPAL BALANCE ISSUER INITIALS HOLDER INITIALS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS:
-----------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
<PAGE> 14
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert
$________ of the principal balance of the Convertible Note into shares of
Common Stock, no par value per share (the "Common Stock"), of Lahaina
Acquisitions, Inc. (the "Company") according to the conditions hereof, as of
the date written below. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any. The undersigned, as contemplated
by Section 5.1 of the Securities Purchase Agreement pursuant to which the
Convertible Note was issued, hereby states that the representations and
warranties of the undersigned set forth therein are true and correct in all
material respects as of the date hereof (provided, the undersigned makes no
representations concerning its investment intent with respect to the Common
Stock received upon this conversion).
Conversion calculations:
--------------------------------------------
Date of Conversion
--------------------------------------------
Applicable Conversion Price
--------------------------------------------
Number of Shares
--------------------------------------------
Name/Signature
Address:
--------------------------------------------
--------------------------------------------
<PAGE> 1
EXHIBIT 2.5
REGISTRATION RIGHTS AGREEMENT
DATED AS OF
DECEMBER 7, 1998
BY AND BETWEEN
LAHAINA ACQUISITIONS, INC.
AND
GCA STRATEGIC INVESTMENT FUND LIMITED
iii
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. INTRODUCTION.............................................................................................2
1.1 SECURITIES PURCHASE AGREEMENT...................................................................2
1.2 DEFINITION OF SECURITIES........................................................................2
1.3 NATIONAL MARKET REPRESENTATION..................................................................2
2. REGISTRATION UNDER SECURITIES ACT, ETC...................................................................2
2.1 MANDATORY REGISTRATION..........................................................................2
(A) REGISTRATION OF REGISTRABLE SECURITIES.................................................2
(B) REGISTRATION STATEMENT FORM............................................................2
(C) EXPENSES...............................................................................2
(D) EFFECTIVE REGISTRATION STATEMENT.......................................................2
(E) PLAN OF DISTRIBUTION...................................................................2
2.2 INCIDENTAL REGISTRATION.........................................................................2
(A) RIGHT TO INCLUDE REGISTRABLE SECURITIES................................................2
(B) PRIORITY IN INCIDENTAL REGISTRATIONS...................................................3
2.3 REGISTRATION PROCEDURES.........................................................................3
2.4 UNDERWRITTEN OFFERINGS..........................................................................7
(A) INCIDENTAL UNDERWRITTEN OFFERINGS......................................................7
(B) HOLDBACK AGREEMENTS....................................................................7
(C) PARTICIPATION IN UNDERWRITTEN OFFERINGS................................................7
2.5 PREPARATION; REASONABLE INVESTIGATION...........................................................7
2.6 REGISTRATION DEFAULT FEE........................................................................8
2.7 INDEMNIFICATION.................................................................................8
(A) INDEMNIFICATION BY THE COMPANY.........................................................8
(B) INDEMNIFICATION BY THE SELLERS.........................................................9
(C) NOTICES OF CLAIMS, ETC.................................................................9
(D) OTHER INDEMNIFICATION.................................................................10
(E) INDEMNIFICATION PAYMENTS..............................................................10
(F) CONTRIBUTION..........................................................................10
3. DEFINITIONS.............................................................................................11
4. RULE 144................................................................................................13
5. AMENDMENTS AND WAIVERS..................................................................................13
6. NOMINEES FOR BENEFICIAL OWNERS..........................................................................13
7. NOTICES.................................................................................................13
8. ASSIGNMENT..............................................................................................14
9. DESCRIPTIVE HEADINGS....................................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
10. GOVERNING LAW...........................................................................................14
11. COUNTERPARTS............................................................................................14
12. ENTIRE AGREEMENT........................................................................................14
13. SEVERABILITY............................................................................................14
</TABLE>
ii
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
December 7, 1998, between Lahaina Acquisitions, Inc., a Colorado corporation
(the "Company"), and GCA Strategic Investment Fund Limited (the "Fund").
1. INTRODUCTION.
1.1 SECURITIES PURCHASE AGREEMENT The Company and the
Fund has today executed that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), pursuant to which the Company has agreed,
among other things, to issue an aggregate of Seven Hundred Fifty Thousand
Dollars ($750,000.00) (U.S.) principal amount of 9% Convertible Notes of the
Company (the "Notes") to the Fund or its successors, assigns or transferees
(collectively, the "Holders"). The Notes are convertible into an indeterminable
number of shares (the "Note Conversion Shares") of the Company's common stock,
no par value per share (the "Common Stock") pursuant to the terms of the Notes.
The number of Note Conversion Shares is subject to adjustment upon the
occurrence of stock splits, recapitalizations and similar events occurring after
the date hereof.
1.2 DEFINITION OF SECURITIES. The Note Conversion Shares
are herein referred to as the "Securities."
1.3 NATIONAL MARKET REPRESENTATION. The Company
represents and warrants that the Company's Common Stock is currently eligible
for trading on the over-the-counter Bulletin Board operated by the National
Association of Securities Dealers, Inc. (the "OTC Bulletin Board") under the
symbol "LAHA." Certain capitalized terms used in this Agreement are defined in
Section 3 hereof; references to sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 MANDATORY REGISTRATION.
(A) REGISTRATION OF REGISTRABLE SECURITIES. On
or before December 30, 1998, the Company shall prepare and file a registration
statement on Form S-1 to effect the registration under the Securities Act of
all, but not less than all, of the Registrable Securities which relate (or,
because of the indeterminable number thereof, which could reasonably be deemed
to relate) to the Securities; all to the extent requisite to permit the public
disposition of such Registrable Securities so to be registered. The Company
shall us its best efforts to cause the Registration Statement which is the
subject of this Section 2.1(a) (the "Registration Statement") to be declared
effective by the Commission no later than February 12, 1999 (the "Required
Effectiveness Date"). Nothing contained herein shall be deemed to limit the
number of Registrable Securities to be registered by the Company hereunder. As a
result, should the Registration Statement not relate to the maximum number of
Registrable Securities acquired by (or potentially acquirable by) the holders
thereof upon conversion of the Notes, or exercise of the Common Stock Purchase
Warrants described in Section 1 above, the Company shall be required to promptly
file a separate registration
<PAGE> 5
statement (utilizing Rule 462 promulgated under the Exchange Act, where
applicable) relating to such Registrable Securities which then remain
unregistered. The provisions of this Agreement shall relate to such separate
registration statement as if it were an amendment to the Registration Statement.
(B) REGISTRATION STATEMENT FORM. Registrations
under this Section 2.1 shall be on Form S-1 or such other appropriate
registration form of the Commission as shall permit the disposition of such
Registrable Securities in accordance with the intended method or methods of
disposition specified by the Fund; provided, however, such intended method of
deposition shall not include an underwritten offering of the Registrable
Securities.
(C) EXPENSES. The Company will pay all
Registration Expenses in connection with any registration required by this
Section 2.1.
