SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 9, 1999
IMSCO Technologies Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-24520 04-3021770
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
40 Bayfield Drive, North Andover, Massachusetts 01845
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 689-2080
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On February 9, 1999, IMSCO Technologies, Inc. (the "Company") completed a
private offering of $600,000 of Convertible Debentures due January 31, 2002 (the
"Debentures") and 120,000 Common Stock Purchase Warrants exercisable at $1.50
per share for a period ending January 31, 2002 (the "Warrants"). The Debentures
and Warrants were issued and sold to one investor in accordance with Securities
and Exchange Commission Regulation D and have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold in the United States absent registration under the Securities
Act or an applicable exemption from the registration requirements thereof.
The Debentures are unsecured obligations of the Company and will mature on
January 31, 2002. Interest on the Debentures is payable quarter-annually on
February 1, May 1, August and November 1 of each year, commencing May 1,1999.
Interest at the Company's option may be paid in cash or in common stock of the
Company. The investor may convert the Debentures into shares of common stock at
a price equal to the lesser of (i) 75% of the Market Price (as defined in the
Purchase Agreement below) on the conversion notice date, or (ii) $1.00 per
share; provided that the investor shall not acquire 10% or more of the
outstanding shares of common stock of the Company, through conversion or
otherwise, except in the event of a tender offer or merger or acquisition of the
Company.
The Warrants permit the holder to acquire 120,000 shares of Common Stock at
an exercise price of $1.50 per share for a period ending January 31, 2002. The
Warrants contain certain standard anti-dilution provisions. The Holder has
certain demand registration rights and piggy-back registration rights with
respect to the Common Stock issuable upon exercise of the Warrants and the
Common Stock issuable upon conversion of the Debentures.
The net proceeds of the offering, after deducting underwriting discounts
and commissions and expenses payable by the Company, were approximately
$522,000. The Company expects to use the net proceeds of the offering to repay
certain indebtedness of the Company and for working capital and general
corporate purposes.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
Exhibit
Number Exhibit Name
------ ------------
4.1 Form of 8% Convertible debenture Due 2002
10.1 Debenture and Warrant Purchase Agreement dated as of February 3, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 19, 1999 IMSCO TECHNOLOGIES, INC.
By: /s/ Alexander T. Hoffmann
------------------------------------
Alexander T. Hoffmann
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Name
------ ------------
4.1 Form of 8% Convertible debenture Due 2002
10.1 Debenture and Warrant Purchase Agreement dated as of February 3, 1999
EXHIBIT 4.1
8% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
No.1 US $ 600,000
IMSCO TECHNOLOGIES, INC.
8% CONVERTIBLE DEBENTURE DUE JANUARY 31, 2002
THIS DEBENTURE is issued by IMSCO TECHNOLOGIES, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Company")
and is designated as its 8% Convertible Debenture Due January 31, 2002.
FOR VALUE RECEIVED, the Company promises to pay to AMRO INTERNATIONAL,
S.A., or permitted assigns (the "Holder"), the principal sum of Six Hundred
Thousand and 00/100 (US $600,000) Dollars on January 31, 2002 (the "Maturity
Date") and to pay interest on the principal sum outstanding from time to time
quarterly in arrears at the rate of 8% per annum accruing from the date of
initial issuance. Accrual of interest shall commence on the first business day
to occur after the date of initial issuance and continue until payment in full
of the principal sum has been made or duly provided for. Quarterly interest
payments shall be due and payable on July 1, October 1, February 1, May 1,
August 1 and November 1 of each year, commencing with May 1, 1999 or upon a
conversion of the debenture into Common Stock as described below . If any
interest payment date or the Maturity Date is not a business day in the State of
New York, then such payment shall be made on the next succeeding business day.
Subject to the provisions of Paragraph 4 below, the interest on this Debenture
is payable at the option of the Company, in cash or in shares of Common Stock of
the Company ("Common Stock") valued at the Conversion Price (as defined herein)
on the interest payment date, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time. The Company will pay the principal of and any accrued but unpaid interest
due upon this Debenture on the Maturity Date, less any amounts required by law
to be deducted, to the registered holder of this Debenture as of the tenth day
prior to the Maturity Date and addressed to such holder at the last address
appearing on the Debenture Register. The forwarding of the required number of
shares of Common Stock determined pursuant to the provisions of Paragraph 4
below, shall constitute a payment of principal and interest
<PAGE>
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by the
equivalent Conversion Price value of such shares of Common Stock (as defined in
Paragraph 3 below) plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of principal
of, and interest on, this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or other
applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
2. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including a legal opinion that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary. This
Debenture has been executed and delivered pursuant to the Debenture and Warrant
Purchase Agreement dated as of February 3, 1999 between the Company and the
original Holder (the "Purchase Agreement"), and is subject to the terms and
conditions of the Purchase Agreement, which are, by this reference, incorporated
herein and made a part hereof. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement. Payments under the Debenture shall be made to the Holder at the
address set forth I the Purchase Agreement.
