================================================================================
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON MAY 16, 2000
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-25406
--------------------
TECHNICAL CHEMICALS AND PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0308922
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3341 S.W. 15th Street
Pompano Beach, Florida 33069
(Address of principal executive offices)
(954) 979-0400
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO 12(g) OF THE ACT:
Common Stock ($.001 par value)
(Title of class)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
The aggregate market value of Common Stock held by non-affiliates as of
May 11, 2000 was approximately $26,204,658 (based upon the closing sale price of
$1.0625 per share on the Nasdaq National Market on May 11, 2000).
As of May 11, 2000, 29,541,258 shares of the Registrant's $.001 par
value Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one):
YES NO X
---- ----
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
---------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,078 $ 1,447
Investments 1,336 2,540
Accounts receivable, net 865 1,163
Inventory 1,971 2,036
Due from related parties 656 686
Other 528 486
------------------------------
Total current assets 6,434 8,358
------------------------------
Property and equipment, net 1,870 2,096
Patents and trademarks, net 11,005 11,256
Goodwill, net 1,764 1,807
Other assets 210 71
------------------------------
Total assets $ 21,283 $23,588
==============================
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 873 $ 988
Accrued expenses 1,529 1,360
------------------------------
Total current liabilities 2,402 2,348
------------------------------
Deferred revenue 812 812
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares--25,000,000;
Series A 6% Convertible Preferred Stock:
Issued and outstanding shares--2,700 and 11,300
at March 31, 2000 and December 31, 1999 3,005 12,457
Common stock, $.001 par value:
Authorized shares--100,000,000;
Issued and outstanding shares--29,541,258
and 14,541,544 at March 31, 2000 and
December 31, 1999 30 15
Additional paid-in capital 51,287 41,638
Accumulated deficit (36,253) (33,682)
------------------------------
Total stockholders' equity 18,069 20,428
------------------------------
Total liabilities and stockholders' equity $ 21,283 $23,588
==============================
*The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date.
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
2000 1999
-------------------------------------------
<S> <C> <C>
Net sales $ 1,187 $ 1,386
Cost of product sales 709 814
-------------------------------------------
Gross profit 478 572
R&D contract revenue -- 155
Operating expenses:
Selling, general and administrative 1,624 1,923
Litigation 722 405
Research and development 290 549
Depreciation and amortization 441 472
-------------------------------------------
3,077 3,349
-------------------------------------------
Loss from operations (2,599) (2,622)
Other income (expense):
Interest income 58 149
Interest expense -- (3)
-------------------------------------------
Net loss (2,541) (2,476)
Accrued preferred redemption
accretion and dividends 97 399
-------------------------------------------
Loss attributable to common stockholders $ (2,638) $ (2,875)
===========================================
Net loss per common share--
Basic and Diluted $ (.11) $ (.28)
===========================================
Weighted average number of
common shares outstanding 24,067,260 10,399,144
===========================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
2000 1999
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,541) $ (2,476)
Adjustments to reconcile net loss to net cash
used in operating activites:
Depreciation and amortization 441 472
Changes in operating assets and liabilities:
Accounts receivable 298 492
Inventory 65 151
Other current assets (42) (157)
Other assets and liabilities (139) --
Accounts payable and accrued expenses 262 133
--------------------------------------
Net cash used in operating activities (1,656) (1,385)
INVESTING ACTIVITIES
Purchases of property & equipment (82) (14)
Proceeds from sale of equipment 165 --
Due from related party 30 --
Purchase of investments -- (2,218)
Proceeds from sale of investments 1,173 146
Investments in patents and trademarks (4) (34)
--------------------------------------
Net cash provide by (used in) investing activities 1,282 (2,120)
FINANCING ACTIVITIES
Proceeds from stock options exercised 5 --
--------------------------------------
Net cash provided by financing activities 5 --
--------------------------------------
Net change in cash and cash equivalents (369) (3,505)
Cash and cash equivalents at beginning of period 1,447 5,207
--------------------------------------
Cash and cash equivalents at end of period $ 1,078 $ 1,702
======================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
(the "Financial Statements") of Technical Chemicals and Products, Inc. and
Subsidiaries (the "Company" or "TCPI") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements include all normal and recurring adjustments which are necessary for
a fair presentation. The Financial Statements should be read in conjunction with
more complete disclosures contained in the Company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. The results of operations for interim periods
are not necessarily indicative of the results of operations for the entire year.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes". Deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
INVENTORIES
Inventories, consisting of raw materials and finished goods, are valued
at the lower of cost (computed on the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The cost of maintenance and repairs are charged to operations as incurred.