(D) EFFECTIVE REGISTRATION STATEMENT. A
registration requested pursuant to this Section 2.1 shall not be deemed to have
been effected (i) unless a registration statement with respect thereto has
become effective within the time period specified herein, provided that a
registration which does not become effective after the Company filed a
registration statement with respect thereto solely by reason of the refusal to
proceed of any holder of Registrable Securities (other than a refusal to proceed
based upon the advice of counsel in the form of a letter signed by such counsel
and provided to the Company relating to a disclosure matter unrelated to such
holder) shall be deemed to have been effected by the Company unless the holders
of the Registrable Securities shall have elected to pay all Registration
Expenses in connection with such registration, (ii) if, after it has become
effective, such registration becomes subject to any stop order, injunction or
other order or extraordinary requirement of the Commission or other governmental
agency or court for any reason or (iii) if, after it has become effective, such
registration ceases to be effective for more than an aggregate of ninety (90)
days.
(E) PLAN OF DISTRIBUTION. The Company hereby
agrees that the Registration Statement shall include a plan of distribution
section reasonably acceptable to the Fund and substantially in the form annexed
hereto; provided, however, such plan of distribution section shall be modified
by the Company so as to not provide for the disposition of the Registrable
Securities on the basis of an underwritten offering.
2.2 INCIDENTAL REGISTRATION.
(A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If
at any time after the date hereof but before the third anniversary of the date
hereof, the Company proposes to register any of its securities under the
Securities Act (other than by a registration in connection with an acquisition
in a manner which would not permit registration of Registrable Securities for
sale to the public, on Form S-8, or any successor form thereto, on Form S-4, or
any successor form thereto and other than pursuant to Section 2.1), on an
underwritten basis (either best-efforts or firm-commitment), then, the Company
will each such time give prompt written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 2.2. Upon the written
request of any such Holder made within twenty (20) days after the receipt of any
such notice (which request shall specify the
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Registrable Securities intended to be disposed of by such Holder an and the
intended method of disposition thereof), the Company will, subject to the terms
of this Agreement, use its commercially reasonable best efforts to effect the
registration under the Securities Act of the Registrable Securities, to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of such Registrable Securities so to be
registered, by inclusion of such Registrable Securities in the registration
statement which covers the securities which the Company proposes to register,
provided that if, at any time after written notice of its intention to register
any securities and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason either not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to each
Holder and, thereupon, (i) in the case of a determination not to register, shall
be relieved of this obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights of any holder or holders of Registrable Securities entitled to do so
to request that such registration be effected as a registration under Section
2.1, and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities, for the same period
as the delay in registering such other securities. No registration effected
under this Section 2.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 2.1, nor shall any such registration
hereunder be deemed to have been effected pursuant to Section 2.1. The Company
will pay all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 2.2. The right
provided the Holders of the Registrable Securities pursuant to this Section
shall be exercisable at their sole discretion and will in no way limit any of
the Company's obligations to pay the Securities according to their terms.
(B) PRIORITY IN INCIDENTAL REGISTRATIONS. If the
managing underwriter of the underwritten offering contemplated by this Section
2.2 shall inform the Company and holders of the Registrable Securities
requesting such registration by letter of its belief that the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, then the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in such offering, (i) first securities proposed by the Company to be sold
for its own account, and (iii) second Registrable Securities and securities of
other selling security holders requested to be included in such registration pro
rata on the basis of the number of shares of such securities so proposed to be
sold and so requested to be included; provided, however, the holders of
Registrable Securities shall have priority to all shares sought to be included
by officers and directors of the Company as well as holders of ten percent (10%)
or more of the Company's Common Stock.
2.3 REGISTRATION PROCEDURES. If and whenever the Company
is required to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2.1 and, as applicable, 2.2, the Company
shall, as expeditiously as possible:
(i) prepare and file with the Commission the
Registration Statement to effect such registration (including such audited
financial statements as may be required by the Securities Act or the rules and
regulations promulgated thereunder) and thereafter use its commercially
reasonable best efforts to cause such registration statement to be declared
effective by
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<PAGE> 7
the Commission, as soon as practicable, but in any event no later than the
Required Effectiveness Date (with respect to a registration pursuant to Section
2.1); provided, however, that before filing such registration statement or any
amendments thereto, the Company will furnish to the counsel selected by the
holders of Registrable Securities which are to be included in such registration,
copies of all such documents proposed to be filed;
(ii) with respect to any Registration Statement
pursuant to Section 2.1, prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement until the earlier to occur of six (6) years after the date of this
Agreement(subject to the right of the Company to suspend the effectiveness
thereof for not more than 10 consecutive days or an aggregate of 30 days in such
six (6) years period) or such time as all of the securities which are the
subject of such registration statement cease to be Registrable Securities (such
period, in each case, the "Registration Maintenance Period");
(iii) furnish to each seller of Registrable
Securities covered by such registration statement such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under Rule
424 under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such seller and underwriter, if
any, may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(iv) use its commercially reasonable best efforts
to register or qualify all Registrable Securities and other securities covered
by such registration statement under such other securities laws or blue sky laws
as any seller thereof shall reasonably request, to keep such registrations or
qualifications in effect for so long as such registration statement remains in
effect, and take any other action which may be reasonably necessary to enable
such seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its commercially reasonable best efforts
to cause all Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable
Securities a signed counterpart, addressed to such seller, and the underwriters,
if any, of:
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<PAGE> 8
(A) an opinion of counsel for the
Company, dated the effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under the underwriting agreement),reasonably satisfactory in form
and substance to such seller) including that the prospectus and any prospectus
supplement forming a part of the Registration Statement does not contain an
untrue statement of a material fact or omits a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and
(B) a "comfort" letter (or, in the case
of any Person which does not satisfy the conditions for receipt of a "comfort"
letter specified in Statement on Auditing Standards No. 72, an "agreed upon
procedures" letter), dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter of
like kind dated the date of the closing under the underwriting agreement),
signed by the independent public accountants who have certified the Company's
financial statement included in such registration statement, covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of the accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to the underwriters in underwritten public offerings of
securities (with, in the case of an "agreed upon procedures" letter, such
modifications or deletions as may be required under Statement on Auditing
Standards No. 35) and, in the case of the accountants' letter, such other
financial matters, and, in the case of the legal opinion, such other legal
matters, as such seller (or the underwriters, if any) may reasonably request;
(vii) notify the Sellers' Representative and its
counsel promptly and confirm such advice in writing promptly after the Company
has knowledge thereof:
(A) when the Registration Statement, the
prospectus or any prospectus supplement related thereto or post-effective
amendment to the Registration Statement has been filed, and, with respect to the
Registration Statement or any post-effective amendment thereto, when the same
has become effective;
(B) of any request by the Commission for
amendments or supplements to the Registration Statement or the prospectus or for
additional information;
(C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings by an Person for that purpose; and
(D) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose;
(viii) notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the
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<PAGE> 9
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material facts
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the request
of any such seller promptly prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(ix) use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
(x) otherwise use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(xi) enter into such agreements and take such
other actions as the Sellers' Representative shall reasonably request in writing
(at the expense of the requesting or benefiting sellers) in order to expedite or
facilitate the disposition of such Registrable Securities; and
(xii) use its commercially reasonable best efforts
to list all Registrable Securities covered by such registration statement on any
securities exchange on which any of the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to
Section 2.1, or amendment thereto or any prospectus or any supplement thereto
(including such documents incorporated by reference and proposed to be filed
after the initial filing of the Registration Statement) to which the Sellers'
Representative shall reasonably object, provided that the Company may file such
documents in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Securities Purchase Agreement.