3. The Holder of this Debenture is entitled, at its option, to convert at
any time commencing on the date hereof, the principal amount of this Debenture
or any portion thereof, together with accrued but unpaid interest, provided that
the portion of the principal amount so converted is Five Thousand Dollars (US
$5,000) or a multiple thereof (unless if at the time of such election to convert
the aggregate principal amount of this Debenture is less than Five Thousand
Dollars (US $5,000), then the whole amount thereof) into shares of Common Stock
of the Company ("Conversion Shares") at a conversion price for each share of
Common Stock ("Conversion Price") equal to 75% of the Market Price at the
Conversion Date (as defined in Section 8 hereof), but in no event shall the
Conversion Price be greater than $1.00 per share (adjusted for any Common Stock
dividend, split or reverse split effected after the date of this Debenture). The
term "Market Price" shall have the meaning set forth in the Purchase Agreement.
<PAGE>
4. The entire unpaid balance of this Debenture and accrued interest thereon
outstanding on the Maturity Date hereof shall automatically convert into Common
Stock at the Conversion Price on the Maturity Date (the "Mandatory Conversion").
5. Notwithstanding the provisions of the Debenture and Warrant Purchase
Agreement or of the Warrants, in no event other than upon a Mandatory Conversion
or while there is outstanding a tender offer for any or all of the shares of the
Company's common stock shall the holder be entitled, or shall the Company have
the obligation, to convert all or any portion of this Debenture (and the Company
shall not have the right to pay interest on this Debenture) to the extent that,
after such conversion, the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures or unexercised portion of the Warrants),
and (2) the number of shares of Common Stock issuable upon the conversion of the
Debentures or exercise of the Warrants with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 9.99% of the outstanding shares of Common
Stock (after taking into account the shares to be issued to the Holder upon such
conversion or exercise). For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and Regulation
13D-G thereunder, except as otherwise provided in clause (1) of such sentence.
The Holder further agrees that if the Holder transfers or assigns any of this
Debenture to a party who or which would not be considered an Affiliate, such
transfer or assignment shall be made subject to the transferee's or assignee's
specific agreement to be bound the provisions of this paragraph as if such
transferee or assignee were a signatory to this Agreement.
6. Notwithstanding anything to the contrary contained herein, if the
Company's shares of Common Stock subsequently become listed on the New York
Stock Exchange, the American Stock Exchange, the NASDAQ National Market System
or the NASDAQ SmallCap Market, in the event that a conversion (when aggregated
with all prior conversions of portions of this Debenture and any other
Convertible Debenture issued pursuant to the Agreement and all shares of Common
Stock issuable upon exercise of the Warrants (as defined in the Agreement))
requires the Company to issue a number of shares of Common Stock which would
exceed 19.9% of the number of shares of Common Stock issued and outstanding on
the date of this Debenture, the Company shall issue only such number of shares
of Common Stock as shall not exceed such limit and shall pay the Holder cash in
the amount of the Market Price for the number of shares of Common Stock in
excess of such number of shares into which this Debenture (or the portion
thereof then being converted) is then convertible at the Conversion Price,
unless the Company has obtained shareholder approval for such issuance pursuant
to the rules of the referenced stock market, or as otherwise permitted by the
referenced stock market.
7. Conversion shall be effectuated by surrendering this Debenture to the
Company (only if such Conversion will convert all outstanding principal)
together with the form of conversion notice attached hereto as Exhibit A (the
<PAGE>
"Notice of Conversion"), executed by the Holder of this Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion (as
above provided) hereof. The Notice of Conversion may be delivered or telecopied
to the Company, provided that the original Debenture is delivered to the Company
within seven (7) business days thereafter by express courier. Interest accrued
or accruing from the date of issuance to the date of conversion shall, at the
option of the Company, be paid in cash as set forth above or in Common Stock
upon conversion at the Conversion Price on the Conversion Date. No fraction of a
share or scrip representing a fraction of a share will be issued on conversion,
but the number of shares issuable shall be rounded down to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be the
date on which the Holder faxes the Notice of Conversion duly executed, to the
Company. Facsimile delivery of the conversion notice shall be accepted by the
Company at facsimile number (718) 843-8504, Attn.: Chief Executive Officer.