Significant renewals and betterments are capitalized and depreciated over their
estimated useful lives.
INTANGIBLE ASSETS
Purchased patents and trademarks are amortized using the straight-line
method over a composite life of 15 years based on the shorter of their legal
life or estimated useful life of the individual patents and trademarks, which
range from 11 to 17 years. Goodwill is amortized using the straight-line method
over 15 years. The Company periodically reviews its intangible assets to assess
recoverability and a charge will be recognized in the consolidated statement of
operations if a permanent impairment is determined to have occurred.
Recoverability of intangibles is determined based on undiscounted future
operating cash flows from the related business unit or activity. The amount of
impairment, if any, would be measured based on discounted future operating cash
flows using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of intangible assets will be affected if
estimated future operating cash flows are not achieved. The Company does not
believe that any impairment has occurred and that no reduction of the estimated
useful lives is warranted.
5
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Details of selected balance sheet accounts are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
---------------------------------------------------
<S> <C> <C>
Accounts receivable:
Accounts receivable $ 1,193 $ 1,481
Allowance for doubtful accounts (328) (318)
------------------------------------------------
Accounts receivable, net $ 865 $ 1,163
================================================
Property and equipment:
Furniture, fixtures and equipment $ 3,494 $ 3,766
Leasehold improvements 174 174
------------------------------------------------
3,668 3,940
Accumulated depreciation and amortization (1,798) (1,844)
------------------------------------------------
$ 1,870 $ 2,096
================================================
Patents and trademarks:
Patents and trademarks $ 15,408 $ 15,403
Accumulated amortization (4,403) (4,147)
------------------------------------------------
$ 11,005 $ 11,256
================================================
Goodwill:
Goodwill $ 2,494 $ 2,494
Accumulated amortization (730) (687)
------------------------------------------------
$ 1,764 $ 1,807
================================================
</TABLE>
3. STOCKHOLDERS' EQUITY
In May 1998, the Company completed a private placement of 15,000 shares
of Series A Convertible Preferred Stock (the "Preferred Stock") to a single
institutional investor (the "Investor"). To date, the Investor has converted
12,300 shares of Preferred Stock and received 19,435,490 shares of the Company's
common stock. See the Company's Annual Report on Form 10-K for the years ended
December 31, 1999 and 1998 and the Company's Report on Form 8-K filed on May 21,
1998 for additional information related to this Preferred Stock transaction.
4. RELATED PARTY TRANSACTIONS
During August 1998, the Company's outside directors unanimously
approved the Company's guarantee, for a period of up to 90 days, of $750,000 of
the collateral obligations of Mr. Aronowitz's family limited partnership
(Partnership) to a brokerage house. Under the terms of the Company's agreement
with the Partnership, the brokerage house called on the Company's guarantee; the
Partnership then executed and delivered to the Company a promissory note
personally guaranteed by Mr. Aronowitz in an amount equal to the amount of the
guarantee. The note was a six-month note payable on demand and bears interest at
the rate of interest charged by the brokerage house (7 3/4% at March 31, 2000).
In February 1999, accrued interest was paid and the note was extended an
additional three months. After becoming due on May 26, 1999, interest was paid
and an additional extension of one year was authorized by the Board of
Directors. The balance of funds advanced under the note was approximately
$647,000 at March 31, 2000, and was included in due from related party in the
balance sheets. At the Board meeting on April 27, 2000, an additional extension
of eighteen months commencing on September 1, 2000 was authorized by the Board
of Directors, with payments of principal and interest due quarterly.