Each Fund agrees that, upon receipt of any notice from the Company of
the occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, such Fund will forthwith discontinue such Fund's disposition of
Registrable Securities pursuant to the Registration Statement
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relating to such Registrable Securities until such Fund's receipt of the copies
of the supplemented or amended prospectus contemplated by subdivision (viii) of
this Section 2.3 and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then in
such Fund's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
2.4 UNDERWRITTEN OFFERINGS.
(A) INCIDENTAL UNDERWRITTEN OFFERINGS. If the
Company at any time proposes to register any of its securities under the
Securities Act as contemplated by Section 2.2 and such securities are to be
distributed by or through one or more underwriters, the Company will, if
requested by any holder of Registrable Securities as provided in Section 2.2 and
subject to the provisions of Section 2.2(a), use its commercially reasonable
best efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters.
(B) HOLDBACK AGREEMENTS. Subject to such other
reasonable requirements as may be imposed by the underwriter as a condition of
inclusion of a Fund's Registrable Securities in the registration statement, each
Fund agrees by acquisition of Registrable Securities, if so required by the
managing underwriter, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of, except as part of such underwritten registration, any
equity securities of the Company, during such reasonable period of time
requested by the underwriter; provided however, such period shall not exceed the
120 day period commencing 30 days prior to the commencement of such underwritten
offering and ending 90 days following the completion of such underwritten
offering.
(C) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No
holder of Registrable Securities may participate in any underwritten offering
under Section 2.2 unless such holder of Registrable Securities (i) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the
holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other agreement in
connection with such offering) shall require any holder of Registrable
Securities to make an representations or warranties to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such holder expressly for use in the related
registration statement or representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
2.5 PREPARATION; REASONABLE INVESTIGATION. In connection
with the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such
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registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
2.6 REGISTRATION DEFAULT FEE. If the Registration
Statement contemplated in Section 2.1 is (x) not declared effective by the
Required Effectiveness Date or (y) such effectiveness is not maintained for the
Registration Maintenance Period, then the Company shall pay to the Fund the
Default Fee specified in Section 10.4 of the Securities Purchase Agreement.
2.7 INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. In the event
of any registration of any securities of the Company under the Securities Act,
the Company will, and hereby does agree to indemnify and hold harmless the
holder of any Registrable Securities covered by such registration statement, its
directors and officers, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such holder or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such holder and each such
director, officer, underwriter and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding, provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability, (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter stating that it is for
use in the preparation thereof and, provided further that the Company shall not
be liable to any Person who participates as an underwriter in the offering or
sale of Registrable Securities or to any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
within the time required by the Securities Act to the Person asserting the
existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person
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if such statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such holder or
any such director, officer, underwriter or controlling person and shall survive
the transfer of such securities by such holder.
(B) INDEMNIFICATION BY THE SELLERS. The Company
may require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to this Agreement, that the Company shall
have received an undertaking satisfactory to it from the prospective seller of
such Registrable Securities, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subdivision (a) of this Section 2.7) the
Company, each director of the Company, each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such seller specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(C) NOTICES OF CLAIMS, ETC. Promptly after
receipt by an indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subdivisions of this
Section 2.7, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 2.7, except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that the indemnifying party may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
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(D) OTHER INDEMNIFICATION. Indemnification
similar to that specified in the preceding subdivisions of this Section 2.7
(with appropriate modifications) shall be given by the Company and each seller
of Registrable Securities (but only if and to the extent required pursuant to
the terms of Section 2.7(b)) with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority, other than the Securities Act.
(E) INDEMNIFICATION PAYMENTS. The
indemnification required by this Section 2.7 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
(F) CONTRIBUTION. If the indemnification
provided for in the preceding subdivision of this Section 2.7 is unavailable to
an indemnified party in respect of any expense, loss, claim, damage or liability
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such expense, loss, claim, damage or liability
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the holder or underwriter, as the
case may be, on the other from the distribution of the Registrable Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the holder or underwriter, as the case may
be, on the other in connection with the statements or omissions which resulted
in such expense, loss, damage or liability, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the holder or underwriter, as the case may be, on the other in
connection with the distribution of the Registrable Securities shall be deemed
to be in the same proportion as the total net proceeds received by the Company
from the initial sale of the Registrable Securities by the Company to the
purchasers bear to the gain, if any, realized by all selling holders
participating in such offering or the underwriting discounts and commissions
received by the underwriter, as the case may be. The relative fault of the
Company on the one hand and of the holder or underwriter, as the case may be, on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company, by the holder or
by the underwriter and the parties' relative intent, knowledge, access to
information supplied by the Company, by the holder or by the underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, provided that the foregoing
contribution agreement shall not inure to the benefit of any indemnified party
if indemnification would be unavailable to such indemnified party by reason of
the provisions contained in the first sentence of subdivision (a) of this
Section 2.7, and in no event shall the obligation of any indemnifying party to
contribute under this subdivision (f) exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (b) of this Section 2.7 had been
available under the circumstances.
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The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision (f)
were determined by pro rata allocation (even if the holders and any underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in the preceding sentence and subdivision
(c) of this Section 2.7, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
allege untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Agreement": As defined in Section 1.
"Commission": The Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this
Agreement.
"Conversion Shares": As defined in Section 1.
"Exchange Act": The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Notes": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Notes.
"OTC Bulletin Board": As defined in Section 1.
"Person": A corporation, association, partnership,
organization, business, individual, governmental or political subdivision
thereof or a governmental agency.
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"Registrable Securities": The Securities and any securities
issued or issuable with respect to such Securities by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. Once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force, (d) they shall have ceased to be outstanding,
(e) on the expiration of the applicable Registration Maintenance Period or (f)
any and all legends restricting transfer thereof have been removed in accordance
with the provisions of Rule 144(k) (or any successor provision) under the
Securities Act.
"Registration Expenses": All expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all registration, filing and NASD fees, all stock exchange and OTC
Bulletin Board or other NASD or stock exchange listing fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, the
reasonable fees and disbursements of not more than one law firm (not to exceed
$25,000) retained by the holder or holders of more than 50% of the Registrable
Securities, premiums and other costs of policies of insurance of the Company
against liabilities arising out of the public offering of the Registrable
Securities being registered and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions and transfer taxes, if any, provided that, in any case
where Registration Expenses are not to be borne by the Company, such expenses
shall not include salaries of Company personnel or general overhead expenses of
the Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business or which the Company would have
incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Required Effectiveness Date": As defined in Section 2.1.
"Securities Act": The Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Securities Purchase Agreement": As defined in Section 1.
12
<PAGE> 16
"Sellers' Representative": Global Capital Advisors Ltd. or
such Person designated by Global Capital Advisors Ltd. as of the time of
disposition of the last of the Notes held by the Fund (or subsequent Sellers'
Representative).
4. RULE 144. The Company shall timely file the reports required
to be filed by it under the Securities Act and the Exchange Act (including but
not limited to the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with the requirements of this Section 4.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent if sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by an holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership or such Registrable Securities.
7. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests and other communications to any Person provided for hereunder
shall be in writing and shall be given to such Person (a) in the case of a party
hereto other than the Company, addressed to such party in the manner set forth
in the Securities Purchase Agreement or at such other address as such party
shall have furnished to the Company in writing, or (b) in the case of any other
holder of Registrable Securities, at the address that such holder shall have
furnished to the Company in writing, or, until
13
<PAGE> 17
any such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Registrable Securities who has furnished an
address to the Company, or (c) in the case of the Company, at the address set
forth on the signature page hereto, to the attention of its President, or at
such other address, or to the attention of such other officer, as the Company
shall have furnished to each holder of Registrable Securities at the time
outstanding. Each such notice, request or other communication shall be effective
(i) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (ii) if given
by any other means (including, without limitation, by fax or air courier), when
delivered at the address specified above, provided that any such notice, request
or communication shall not be effective until received.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto. In addition, and
whether or not any express assignment shall have been made, the provisions of
this Agreement which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by any subsequent
holder of any Registrable Securities. Each of the Holders of the Registrable
Securities agrees, by accepting any portion of the Registrable Securities after
the date hereof, to the provisions of this Agreement including, without
limitation, appointment of the Sellers' Representative to act on behalf of such
Holder pursuant to the terms hereof which such actions shall be made in the good
faith discretion of the Sellers' Representative and be binding on all persons
for all purposes.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF GEORGIA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF
LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile and
may be signed simultaneously in any number of counterparts, each of which shall
be deemed an original, but all such counterparts shall together constitute one
and the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the Company and each other party hereto relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
13. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
14
<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
LAHAINA ACQUISITIONS, INC.
By: /s/ Graham M. Cooper
----------------------------------
Name: Graham M. Cooper
--------------------------------
Title: President
-------------------------------
Address: P.O. Box N 8160
-----------------------------
Nassau, Bahamas
-----------------------------
Fax: (242) 322-6949
-------------------------
Tel.: (242) 322-2504
------------------------
GCA STRATEGIC INVESTMENT FUND LIMITED
By: /s/ Lewis N. Lester
-----------------------------
Name: Lewis N. Lester
Title: Director
Address: 106 Colony Park Drive
Suite 900
Cumming, Georgia 30040
Fax: 678 947-6499
Tel.: 678 947-0028
Registration Rights Agreement
<PAGE> 19
CERTIFICATE OF MONGOOSE INVESTMENTS, LCC
GCA Strategies Investment Fund, Limited
106 Colony Park Drive
Suite 900
Cumming, GA 30040
This Certificate is executed and delivered by Mongoose Investments, LLC
("Mongoose") in connection with the Securities Purchase Agreement ("the
Agreement") dated as of December 7, 1998 between Lahaina Acquisitions, Inc.
("Lahaina") and GCA Strategies Investment Fund, Limited ("GCA Fund") and the
Convertible Notes, Registration Rights Agreement and Warrant as defined in the
Agreement, and the Stock Purchase Agreement dated as of December 7, 1998 between
Lahaina and Mongoose.
In connection with the transaction contemplated by the Agreement,
Mongoose is acquiring 1,910,000 shares of the no par value per share Series A
Preferred Stock of Lahaina. The terms of the Preferred Stock are attached here
as Exhibit A.
This Certificate is to confirm that so long as the Convertible Notes,
Registration Rights Agreement and Warrant are outstanding, Mongoose will not
enforce any term of the Series A Preferred Stock which is inconsistent with the
obligations of Lahaina under the Convertible Notes, the Registration Rights
Agreement or the Warrant without the prior written consent of GCA Fund or any
successor holder of the Convertible Notes or Warrant, respectively.
This ____ day of December, 1998.
MONGOOSE INVESTMENTS, LLC
By: /s/ Richard P. Smyth
-----------------------------------
Richard P. Smyth
Title: Managing Member
--------------------------------
<PAGE> 20
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE
AGREEMENT"), DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL
AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH
LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION
OBLIGATIONS OF THE COMPANY.
---------------------------------------
COMMON STOCK PURCHASE WARRANT
No. 1
Number of shares: 60,000 Holder: LKB Financial, LLC
Purchase Price: $0.91875 per share
Expiration Date: December 20, 2003
For identification only. The governing terms of this Warrant
are set forth below.
Lahaina Acquisitions, Inc., a Colorado corporation (the "Company"), hereby
certifies that, for value received, LKB Financial, LLC, or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time after the date hereof and prior to the fifth anniversary
hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth,
sixty thousand (60,000) shares of the fully paid and nonassessable shares of
Common Stock of the Company. The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided herein.
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall initially be $0.91875 provided,
however, that the Purchase Price shall be adjusted from time to time as provided
herein.
<PAGE> 2
Capitalized terms used herein not otherwise defined shall have the
meanings ascribed thereto in the Purchase Agreement. As used herein the
following terms, unless the context otherwise requires, have the following
respective meanings:
(a) The term "Company" shall include Lahaina Acquisitions,
Inc. and any corporation that shall succeed or assume the obligations
of such corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's common
stock, no par value per share, (b) any other capital stock of any class
or classes (however designated) of the Company, authorized on or after
such date, the Holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and
the Holders of which shall ordinarily, in the absence of contingencies,
be entitled to vote for the election of a majority of directors of the
Company (even though the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into
which or for which any of the securities described in (a) or (b) may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
that at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1 Method of Exercise.
(a) This warrant may be exercised in whole or in part (but not
as to a fractional share of Common Stock), at any time and from time to
time during the Exercise Period by the Holder hereof by delivery of a
notice of exercise (a "Notice of Exercise") substantially in the form
attached hereto as Exhibit A via facsimile to the Company. Promptly
thereafter the Holder shall surrender this Warrant to the Company at
its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made, at the option of the Holder, (i) by check
or bank draft payable to the order of the Company, (ii) by wire
transfer to the account of the Company, (iii) in shares of Common Stock
having a Market Value on the Exercise Date (as hereinafter defined)
equal to the aggregate Exercise Price or (iv) by presentation and
surrender of this Warrant to the Company for cashless exercise (a
"Cashless Exercise"), which such surrender being deemed a waiver of the
Holder's obligation to pay all or any portion of the Exercise Price. In
the event the Holder elects a Cashless Exercise (which such election
shall be irrevocable) the Holder shall exchange this Warrant for that
number of shares of Common Stock determined
2
<PAGE> 3
by multiplying the number of shares of Common Stock being exercised by
a fraction, the numerator of which shall be the difference between the
then current Market Value of the Common Stock and the Purchase Price,
and the denominator of which shall be the then current Market Value of
the Common Stock.
If the amount of the payment received by the Company is less
than the Exercise Price, the Holder will be notified of the deficiency
and shall make payment in that amount within five (5) business days. In
the event the payment exceeds the Exercise Price, the Company will
promptly refund the excess to the Holder. Upon exercise, the Holder
shall be entitled to receive, promptly refund the excess to the Holder.
Upon exercise, the Holder shall be entitled to receive,
promptly after payment in full, one or more certificates, issued in the
Holder's name or in such name or names as the Holder may direct,
subject to the limitations on transfer contained herein, for the number
of shares of Common Stock so purchased. The shares of Common Stock so
purchased shall be deemed to be issued as of the close of business on
the date on which the Company shall have received from the Holder
payment in full of the Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein,
upon exercise of all or a portion of this Warrant in accordance with
the terms hereof, the Holder shall not be required to physically
surrender this Warrant to the Company. Rather, records showing the
amount so exercised and the date of exercise shall be maintained on a
ledger substantially in the form of Annex B attached hereto (a copy of
which shall be delivered to the Company or transfer agent with each
Notice of Exercise). It is specifically contemplated that the Holder
hereof shall act as the calculation agent for all exercises of this
Warrant. In the event of any dispute or discrepancies, such records
maintained by the Holders shall be controlling and determinative in the
absence of manifest error. The Holder and any assignee, by acceptance
of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following an exercise of a portion of
this Warrant, the number of shares of Common Stock represented by this
Warrant will be the amount indicated on Annex B attached hereto (which
may be less than the amount stated on the face hereof).