The term "Conversion Date" means, with respect to any conversion elected by the
holder of the Debenture, the date specified in the Notice of Conversion,
provided the copy of the Notice of Conversion is telecopied to or otherwise
delivered to the Company in accordance with the provisions hereof so that is
received by the Company on or before such specified date.
The Company shall, at its expense, take all actions and use all means necessary
and diligent to cause its transfer agent to deliver the certificates
representing the Converted Shares issuable upon conversion of any Debentures
(together with Debentures not being so converted) to the Holder via express
courier, by electronic transfer or otherwise, within three (3) business days
(such third business day, the "Delivery Date") after (A) the business day on
which the Company has received both of the Notice of Conversion (by facsimile or
other delivery) and the original Debentures being converted (and if the same are
not delivered to the Company on the same date, the date of delivery of the
second of such items) or (B) the date an interest payment on the Debentures,
which the Company has elected to pay by the issuance of Common Stock, as
contemplated by the Debentures, was due.
The Company understands that a delay in the issuance of the Shares of Common
Stock beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of Shares upon Conversion in accordance
with the following schedule (where "No. Business Days Late" is defined as the
number of business days beyond two (2) business days from the Delivery Date):
Late Payment For
Each $10,000 Principal of
No. Business Days Late Debentures Being Converted
---------------------- --------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Business Day Late
beyond 10 days
<PAGE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Holder. Furthermore, in addition to any other remedies which may be
available to the Holder, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within two (2) business days
after the Delivery Date, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
If, by the relevant Delivery Date, the Company fails for any reason to deliver
the Shares to be issued upon conversion of a Debenture and after such Delivery
Date, the holder of the Debentures being converted (a "Converting Holder")
purchases, in an open market transaction or otherwise, shares of Common Stock
(the "Covering Shares") in order to make delivery in satisfaction of a sale of
Common Stock by the Converting Holder (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the Shares to be issued upon such
conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in
addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu thereof, the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Converting Holder's total purchase price (including
brokerage commissions, if any) for the Covering Shares over (y) the net proceeds
(after brokerage commissions, if any) received by the Converting Holder from the
sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to
the Company in immediately available funds immediately upon demand by the
Converting Holder. By way of illustration and not in limitation of the
foregoing, if the Converting Holder purchases shares of Common Stock having a
total purchase price (including brokerage commissions) of $11,000 to cover a
Buy-In with respect to shares of Common Stock it sold for net proceeds of
$10,000, the Buy-In Adjustment Amount which Company will be required to pay to
the Converting Holder will be $1,000.
8. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency or shares of Common Stock, herein prescribed. This Debenture is a
direct obligation of the Company.
9. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, employee, officer or
director, as such, past, present or future, of the Company or any successor
<PAGE>
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
10. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable.
11. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
12. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of five
(5) days; or
b. Any of the representations or warranties made by the Company
herein, in the Purchase Agreement, the Registration Rights
Agreement, or in any agreement, certificate or financial or other
written statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this
Debenture or the Purchase Agreement shall be false or misleading
in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by this
Debenture or the Registration Rights Agreement,
<PAGE>
and such transfer is otherwise lawful, or fails to remove any
restrictive legend or to cause its Transfer Agent to transfer any
certificate or any shares of Common Stock issued to the Holder
upon conversion of this Debenture as and when required by this
Debenture, the Purchase Agreement or the Registration Rights
Agreement and such legend removal is otherwise lawful, and any
such failure shall continue uncured for five (5) business days;
or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under the Purchase
Agreement, the Registration Rights Agreement or this Debenture
and such failure shall continue uncured for a period of thirty
(30) days after written notice from the Holder of such failure;
or
e. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar
process in excess of One Million ($1,000,000) Dollars in the
aggregate shall be entered or filed against the Company or any of
its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty (60) days
(or such later period for payment as any such judgment may
specify) or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if
<PAGE>
instituted against the Company, shall not be dismissed within
sixty (60) days after such institution or the Company shall by
any action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or default
in answering a petition filed in any such proceeding; or
j. The Company shall have its Common Stock suspended or delisted
from trading on an exchange or the NASD OTC Bulletin Board market
for in excess of two Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law;
provided, that any payment of this Debenture in connection with an Event of
Default (other than a delisting of its Common Stock pursuant to clause (j.)) may
be made, at the Company's election, in cash or in shares of Common Stock, in
such number as would be issued at the Conversion Price on the date the Debenture
becomes due and payable.