6
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4. RELATED PARTY TRANSACTIONS (Continued)
The Company and Mr. Aronowitz are parties to an exclusive, worldwide
license agreement dated January 31, 1996 ("License Agreement") under which the
Company has the right to manufacture, promote, market and sell all medical,
pharmaceutical and health care products and devices created by Mr. Aronowitz on
or before the date of the License Agreement. The License Agreement is for a term
of twenty years with automatic renewals and requires annual fees equal to the
greater of (i) 3% of net collected sales revenues from products based upon
certain technology or (ii) $10,000, with an aggregate maximum limitation of
$10,000,000. The License Agreement replaces an earlier license agreement with
similar provisions. During 1999, 1998, 1997 and 1996, Mr. Aronowitz earned
approximately $149,000, $161,000, $148,000 and $114,000, respectively, pursuant
to the License Agreement. He waived all licensing fees due him for the years
ended December 31, 1995 and 1994. Mr. Aronowitz is also party to an employment
contract with the Company.
The Company made a loan to Dr. Block in the amount of $50,000 pursuant
to his Employment Agreement with the Company dated May 10, 1999, which shall be
deemed repaid with respect to 50% of the amount due and owing on each of the
first two anniversary dates of this agreement as long as Dr. Block remains an
employee of the Company or is not terminated for cause (as defined). The
principal amount of this loan bears interest at the London Interbank (LIBOR)
rate, as adjusted quarterly, with such principal and accrued interest due on
September 1, 2001, subject to such loan being deemed repaid as provided above.
As of March 31, 2000, the outstanding principal and interest is approximately
$52,000.
5. LEGAL PROCEEDINGS
The Company is subject to claims and suits arising in the ordinary
course of business. At this time, it is not possible to estimate the final
outcome of these legal matters or the ultimate loss or gain except as otherwise
stated, if any, related to these lawsuits, or if any such loss will have a
material adverse effect on the Company's results of operations or financial
position, except as otherwise stated.
HIV Saliva Collector Technology. A lawsuit was brought against the
Company in 1995 in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida (Joseph D'Angelo, Americare Transtech, Inc., Americare
Biologicals, Inc. and International Medical Associates, Inc. v. Technical
Chemicals & Products, Inc., Jack Aronowitz, Henry Schur, Analyte Diagnostics,
Inc., John Faro and Nicholas Levandoski) - Case No. CACE 95-011256 - related to
saliva collector technology for an HIV diagnostic test.
On December 30, 1998, a jury returned a verdict in this lawsuit finding
that TCPI did not misappropriate the plaintiffs' trade secrets, but found that
Mr. Aronowitz had intentionally misappropriated such trade secrets and assessed
damages of $500,000 against him, individually. Additionally, the jury found that
both the Company and Mr. Aronowitz intentionally interfered with the plaintiffs'
business relationships and assessed approximately $328,000 in damages against
TCPI in connection with this second claim, but awarded no damages against Mr.
Aronowitz, individually, in connection with that claim. Separately, the jury
assessed more than $4.1 million in damages against other unrelated corporate and
individual defendants.
On January 29, 1999, TCPI and Mr. Aronowitz filed their appeal to the
Florida Fourth District Court of Appeal in West Palm Beach, Florida - Case No. 4
DCA 99-00423. On March 29, 2000, the court issued its opinion reversing the
judgment against Mr. Aronowitz for misappropriation of trade secrets. However,
the appellate court affirmed the judgment against TCPI for tortious interference
with a business relationship. The court's decision is not final until the
disposition of any timely filed motion for rehearing, which the Company has
filed as to the tortious interference claim against the Company. The Company
also plans to vigorously pursue any other available proceedings to have the
judgment relating to the tortious interference matter reversed or set aside.
7
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. LEGAL PROCEEDINGS (Continued)
TCPI has previously obtained appeal bonds staying enforcement of the
judgment against the Company and Mr. Aronowitz. Until such time as the appellate
court's decision is final, the Company will maintain the appeal bonds. If the
appellate court does not reverse its finding as to Mr. Aronowitz on
reconsideration or rehearing, the bond relating to the claims against Mr.
Aronowitz will no longer be required. Further, the Company believes that a bond
may be required to stay enforcement of the tortious interference judgment if the
Company seeks to set it aside. There can be no assurance that the appellate
court will not reverse its decision as to Mr. Aronowitz on reconsideration or
rehearing, that the Company will be successful in reversing or setting aside the
judgment as to the Company, or that the Company will be able to obtain any
necessary bond or otherwise to stay enforcement of the judgment against the
Company.