1.2 Regulation D Restrictions. The Holder hereof represents
and warrants to the Company that it has acquired this Warrant and anticipates
acquiring the shares of Common Stock issuable upon exercise of the Warrant
solely for its own account for investment purposes and not with a view to or for
resale of such securities unless such resale has been registered with the
Commission or an applicable exemption is available therefor. At the time this
Warrant is exercised, the Company may require the Holder to state in the Notice
of Exercise such representations concerning the Holder as are necessary or
appropriate to assure compliance by the Holder with the Securities Act.
1.3 Company Acknowledgment. The Company will, at the time of
the exercise of this Warrant, upon request of the Holder hereof, acknowledge in
writing its continuing obligation to afford to such Holder the registration
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the provisions of a Registration Rights Agreement dated the
3
<PAGE> 4
date hereof (the "Registration Rights Agreement"). If the Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford such Holder any such rights.
1.4 Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described herein, such
exercise rights shall be limited, solely to the extent set forth in the Purchase
Agreement as if such provisions were specifically set forth herein. In addition,
the number of shares of Common Stock issuable upon exercise of this Warrant is
subject to reduction as specified in Section 6.2 of the Purchase Agreement.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within five (5)
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue, stamp or transfer taxes) will cause to be issued in
the name of and delivered to the Holder thereof, or, to the extent permissible
hereunder, to such other person as such Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
applicable Purchase Price, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Extraordinary Events. The Purchase Price to be paid
by the Holder upon exercise of this Warrant, and the consideration to be
received upon exercise of this Warrant, shall be adjusted in case at any time or
from time to time pursuant to Article XI of the Purchase Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
unassessable shares of stock on the exercise of this Warrant, and (c) will not
transfer all or substantially all of its properties and assets to any other
person (corporate or otherwise), or consolidate with or merge into any other
person or permit any such person to consolidate with or merge into the Company
(if the Company is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of this Warrant.
5. Accountant's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause independent certified public accountants
4
<PAGE> 5
of national standing selected by the Company to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such issue or sale and as adjusted and
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the Holder of this Warrant, and will, on the written
request at any time of the Holder of this Warrant, furnish to such Holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
6. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the
Holders of any class or securities for the purpose of determining the
Holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding- up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the Holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for then and in each such event the
Company will mail or cause to be mailed to the Holder of this Warrant a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount of character of
such dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the Holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common Stock (or Other Securities)
for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
5
<PAGE> 6
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date specified in such notice on which any action is to be
taken.
7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
8. Exchange of Warrant.
(a) On surrender for exchange of this Warrant, properly
endorsed and in compliance with the restrictions on transfer set forth in the
legend on the face of this Warrant, to the Company, the Company at its expense
will issue and deliver to or on the order of the Holder thereof a new Warrant of
like tenor, in the name of such Holder or as such Holder (on payment by such
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face of the Warrant so surrendered.
(b) Upon written notice from the Purchasers pursuant to
Section 2.5(b)(iii) of the Purchase Agreement that the Purchasers have elected
to transfer amongst each other a portion of this Warrant, and on surrender for
amendment and restatement of this Warrant, the Company at its expense will issue
and deliver to or on the order of the Holder thereof a new Warrant of like
tenor, in the name of such Holder as the Purchasers (on payment by such Holder
of any applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock as set forth in
such notice reflecting such transfer.
9. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability, etc.. This Warrant is issued upon the following
terms, to all of which each Holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may be transferred by endorsement
and delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery.
6
<PAGE> 7
(b) any person in possession of this Warrant properly endorsed
and the prior holder is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Warrant in favor of
such bona fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may be sold,
transferred or assigned except pursuant to an effective registration statement
under the Securities Act or pursuant to an applicable exemption therefrom.
12. Registration Rights. The Company is obligated to register the
shares of Common Stock issuable upon exercise of this Warrant in accordance with
the terms of the Registration Rights Agreement.
13. Notices, etc.. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such Holder or, until any such Holder furnishes to
the Company any address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Georgia. The headings in this
Warrant are for the purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 8
DATED as of December 4th, 1998.
LAHAINA ACQUISITIONS, INC.
By: /s/ Graham M. Cooper
-------------------------------------
Name: GRAHAM M. COOPER
-------------------------------------
Title: President
-------------------------------------
Common Stock Purchase Warrant
<PAGE> 9
EXHIBIT A
FORM OF NOTICE EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To Lahaina Acquisitions, Inc.
The undersigned registered Holder of the accompanying Warrant, hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
__________(1) shares of Common Stock (as defined in such Warrant) and herewith
makes payment therefor in the amount and manner set forth below, as of the date
written below. The undersigned requests that the certificates for such shares of
Common Stock be issued in the name of, and delivered to, LKB Financial, LLC
whose address is _______________________.
The Exercise Price is paid as follows:
[_] Bank draft payable to the Company in the amount of $_____________.
[_] Wire transfer to the account of the Company in the amount of
$___________.
[_] Delivery of __________________ previously held shares of Common
Stock having an aggregate Market Price of $_____________.
[_] Cashless exercise. Surrender of ___________ shares purchasable
under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions
of the Warrant, as provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the Holder will be
in compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Date:
------------------------- ----------------------------------------
(Name must conform to name of Holder as
specified on the face of the Warrant)
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address of Holder:
-----------------------
-----------------------
-----------------------
Date of exercise:
----------------
- ---------------------
(1) Insert the number of shares of Common Stock as to which the
accompanying Warrant is being exercised. In the case of a partial exercise, a
new Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant, to the Holder surrendering the
same.
<PAGE> 10
ANNEX B
WARRANT EXERCISE LEDGER
<TABLE>
<CAPTION>
ORIGINAL NUMBER WARRANTS EXERCISE PRICE NEW BALANCE ISSUER HOLDER
DATE OF WARRANTS EXERCISED PAID OF WARRANTS INITIALS INITIALS
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------
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</TABLE>
<PAGE> 1
STOCK PLEDGE AGREEMENT
THIS IS A STOCK PLEDGE AGREEMENT (this "Agreement") by and between
Mongoose Investments, LLC (the "Pledgor") and GCA Strategic Investment Fund
Limited (the "Pledgee"), and dated effective as of December 7, 1998, and by
which the parties to this Agreement, for good and valuable consideration, hereby
agree as follows:
1. Background Information. The Pledgor is the owner of the shares of
stock described in Schedule I attached hereto and incorporated herein by
reference (the "Pledged Shares"). The Pledgor is the majority shareholder of
Lahaina Acquisitions, Inc. ("Lahaina") which has delivered Pledgee a convertible
note of even date herewith in the principal amount of $750,000.00 (the "Note").
Pledgor will benefit from the pledge of the Pledged Collected (as defined below)
in order to induce Pledgor to purchase the Note from Lahaina.
2. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to the
Pledgee a security interest in, the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledge Shares and all proceeds
of any of the foregoing (collectively, the "Pledged Collateral").