13. Nothing contained in this Debenture shall be construed as conferring upon
the Holder the right to vote or to receive dividends or to consent or receive
notice as a shareholder in respect of any meeting of shareholders or any rights
whatsoever as a shareholder of the Company, unless and to the extent converted
in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 4, 1999
IMSCO TECHNOLOGIES, INC.
By: /s/Alexander T. Hoffmann
-----------------------------------
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION*
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $
________________ of the principal amount of the above Debenture No. ___ into
Shares of Common Stock of IMSCO TECHNOLOGIES, INC. (the "Company") according to
the conditions hereof, as of the date written below.
Date of Conversion ____________________________________________________________
Applicable Conversion Price ___________________________________________________
Accrued Interest through Date of Conversion $__________________.
Number of Shares to be Issued: ___________________
Signature_____________________________________________________________________
[Name]
Address:______________________________________________________________________
______________________________________________________________________
* This Notice of Conversion must be received by the Company via facsimile in
order to effectuate the conversion, with the original Debenture being delivered
to the Company within seven business days thereafter by express courier.
EXHIBIT 10.1
DEBENTURE AND WARRANT PURCHASE AGREEMENT
Between
IMSCO Technologies, Inc.
and
the Investors signatory hereto
DEBENTURE AND WARRANT PURCHASE AGREEMENT dated as of February 3, 1999 (the
"Agreement"), between the investor or investors set forth on the signature page
hereto (each an "Investor" and together the "Investors"), and IMSCO
Technologies, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase pro-rata, as set forth on the signature page
hereof, (i) $600,000 principal amount of Convertible Debentures (as defined
below) and (ii) Warrants (as defined below) to purchase up to 120,000 shares of
the Common Stock (as defined below).
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") of the United States Securities Act of 1933, as
amended, and Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in the securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
Convertible Debenture and Warrants pursuant to Section 2.1.
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (a) hereto) and the
Closing shall have occurred.
1
<PAGE>
Section 1.5. "Common Stock" shall mean the Company's common stock, no par value
per share.
Section 1.6. "Conversion Shares" shall mean the shares of Common Stock issuable
upon conversion of the Convertible Debenture.
Section 1.7. "Convertible Debenture(s)" shall mean the $600,000 aggregate
principal amount of Convertible Debentures in the form of Exhibit A hereto to be
issued to the Investors pursuant to this Agreement.
Section 1.8. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.9. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.14. "Market Price" on any given date shall mean the average of the
lowest prices on the Principal Market (as reported by Bloomberg L.P.) of the
Common Stock at which a trade is executed on any three (3) Trading Days during
the twenty-two (22) Trading Day period ending on the Trading Day immediately
prior to the date for which the Market Price is to be determined.
Section 1.15. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement, the Registration Rights Agreement,
the Escrow Agreement, the Convertible Debenture or the Warrant in any material
respect.
Section 1.16. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.17. "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
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Section 1.18. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, the NASDAQ Small-Cap Market or
the NASD OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.19. "Purchase Price" shall mean six hundred and one thousand and two
hundred dollars ($601,200) in the aggregate.
Section 1.20. "Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until the earliest to occur of: (i) the Registration Statement
has been declared effective by the SEC, and all Conversion Shares and Warrant
Shares have been disposed of pursuant to the Registration Statement, (ii) all
Conversion Shares and Warrant Shares have been sold under circumstances under
which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act ("Rule 144") are met, (iii) all
Conversion Shares and Warrant Shares have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Conversion Shares and Warrant Shares may be sold
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
Section 1.21. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investor as of the Closing
Date in the form annexed hereto as Exhibit C.
Section 1.22. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement and in accordance with the intended
method of distribution of such securities), for the registration of the resale
by the Investor of the Registrable Securities under the Securities Act.
Section 1.23. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.24. "SEC" shall mean the United States Securities and Exchange
Commission.
Section 1.25. "Section 4(2)" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.26. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.27. "SEC Documents" shall mean the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.28. "Shares" shall have the meaning set forth in Section 1.16
Section 1.29. "Trading Day" shall mean any day during which the Principal Market
at such day shall be open for business.