The liability, if any, that may result from this matter and efforts to
set the judgment aside cannot be reasonably estimated at this time and therefore
no accrual for loss has been recorded in the financial statements as of March
31, 2000.
Noninvasive Glucose Monitoring Technology. In November 1997, a lawsuit
was brought against the Company and Mr. Aronowitz in the United States District
Court for the Southern District of Florida, styled Americare Diagnostics, Inc.,
Joseph P. D'Angelo, et al. v. Technical Chemicals and Products, Inc., et al. -
Case No. 97-3654-CIV-JORDAN - relating to noninvasive glucose monitoring
technology in which the plaintiffs allege, among other things, patent
infringement, misappropriation of trade secrets, breach of contract, breach of
fiduciary duty, breach of confidential relations, breach of trust, unfair
competition and conversion. The Company and Mr. Aronowitz have answered the
complaint and have filed counterclaims against the plaintiffs for declaratory
judgment that the patent-in-suit is invalid; patent misuse; patent prosecution
fraud; trade libel; slander of title; commercial disparagement; unfair
competition under the Lanham Act; tortious interference with a contract or
advantageous business relationship; and for injunctive relief. In December 1999,
the discovery phase of this lawsuit ended and the court is presently proceeding
with various pending motions. A trial date has not been set.
Shareholder Class Action. During November 1998 through January 1999,
several lawsuits were filed in the United States District Court for the Southern
District of Florida - Case No. 98-7334-CIV-DAVIS - against the Company and its
Chairman on behalf of various shareholders of TCPI alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5
promulgated thereunder. In general, plaintiffs allege that defendants made
untrue and misleading statements in the Company's public disclosure documents
and in certain press releases, articles and reports. The disclosures relate
primarily to the development, clinical testing and viability of the Company's TD
Glucose Monitoring System. The plaintiffs are seeking certification as a class
and an unspecified amount of damages, interest, costs and attorneys' fees. The
Company believes the allegations lack merit and plans to contest the allegations
vigorously. On April 19, 1999, an Amended Consolidated Class Action Complaint
was served upon the Company. In response, on June 18, 1999, the Company filed a
motion to dismiss the Amended Consolidated Class Action Complaint. Plaintiff's
response to this motion, as well as defendant's reply, have been served, but the
court has not yet ruled. Discovery has been stayed pending resolution of the
motion to dismiss. At this time, it is not possible to estimate the ultimate
loss, if any, related to these claims and therefore no accrual for loss has been
recorded as of March 31, 2000.
8
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. LEGAL PROCEEDINGS (Continued)
The Company maintains Directors and Officer's Liability Insurance;
however, there can be no assurance that such insurance coverage will be adequate
to fund the costs of a settlement, an award, if any, or attorneys' fees. The
Company's Articles of Incorporation provide for indemnification, to the fullest
extent permitted by law, of any person made party to an action by reason of the
fact that such person is an officer or director of the Company.
Lanham Act. On July 1, 1999, the Company and Mr. Aronowitz, seeking
damages and injunctive relief, filed suit against Joseph P. D'Angelo, Americare
Health Scan, Inc., Americare Biologicals, Inc., Medex, Inc., Teratech Corp.
d/b/a HIV Cybermall, Confidential Home Testing, The Creative Connection, Inc.,
Debra Lapierre and Stanley A. Lapides, in the United States District Court for
the Southern District of Florida - Case No. 99-1862-CIV-JORDAN. The suit alleges
violations of the Lanham Act, libel/defamation per-se, misappropriation of trade
secrets and confidential information, cancellation of the Federal trademark
"ANA-SAL," violations of the Florida Deceptive and Unfair Trade Practices Act,
and common law unfair competition. Certain defendants filed a motion to dismiss,
and on December 15, 1999, the court dismissed the count relating to unfair and
deceptive trade practices and unfair competition and struck certain allegations,
but found that the remaining counts stated causes of action. On January 4, 2000,
the Company and Mr. Aronowitz filed a Second Amended Complaint which omitted the
count dismissed by the court and the allegations that the court struck. The
Defendants Joseph P. D'Angelo, Americare Health Scan, Inc., and Americare
Biologicals, Inc. have alleged counterclaims of malicious prosecution and abuse
of process. The Company and Mr. Aronowitz filed a motion to dismiss these
counterclaims, and these defendants have since withdrawn those counterclaims. A
default has been entered against Medex, Inc., and the Defendants The Creative
Connection, Inc., and Debra Lapierre, have made a motion for a summary judgment.