3. Security for Obligations. The Pledgor's security interest in the
Pledged Collateral secures the payment and performance of all obligations of
Lahaina now or hereafter existing under the Note, whether for principal,
interest, fees, expenses or otherwise, and all obligations of the Pledgor now or
hereafter existing under this Agreement and any and all extensions or renewals
of the foregoing in whole or in part, whether direct or indirect, absolute or
contingent, individual, joint or several, now due or to become due, and whether
owed under the foregoing as a drawer, maker, endorser, guarantor, surety or
otherwise to the Pledgee by the Pledgor (all such obligations being the
"Obligations").
4. Delivery of Pledged Collateral; Further Assurances. All certificates
or instruments representing or evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of the Pledgee pursuant hereto and shall
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall have the right, at any
time in its discretion and without notice to the Pledgor, to transfer to or to
register in the name of the Pledgee or any of its nominees any or all of the
Pledged Collateral, subject only to the revocable rights specified in section
5(a) of this Agreement. In addition, the Pledgee shall have the right at any
time to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
The Pledgor agrees that at any time and from time to time, at the expense of the
Pledgor, the Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that the Pledgee may request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Pledgee to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral.
<PAGE> 2
5. Voting Rights; Dividends; Etc.
(a) General. So long as no Event of Default (as defined below)
or event which, with the giving of notice or the lapse of time, or both, would
become an Event of Default shall have occurred and be continuing:
(i) Voting Rights. The Pledgor shall be
entitled to exercise any and all voting and other consensual rights pertaining
to the Pledged Collateral or any part thereof for any purpose not inconsistent
with the terms of this Agreement or the Note; provided, however, that the
Pledgor shall not exercise or refrain from exercising any such right if, in the
Pledgee's judgment, such action would have a material adverse effect on the
value of the Pledged Collateral or any part thereof, and provided, further, that
the Pledgor shall give the Pledgee at least five (5) days' written notice of the
manner in which the Pledgor intends to exercise, or the reasons for refraining
from exercising, any such right.
(ii) Dividends. The Pledgor shall be entitled to
receive and retain any and all dividends and other payments in respect of the
Pledged Collateral; provided, however, that any and all:
(A) dividends paid or payable other than
in cash, and instruments and other property received or receivable in respect of
any Pledged Collateral,
(B) dividends and other distributions paid
or payable in cash in respect of any Pledged Collateral in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid or payable in redemption of,
or in exchange for, any Pledged Collateral, shall be, and shall be forthwith
delivered to the Pledgee to hold as, Pledged Collateral and shall, if received
by the Pledgor, be received in trust for the benefit of the Pledgee and be
segregated from the other property or funds of the Pledgor (with any necessary
endorsement).
(iii) Proxies and Other Instruments. The Pledgee
shall execute and deliver (or cause to be executed and delivered) to the Pledgor
all such proxies and other instruments as the Pledgor may reasonably request for
the purposes of enabling the Pledgor to exercise the voting and other rights
which it is entitled to exercise pursuant to section 5(a)(i) of this Agreement
and to receive the dividends or other payments which it is authorized to receive
and retain pursuant to section 5(a)(ii) of this Agreement.
(b) Upon Default. Upon the occurrence and during the
continuance of an Event of Default or an event which, with the giving of notice
or the lapse of time, or both, would become an Event of Default, all rights of
the Pledgor to exercise the voting and other consensual rights which the Pledgor
would otherwise be entitled to exercise pursuant to section 5(a)(i) of this
Agreement and to receive the dividends and interest payments which the Pledgor
would otherwise be authorized to receive and retain pursuant to section 5(a)(ii)
of this Agreement shall cease, and all such rights shall thereupon become vested
in the Pledgee who shall thereupon have the sole right to exercise such voting
and other consensual rights and to receive and hold as Pledged Collateral such
dividends and interest payments.
-2-
<PAGE> 3
6. No Transfers or Liens; Substitute Shares.
(a) No Transfer or Liens. The Pledgor agrees that the Pledgor
will not sell or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral, or create or permit to exist any lien, security
interest, or other charge or encumbrance upon or with respect to any of the
Pledged Collateral, except for the security interest under this Agreement.
(b) Substitute Shares. The Pledgor agrees that it will (i)
cause the issuer of the Pledged Shares not to issue any stock or other
securities in substitution for the Pledged Shares issued by such issuer, except
to the Pledgor, and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any such substitute shares of stock or other
securities of the issuer of the Pledged Shares.
7. Pledgee May Perform; Pledgee Appointed Attorney-in-Fact. The
Pledgor hereby appoints the Pledgee as the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Pledgee's discretion to take any action
and to execute any instrument which the Pledgee deems necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
receive, endorse and collect all instruments made payable to the Pledgor
representing any dividend, interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same. If the Pledgor fails to perform any agreement contained herein, the
Pledgee may itself perform, or cause performance of, such agreement.
8. Reasonable Care. The Pledgee shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Pledgee accords its own property, it being understood that the
Pledgee shall not have any responsibility for ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Pledged Collateral, whether or not the Pledgee has or is deemed
to have knowledge of such matters, or taking any necessary steps to preserve
rights against any parties with respect to any Pledged Collateral.
9. Events of Default; Remedies upon Default.
(a) Events of Default. The occurrence of any one or more of
the following events shall constitute a default (an "Event of Default") by the
Pledgor:
(i) the Pledgor fails to pay any Obligation when
due and payable or declared due and payable and such failure shall continue for
five (5) business days; or
(ii) the Pledgor fails or neglects to perform,
keep or observe any term, provision, condition, covenant or agreement contained
in this Agreement (other than those referred to in section 9(a)(i) of this
Agreement) or in any other instrument or document delivered pursuant hereto or
in connection herewith, including without limitation the Note of even date
herewith from Pledgor to Pledgee, and such failure or neglect shall have
continued for a period of ten (10) business days after receipt of written notice
from the Pledgee of such failure or neglect; or
-3-
<PAGE> 4
(iii) the Pledgor makes or submits any false,
untrue, incomplete or misleading representation, warranty, schedule, report or
other communication to the Pledgee in connection with this Agreement or the Note
or any transaction relating hereto or thereto; or
(iv) the Pledgor becomes insolvent or generally
fails to pay, or admits in writing the Pledgor's inability to pay, the Pledgor's
debts as they mature; or
(v) there occurs an Event of Default under the
Note; or
(vi) the Pledgor makes a general assignment for
the benefit of creditors, convenes or causes to be convened a meeting of the
Pledgor's creditors or the Pledgor's principal creditors, or takes advantage of
the insolvency laws of any state, or a petition in bankruptcy or an arrangement
or reorganization under the Federal Bankruptcy Code is filed by or against the
Pledgor.
(b) Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(i) Sale. The Pledgee may exercise in respect
of the Pledged Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party on default under the applicable Uniform Commercial Code in effect at that
time, and the Pledgee may also, without notice except as specified below, sell
the Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Pledgee's offices
or elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Pledgee may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the Pledgor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Pledgee shall not be obligated to
make any sale of Pledged Collateral regardless of notice of sale having been
given. The Pledgee may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(ii) Proceeds. Any cash held by the Pledgee as
Pledged Collateral and all cash proceeds received by the Pledgee in respect of
any sale of, collection from, or other realization upon all or any part of the
Pledged Collateral may, in the discretion of the Pledgee, be held by the Pledgee
as collateral for, or then or at any time thereafter applied (after payment of
any amounts payable to the Pledgee pursuant to section 10 of this Agreement) in
whole or in part by the Pledgee against, all or any part of the Obligations in
such order as the Pledgee shall elect. Any surplus of such cash or cash proceeds
held by the Pledgee and remaining after payment in full of all the Obligations
shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus.