Section 1.30. "Warrant(s)" shall mean the warrants substantially in the forms of
Exhibit B to be issued to the Investor hereunder. The Exhibit B Warrants, for an
aggregate of 120,000 shares, are non-redeemable and have an Exercise Price of
$1.50 per share.
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Section 1.31. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Debentures and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and each Investor, severally and not jointly, agrees to
purchase a Convertible Debenture and a Warrant at their pro-rata portion of the
Purchase Price on the Closing Date as follows:
(i) Upon execution and delivery of this Agreement, each Investor
shall deliver to the Escrow Agent immediately available funds in
the amount of the Purchase Price, and the Company shall deliver
the corresponding Convertible Debenture and the corresponding
Warrant to the Escrow Agent, in each case to be held by the
Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section 2.1(b),
the Closing ("Closing") shall occur at the offices of the Escrow
Agent at which the Escrow Agent (x) shall release the relevant
Convertible Debenture and the relevant Warrant to the appropriate
Investor and (y) shall release the corresponding Purchase Price
(after all fees have been paid as set forth in the Escrow
Agreement) to the Company, pursuant to the terms of the Escrow
Agreement.
(b) The Closing is subject to the satisfaction of the following conditions:
(i) acceptance and execution by the Company and by both Investors of
this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately available
funds in the amount of the relevant Purchase Price of the
Convertible Debenture and the Warrant, as more fully set forth in
the Escrow Agreement;
(iii) all representations and warranties of each Investor contained
herein shall remain true and correct as of the Closing Date (as a
condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date (as a
condition to each Investor's obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Convertible
Debentures and Warrants, or shall have the availability of
exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and Warrants
hereunder, and the proposed issuance by the Company to each
Investor of the Common Stock underlying the Convertible Debenture
and Warrants upon the conversion or exercise thereof shall be
legally permitted by all laws and regulations to which the
Investor and the
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Company are subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions contemplated by
this Agreement;
(vii) delivery of all of the original fully executed Convertible
Debenture and Warrant certificates to the Escrow Agent;
(viii) receipt by each Investor of an opinion of Epstein Becker &
Green, P.C.., counsel to the Company, in the form of Exhibit E
hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions to
Transfer Agent in the form attached hereto as Exhibit F; and
(x) delivery to each Investor of the Registration Rights Agreement.
Section 2.2. Allocation. The Purchase Price shall be allocated $600,000 to the
Convertible Debentures and $1,200 to the Warrants.
Section 2.3. Liquidated Damages. The parties hereto acknowledge and agree that
the sum payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investor in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investors
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Convertible Debenture, the Warrant, any
Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Convertible Debenture, the Warrant and the
underlying Common Stock. The Investor acknowledges that an investment in the
Convertible Debenture, the Warrant and the underlying Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
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Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and the agreements the forms of which are attached as Exhibits hereto and
executed by the Investor in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, and compliance with the
requirements thereof, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Investor or (a) violate any
provision of any indenture, instrument or agreement to which Investor is a party
or is subject, or by which Investor or any of its assets is bound; (b) conflict
with or constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investor to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any of
its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
Investor acknowledges that the Company is subject to the periodic reporting
requirements of the Exchange Act, and the Investor has reviewed or received
copies of all SEC Documents that have been requested by it. Section
3.7. Manner of Sale. At no time was Investor presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising by the Company.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Florida and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Convertible Debentures, the Conversion Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Convertible Debentures and the Warrants by
the Company and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
shareholders is required, and (iii) this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Convertible Debentures and the Warrants
have been duly executed and delivered by the Company and at the Closing shall
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, or similar laws
relating to, or affecting
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generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the conversion of the Convertible Debentures (assuming a Market Price of
$1.00) and for the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Conversion Shares and the Warrant Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Debenture and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall not
seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the conversion of the
Convertible Debentures and the exercise of the Warrants. The Company agrees,
without cost or expense to the Investor, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, no par value per share, of which
approximately 7,626,000 shares are issued and outstanding as of January 31,
1999, 1,000,000 shares of preferred stock, no par value per share, of which no
shares are issued and outstanding, and approximately 1,345,000 outstanding
Common Stock purchase warrants or securities convertible into Common stock
issued and outstanding. Except for outstanding options to acquire a total of
335,000 shares of Common Stock as of January 31, 1999 there are no other
outstanding Capital Shares Equivalents. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the NASD OTC Bulletin
Board Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has delivered or made available to the
Investors by EDGAR true and complete copies of the SEC Documents. The Company
has not provided to the Investors any information that, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act, and rules and regulations of the SEC
promulgated thereunder and the SEC Documents did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents (the "Financial
Statements") complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such Financial
Statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Except for the indebtedness
of the Company being repaid at the Closing and as otherwise
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reflected in the SEC Reports, neither the Company nor any of its subsidiaries
has any material indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or otherwise
described in the Financial Statements or in the notes thereto in accordance with
GAAP, which was not fully reflected in, reserved against or otherwise described
in the SEC Documents, Financial Statements or the notes thereto included in the
SEC Documents or was not incurred in the ordinary course of business consistent
with the Company's past practices since the last date of such Financial
Statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investor's representations in Article III, the sale of the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with
each Warrant and each Convertible Debenture, the Conversion Shares and the
Warrant Shares will be duly and validly issued, fully paid, and non-assessable.
Neither the sales of the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Convertible Debentures, or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Convertible Debentures, the Conversion Shares, the Warrant
Shares or, except as contemplated herein, any of the assets of the Company, or
(ii) entitle the holders of Outstanding Capital Shares to preemptive or other
rights to subscribe to or acquire the Capital Shares or other securities of the
Company. The Convertible Debentures, the Conversion Shares, and the Warrant
Shares shall not subject the Investor to personal liability to the Company or
its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its Affiliates (as defined in Rule
405 under the Securities Act) nor any person acting on its or their behalf (i)
has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to of the
Convertible Debentures or the Warrants, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Convertible Debentures, the Conversion
Shares, the Warrants or the Warrant Shares under the Securities Act.
Section 4.8. Corporate Documents. The Company has furnished or made available to
the Investor true and correct copies of the Company's Articles of Incorporation,
as amended and in effect on the date hereof (the "Articles"), and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-Laws").
Section 4.9. No Conflicts. Except as set forth on Schedule 4.9, the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby, including without
limitation the issuance of the Convertible Debentures, the Conversion Shares,
the Warrants and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-laws, (ii) conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument, or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or in the
aggregate, a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not have a Material Adverse Effect. The Company is not required under
federal, state or local law,
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rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Convertible Debentures or the Warrants in accordance with the terms
hereof (other than any SEC, Nasdaq Stock Market or state securities filings that
may be required to be made by the Company subsequent to Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Nasdaq Stock Market); provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy of
the relevant representations and agreements of each Investor herein.
Section 4.10. No Material Adverse Change. Since September 30, 1998, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.11. No Undisclosed Events or Circumstances. Since September 30, 1998,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.12. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Convertible Debentures, the Warrants or any
shares of Common Stock (including for this purpose any securities of the same or
a similar class as the Convertible Debentures, the Warrants or Common Stock, or
any securities convertible into a exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and the Company shall not
permit any of its directors, officers or Affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
person or entity of the Convertible Debentures, Warrants or shares of Common
Stock), so as to make unavailable the exemption from Securities Act registration
being relied upon by the Company for the offer and sale to the Investors of the
Convertible Debentures (and the Conversion Shares) or the Warrants (and the
Warrant Shares) as contemplated by this Agreement
Section 4.13. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company, nor has the Company received any
written or oral notice of any such action, suit, proceeding or investigation,
which could reasonably be expected to have a Material Adverse Effect. Except as
set forth in the SEC Documents, no judgment, order, writ, injunction or decree
or award has been issued by or, to the knowledge of the Company, requested of
any court, arbitrator or governmental agency which could result in a Material
Adverse Effect.
Section 4.14. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, have not made, at
any time, any oral communication in connection with the offer or sale of the
Convertible Debentures and the Warrants which contained any untrue statement of
a material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.15. Material Non-Public Information. The Company has not disclosed to
either Investor any material non-public information that (i) if disclosed,
would, or could reasonably be expected to have, a material effect on the price
of the Common Stock or (ii) according to applicable law, rule or regulation,
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should have been disclosed publicly by the Company prior to the date hereof but
which has not been so disclosed.
Section 4.16. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with the Company's historical claims experience.
The Company has not received notice from, and has no knowledge of any threat by,
any insurer (that has issued any insurance policy to the Company) that such
insurer intends to deny coverage under or cancel, discontinue or not renew any
insurance policy presently in force.