10. Expenses. The Pledgor will upon demand pay to the Pledgee the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Pledgee may
incur after the date hereof in connection with the administration of this
Agreement, the custody or preservation of, or the sale of, collection from, or
other realization upon, any of the Pledged Collateral, the exercise or
enforcement of any of the rights of the Pledgee hereunder, or the failure by the
Pledgor to perform or observe any of the provisions hereof.
-4-
<PAGE> 5
11. Continuing Security Interest; Transfer of Note. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
remain in full force and effect until payment in full of the Obligations, be
binding upon the Pledgor, and the Pledgor's successors and assigns, and inure to
the benefit of the Pledgee and the Pledgee's successors, transferees and
assigns. Without limiting the generality of the foregoing, the Pledgee may
assign or otherwise transfer the Note to any other person or entity, and such
other person or entity shall thereupon become vested with all the benefits in
respect thereof granted to the Pledgee herein or otherwise. Upon the payment in
full of the Obligations, the Pledgor shall be entitled to the return, upon the
Pledgor's request and at the Pledgor's expense, of such of the Pledged
Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof.
12. Indemnification. The Pledgor hereby agrees that the Pledgor shall
indemnify and hold the Pledgee harmless from and against any and all costs,
expenses, claims, causes of action, damages, injury, or harm suffered by the
Pledgee or asserted against the Pledgee relating to Pledgee's performance under
this Agreement. In addition, the Pledgor hereby acknowledges and affirms that
the Pledgee shall not be obligated to incur any costs or expenses whatsoever in
connection with or arising out of or relating to the Pledgee's performance under
this Agreement, and the Pledgee, so long as it acts diligently in good faith,
shall not have any liability whatsoever to the Pledgor for any act, failure,
refusal or omission to act under this Agreement.
13. Termination. Upon the final payment of all Obligations, this
Agreement shall terminate and the Pledgee shall transfer and deliver the Pledged
Collateral and the accompanying stock transfer powers to the Pledgor or to
whosoever shall be lawfully entitled to the same marked "Terminated--Underlying
Obligations Satisfied" and dated and signed by the Pledgee.
14. Miscellaneous.
(a) Survival. All representations, warranties, covenants and
agreements herein contained shall survive the execution and delivery of this
Agreement. The remedies of a party for breaches of representations, warranties,
covenants or agreements shall not be affected by any investigation by, or
knowledge of, the non-breaching party prior to the date of this Agreement. Each
party agrees to indemnify, defend and hold the other harmless for all losses,
costs and expenses (including without limitation reasonable attorney's fees)
arising out of its breach of any representation, warranty, covenant or agreement
made by him or it in this Agreement.
(b) Notices. All notices and other communications under this
Agreement shall be made in writing signed by the party making the same, and
shall be deemed given on the date of personal delivery or if mailed by certified
or registered United States mail, postage prepaid, on the date mailed (and shall
be deemed received on the date of personal delivery or, if so mailed, on the
third business day after so mailed), to:
-5-
<PAGE> 6
If to the Pledgor, to:
Lahaina Acquisitions, Inc.
--------------------------------
--------------------------------
ATTN:
---------------------------
Telecopy:
-----------------------
With a copy to:
Paul, Hastings, Janofsky & Walker, LLP
600 Peachtree Street, N.E., Suite 2400
Atlanta, Georgia 30308-2222
ATTN: Wayne Shortridge, Esq.
Telecopy: (404) 815-2424
If to the Pledgee, to:
GCA Strategic Investment Fund Limited
106 Colony Park Drive, Suite 900
Cumming, Georgia 30040
ATTN: Global Capital Advisors, Ltd.
Telecopy: (678) 947-6499
with a copy to:
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
ATTN: Mark D. Kaufman, Esq.
Telecopy: (404) 853-8806
or to such other person or at such other address as either party may specify by
written notice to the other party in accordance with this section 14(b).
(c) Further Assurances. Each party agrees to do such further
acts, and to execute and deliver such additional conveyances, assignments,
agreements and instruments as the other may at any time request in connection
with the administration and enforcement of this Agreement or relative to the
Pledged Collateral or any part thereof, or in order better to assure and confirm
to the requesting party his or its rights, powers and remedies under this
Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforce able under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only, without
in any way affecting the remaining provisions.
-6-
<PAGE> 7
(e) Time of the Essence. Time is of the essence of each and
every provision of this Agreement.
(f) Assignment; Successors in Interest.
(i) Assignment. Except with the prior written
consent of the Pledgee, no assignment or transfer by the Pledgor of the
Pledgor's rights and obligations under this Agreement may be made.
(ii) Binding Nature. This Agreement shall be
binding upon the parties to this Agreement and their respective successors and
assigns, shall inure to the benefit of the parties to this Agreement and their
respective permitted successors and assigns and any reference to a party to this
Agreement shall also be a reference to a successor or assign.
(g) Number; Gender. Whenever the context so requires, the
singular number shall include the plural and the plural shall include the
singular, and the gender of any pronoun shall include the other genders.
(h) Captions; Certain Definitions. Titles and captions of
or in this Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision of this Agreement.
(i) Controlling Law; Integration; Amendment; Waiver. This
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of Georgia without regard to those relating to
conflicts of laws. This Agreement supersedes all prior negotiations, agreements
and understandings between the parties with respect to the subject matter
hereof, constitutes the entire agreement between the parties with respect to the
subject matter hereof, and may not be altered or amended except in writing
signed by the Pledgor and the Pledgee. The failure of either party to this
Agreement at any time or times to require performance of any provisions of this
Agreement shall in no manner affect the right to enforce the same. No waiver by
either party to this Agreement of any condition, or of the breach of any term,
provision, warranty, representation, agreement or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed or construed as a further or continuing waiver of any such condition
or breach or a waiver of any other condition or of the breach of any other term,
provision, warranty, representation, agreement or covenant contained in this
Agreement.
(j) Counterparts. This Agreement may be executed by each
party upon a separate copy, and in such case one counterpart of this Agreement
shall consist of enough of such copies to reflect the signatures of all of the
parties to this Agreement. This Agreement shall become effective when one or
more counterparts have been signed by each of the parties to this Agreement and
delivered to the other party to this Agreement. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement or the terms of this
Agreement to provide or account for more than one of such counterparts.
[EXECUTION PAGE FOLLOWS]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed by their respective authorized officers, as of the
date first above written.
MONGOOSE INVESTMENTS, LLC
By: /s/ Richard Smith
-------------------------------------
Name: Richard Smith
-----------------------------------
Title: Managing Member
----------------------------------
Address:
--------------------------------
--------------------------------
Fax:
----------------------------
Tel.:
---------------------------
GCA STRATEGIC INVESTMENT FUND LIMITED
By: /s/ Lewis N. Lester
---------------------------
Name: Lewis N. Lester
Title: Director
Address: 106 Colony Park Drive
Suite 900
Cumming, Georgia 30040
Fax: 678 947-6499
Tel.: 678 947-0028
Pledge Agreement
-8-
<PAGE> 9
SCHEDULE I
Seven Hundred and Fifty Thousand (750,000) shares of common stock, no par
value, of Lahaina Acquisitions, Inc., represented as of the date hereof by
Certificate No. 490.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed by their respective authorized officers, as of the date first
above written.