Section 4.17. Tax Matters.
(a) The Company has filed all Tax Returns which it is required to file
under applicable laws, except where the failure to file any Tax Return would not
have a Material Adverse Effect on the Company; all such Tax Returns are true and
accurate and have been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold from
amounts paid or owing to any employee, shareholder, creditor or other third
parties; and since December 31, 1997, the charges, accruals and reserves for
Taxes with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending on the
date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that such corporation is or may be subject
to taxation by that jurisdiction. There are no foreign, federal, state or local
tax audits or administrative or judicial proceedings pending or being conducted
with respect to the Company; no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority; and, except
as disclosed above, no written notice indicating an intent to open an audit or
other review has been received by the Company from any foreign, federal, state
or local taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.17:
"IRS" means the United States Internal Revenue Service.
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"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.18. Property. Neither the Company nor any of its subsidiaries owns any
real property except as disclosed in the SEC Documents. Each of the Company and
its subsidiaries has good and marketable title to all personal property owned by
it, free and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company; and,
except as set forth in Schedule 4.18, to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company.
Section 4.19. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no claims have
been asserted by any person to the ownership or use of any Intangibles and the
Company has no knowledge of any basis for such claim.
Section 4.20. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company is a party or by which its properties
are bound are executed with management's authorization; (ii) the recorded
accounting of the Company's assets is compared with existing assets at regular
intervals; (iii) access to the Company's assets is permitted only in accordance
with management's authorization; and (iv) all transactions to which the Company
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.21. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Section 4.22. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to the Investors
pursuant to this Agreement, contains any untrue statement of a material fact or
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omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants and agrees with the Company
as follows:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. Restriction on Amount of Conversion Shares. Notwithstanding the
provisions of the Debenture and Warrant Purchase Agreement or of the Warrants,
in no event other than a Mandatory Conversion as defined in the Convertible
Debenture or while there is outstanding a tender offer for any or all of the
shares of the Company's Common Stock shall the holder be entitled, or shall the
Company have the obligation, to convert all or any portion of this Debenture
(and the Company shall not have the right to pay interest on the Convertible
Debenture) to the extent that, after such conversion, the sum of (1) the number
of shares of Common Stock beneficially owned by the Buyer and its Affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures or
unexercised portion of the Warrants), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures or exercise of the Warrants
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Buyer and its affiliates of more than
9.99% of the outstanding shares of Common Stock (after taking into account the
shares to be issued to the Buyer upon such conversion or exercise). For purposes
of the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Regulation 13D-G thereunder, except as otherwise
provided in clause (1) of such sentence. The Buyer further agrees that if the
Buyer transfers or assigns any of the Debentures or all or any part of a Warrant
to a party who or which would not be considered an Affiliate, such transfer or
assignment shall be made subject to the transferee's or assignee's specific
agreement to be bound the provisions of this Section 5.2 as if such transferee
or assignee were a signatory to this Agreement.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Convertible Debentures or exercise of the
Warrants up to the maximum number of shares of Common Stock authorized in the
Company's Certificate of Incorporation; such amount of shares of Common Stock to
be reserved shall be calculated based upon a Market Price for the Common Stock
under the terms of the Debenture of $1.00. The number of shares so reserved from
time to
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time, as theretofore increased or reduced as hereinafter provided, may be
reduced by the number of shares actually delivered pursuant to any conversion of
a Convertible Debenture or exercise of a Warrant and the number of shares so
reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be obligated to
issue by reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as permitted by
the rules of the Principal Market, to list the Conversion Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of
either Investor to cause the Common Stock to be listed on such other Principal
Market as promptly as possible. The Company will take all action to continue the
listing and trading of its Common Stock on a Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market and shall provide each Investor with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Investor has disposed of all of its
Registrable Securities. The Chief Executive Officer of the Company, by his
execution of this Agreement on behalf of the Company, agrees to vote his
personal shares of the Company's Common Stock in favor of any such proposal.
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all material respects with its reporting
and filing obligations under the Exchange Act, and will not take any action or
file any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until each Investor has
disposed of all of its Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investor such shares of stock and/or securities
as the Investor is entitled to receive pursuant to this Agreement.
Section 6.8. Private Offering Exemption. The sale of the Convertible Debenture
and the issuance of the Warrant Shares pursuant to exercise of the Warrant and
the Conversion Shares upon conversion of the Convertible Debenture shall be made
in accordance with the provisions and requirements of Section 4(2) of the
Securities Act, Regulation D promulgated thereunder and any applicable state
securities law. The Company shall make all necessary SEC and "blue sky" filings
required to be made by the Company in connection with the sale of the Securities
to the Investors as required by all applicable Laws, and shall provide a copy
thereof to the Investors promptly after such filing.
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ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless each Investor, its Affiliates and their respective officers, directors,
partners and members (collectively, the "Investor Indemnitees"), from and
against any and all Damages, in each case promptly as incurred by the Investor
Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement; or
(ii) any failure by the Investor to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement or any instrument, certificate or agreement entered into or
delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such
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Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by each Investor, advisors to and
representatives of the Investors (who may or may not be affiliated with an
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of an
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, Nasdaq or other filing, all
SEC Documents and other filings with the SEC, and all other publicly available
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by an Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling such Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
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Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of an Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION.
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Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions in substantially the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be. It is the intent and purpose of such instructions, as
provided therein, to require the transfer agent for the Common Stock from time
to time upon transfer of Registrable Securities by the Investor to issue
certificates evidencing such Registrable Securities free of the Legend during
the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the transfer
agent by or from the Company or its counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of one or more
certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor confirms to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor
confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates evidencing
Registrable Securities that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing representations that (i) the Investor is
permitted to dispose of such Registrable Securities without limitation as to
amount or manner of sale pursuant to Rule 144(k) under the Securities Act or
(ii) the Investor has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Registrable Securities in compliance with Rule
144.
Any of the notices referred to above in this Section 9.2 may be sent by
facsimile to the Company's transfer agent.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," so called "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.4. Investor's Compliance. Nothing in this Article shall affect in any
way the Investors' obligations under any agreement to comply with all applicable
securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
or any Exhibit attached hereto shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on
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consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The non-prevailing party to any arbitration (as
determined by the Board of Arbitration) shall pay the expenses of the prevailing
party including reasonable attorney's fees, in connection with such arbitration.
ARTICLE XI
Assignment; Entire Agreement
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible Debenture or Warrants purchased or acquired by each Investor
hereunder with respect to the Convertible Debenture or Warrants held by such
person, and (b) upon the prior written consent of the Company, which consent
shall not unreasonably be withheld or delayed, each Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of such Investor) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the covenants of Article V.
ARTICLE XII
Notices
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
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If to the Company: IMSCO Technologies, Inc.
40 Bayfield Drive
North Andover, MA 01845
Attention: Chief Executive Officer
Telephone: (978) 689-2080
Facsimile: (978) 689-2585
with a copy to: Epstein Becker & Green, P.C.
(shall not constitute notice) 250 Park Avenue
New York, NY 10177
Attention: David E. Fleming, Esq.
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
if to the Investor:
as set forth on the signature page hereto.
with a copy to:
(shall not constitute notice) Krieger & Prager
319 Fifth Avenue
3rd Floor
New York, NY 10016
Attention: Sam Krieger, Esq.
Telephone: (212) 689-3322
Facsimile: (212) 213-2077
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original.
This Agreement may be amended only by a writing executed by all parties. Section
13.2. Entire Agreement. This Agreement, the agreements attached as Exhibits
hereto, which include, but are not limited to the Convertible Debenture, the
Warrant, the Escrow Agreement, and the Registration Rights Agreement, set forth
the entire agreement and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and
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conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. 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 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 13.6. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debenture or any
Conversion Shares or Warrant or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder.
Section 13.8. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party except Curzon
Management ("Curzon")who shall be paid by the Company a commission in the amount
of 10% of the Purchase Price ($60,000) and a non-accountable expense allowance
in the amount of 3% of the Purchase Price ($18,000). Curzon shall have the right
to apply the commission in the amount of $60,000 to the purchase of an
additional debenture having the same terms, conditions and rights as the
Debenture. The Company on the one hand, and the Investor, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
IMSCO TECHNOLOGIES, INC.
By: /s/ Alexander T. Hoffmann
--------------------------
Alexander T. Hoffmann
Chief Executive Officer
INVESTOR:
Address: AMRO International, S.A.
c/o Ultra Finance
Grossmunster Platz 26
Zurich CH8022 By: /s/ H. U. Bachofen
Switzerland -------------------------
H. U. Bachofen, Director
Facsimile: 011-411-262-5515
Amount subscribed for
Debentures: $600,000 principal amount
Warrants: 120,000 shares
Total purchase price: $601,200
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