LAHAINA ACQUISITIONS, INC.
By: /s/ Graham M. Cooper
----------------------------------
Name: GRAHAM M. COOPER
----------------------------------
Title: PRESIDENT
----------------------------------
Address: P.O. Box N 8160
----------------------------------
NASSAU
----------------------------------
BAHAMAS
----------------------------------
----------------------------------
Fax: (242) 322-6949
-----------------------------
Tel: (242) 322-2504
-----------------------------
GCA STRATEGIC INVESTMENT FUND LIMITED
By:
----------------------------------
Name: Lewis N. Lester
Title: Director
Address: 106 Colony Park Drive
Suite 900
Cumming, Georgia 30040
Fax: 678 947-6499
Tel: 678 947-0028
Pledge Agreement
<PAGE> 11
[GUNSTER, YOAKLEY, VALDES-FAULI & STEWART, P.A. LETTERHEAD]
December 4, 1998
VIA FEDERAL EXPRESS
Mr. Wayne Shortridge, Esq.
Paul, Hastings, Janofsky & Walker, LLP
600 Peachtree Street
Suite 2400
Atlanta, GA 30308
Dear Wayne:
Enclosed please find Lahaina Acquisitions, Inc. stock certificate number 490
representing 750,000 shares currently held by Paxford Investments, S.A. to be
held in escrow by you until you receive facsimile instructions signed by me
authorizing its release.
Also enclosed is a stock power executed by Ivylyn Cassar which should be
held in trust until you receive written facsimile instructions from me
authorizing its release.
Sincerely,
/s/ Charles J. Duffy, III
-------------------------
Charles J. Duffy, III
CJD/maa
Enclosures
cc: Michael G. Platner
<PAGE> 12
LAHAINA ACQUISITIONS, INC.
NUMBER Incorporated under the laws of the State of Colorado SHARES
No. 490 (3) 750,000
Authorized Capital: 800,000,000
No par value Common Shares
This Certifies That SEE REVERSE FOR
CERTAIN DEFINITIONS
-PAXFORD INVESTMENTS, S.A.-
is the owner of ***SEVEN HUNDRED FIFTY THOUSAND***
fully paid and nonassessable Common Shares, no par value per share of
LAHAINA ACQUISITIONS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be subject to the Articles of Incorporation, to all of which the holder by
acceptance hereby assents.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed in
facsimile by its duly authorized officers and the facsimile seal of the
Corporation to be duly affixed hereto.
This Certificate is not valid until duly countersigned by the Transfer Agent and
Registrar.
Dated: 5/28/97 [LAHAINA ACQUISITIONS, INC.
/s/ PHILIP J. DAVIS CORPORATE SEAL /s/ GARY A. AGRON
Philip J. Davis, COLORADO] Gary A. Agron,
Secretary President
Countersigned and Registered:
Corporate Stock Transfer, Inc.
1675 Broadway, Suite 1480
Denver, Colorado 80202
By:
/s/ B.A.
--------------------
Authorized Signature
<PAGE> 13
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to ________________, Seven Hundred Fifty Thousand (750,000) shares of the
common stock of Lahaina Acquisitions, Inc., a Colorado corporation (the
"Corporation"), standing in the name of the undersigned on the books of the
Corporation represented by certificate number 490.
The undersigned does hereby irrevocably constitute and appoint Gunster,
Yoakley, Valdes-Fauli & Stewart, P.A., their attorney-in-fact, to transfer
the said stock on the books of the Corporation, with full power of the
substitution in the premises.
DATED: December 4, 1998
PAXFORD INDUSTRIES, S.A.
/s/ Ivy Lynn Cassar
-------------------------
By: Ivy Lynn Cassar
Its: Director, Secretary
<PAGE> 1
LAHAINA ANNOUNCES CHANGE IN BOARD;
ADOPTS RESORT REAL ESTATE FOCUS; ANNOUNCES ACQUISITION
Fernandina Beach, Florida - December 28, 1998 -- Lahaina Acquisitions, Inc.
(NASDAQ:LAHA) today announced that it has adopted a new business strategy aimed
at the development and operation of real estate, and has named a new Chairman &
CEO, Richard P. Smyth. The new strategy for the Company comes as a result of
its recently completed acquisition of the stock of Beachside Commons I, Inc.
which owns a recently completed commercial oceanfront development at
Fernandina, Main Beach on Amelia Island, Florida, named Beachside Commons. The
site was developed over the last two years by Mongoose Investments, LLC which,
as a result of the transaction, has become the Company's largest shareholder.
The Company anticipates further real estate related activities in this and
other resort markets and will continue to evaluate acquisitions of other
operating companies as a part of its growth strategy.
"This initial transaction converts the Company to an operating company which is
a natural progression of its purpose, and will allow the Company to increase
its capital base and move forward with an expanded development strategy," said
Richard Smyth, the founder of Mongoose and the new Chairman and CEO of Lahaina.
He continued, "Our initial project, Beachside Commons at Main Beach,
demonstrates the potential of renovation within the resort marketplace. We are
considering a number of other projects on Amelia Island as well as evaluating
other markets with similar characteristics."
The Company believes that Beachside Commons, a new retail and dining renovation
project at the Main Beach in Fernandina Beach, Florida, will become a model for
future resort developments. The Company currently intends to create a
development and real estate company named Resort Strategies, Inc. (RSI), whose
focus will be development and redevelopment within resort marketplaces. RSI
will operate as a wholly owned subsidiary of the Company.
Mr. Smyth further remarked that, "The Company intends to expand through a
combination of internal development projects and the acquisition of existing
sites or companies. Its operating subsidiary, Resort Strategies, Inc., will
seek additional opportunities in emerging resort markets, in addition to the
management of current projects on Amelia Island, Florida".
"We believe that resort marketplaces represent growth opportunities, as well as
pose unique challenges. To take full advantage of the opportunities one must
adapt to these challenges and requirements, creating projects that meet the
special needs of a resort. It's an interesting niche, with large scope
potential," explained Mr. Smyth. When asked about other
<PAGE> 2
investments or acquisitions, he replied, "Our Resort Strategies, Inc.
subsidiary will focus generally on resort opportunities, although we will
evaluate other situations at the holding company level."
The initial acquisition transaction involved the issuance of 1,250,000 shares of
Common Stock, $1.92 million of convertible Series A Preferred Stock and the
payment of $675,000 of cash to Mongoose, as well as the assumption of a first
mortgage on Beachside Commons property in the principal amount of $1.55 million.
Additional information about the Company can be found on its Form 8-K filed with
the Securities and Exchange Commission on December __, 1998, and other
previously filed documents.
This press release may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
based on current plans and expectations of Lahaina, its affiliates or
subsidiaries, and involve risks and uncertainties that could cause actual
future activities and results of operations to be materially different from
those suggested or described in the forward-looking statements contained in
this press release. Important factors that could cause actual results to differ
include, among others, risks associated with future acquisitions (such as
quality of projects acquired, financing costs and profitability of operations),
fluctuations in operating results, variations in stock prices, change in public
interest in resorts, political and economic climate, competition, weather
conditions, risks of operations, regulatory agencies, policies, financing
difficulties and difficulties in integrating newly acquired businesses.
Additional information concerning factors that could cause actual results to
differ from those in the forward-looking statements is contained from time to
time in the Company's SEC filings. Copies of these filings may be obtained by
contacting the Company or the SEC.