This case is currently in the discovery phase which is scheduled to close on
June 30, 2000. A trial date is set for April of 2001.
Home Diagnostics Litigation. In November 1993, the Company and Jack L.
Aronowitz filed suit against Home Diagnostics, Inc. ("HDI"), for patent
infringement, among other claims, in the United States District Court for the
Southern District of Florida - Case No. 93-CIV-6999-DAVIS. The patents-in-suit
are U.S. Patent Nos. 4,744,192 (the "'192 Patent") and 4,877,580 (the "'580
Patent").
On September 3, 1996, the court entered judgment against the Company
and Mr. Aronowitz after a bench trial that was held in September 1995. On April
9, 1998, the U.S. Court of Appeals for the Federal Circuit affirmed in part and
reversed in part the lower court's decision and remanded the case to the
district court for further proceedings, including for a determination whether
Mr. Aronowitz owned the patents-in-suit at the time the action was commenced and
whether HDI infringed the `192 Patent. The appellate court found infringement of
the `580 Patent and remanded to the district court for a determination whether
the `580 Patent was within the scope of certain licensing agreements between
TechniMed Corporation, a prior assignee of the patents-in-suit, and HDI.
On remand, the district court denied a request by the Company and Mr.
Aronowitz to reopen the trial record and directed the parties to submit, based
on the existing record, proposed findings of fact and conclusions of law on the
issues that were remanded. Proposed findings of fact and conclusions of law have
been submitted, and on March 20, 2000, the court heard argument by the parties'
counsel on certain issues on remand. On May 1, 2000, the court issued certain
findings of fact and conclusions of law, finding that (i) Mr. Aronowitz owned
the patents-in-suit at the time the suit was commenced, and (ii) HDI did not
infringe the `192 patent. The Company is awaiting a ruling on the remaining
issues on remand, in particular, those relating to the `580 patent.
Defamation Action. On June 16, 1999, the Company and Jack L. Aronowitz
were sued by Joseph P. D'Angelo and related companies in the Circuit Court of
the 17th Judicial Circuit in and for Broward County, Florida - Case No.
99-010726-CACE-18 - alleging libel per quod, libel per se, slander, and false
light. The Company filed a motion for summary judgment, which the court granted
in part, dismissing Counts I and II for libel against the Company and Mr.
Aronowitz. Discovery in this matter is continuing, and no trial date has been
set yet.
9
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. LEGAL PROCEEDINGS (Continued)
Arbitration. On August 27, 1999, the U.S. District Court for the
Northen District of California - Case No. C-97-00525CAL - confirmed an
arbitration award against the Company in favor of Hooper & Associates, Inc. for
$197,807. Gary Hooper was the president and chief operating officer of Pharma
Patch, PLC. The Company acquired certain assets of Pharma Patch, PLC in November
1995. The arbitration award found that Mr. Hooper was entitled to that amount
pursuant to an employment agreement between Mr. Hooper and Pharma Patch, PLC. At
this time, a bond has been posted in this matter to stay enforcement of the
judgment which Hooper & Associates is seeking to enforce in Florida (Technical
Chemicals and Products, Inc. v. Hooper & Associates, Broward County Circuit
Court - Case No. 019847.) As a result, enforcement of the arbitration award has
been stayed by a Florida court. On May 11, 2000, the court heard arguments on
the continuation of the stay enforcement. The court has ordered limited
discovery and a continuation of the stay until at least June 10, 2000.
Separately, the Company is pursuing certain claims against Mr. Hooper related to
other matters. At this time, it is not possible to estimate the ultimate loss,
if any, related to the resolution of these matters and therefore no accrual for
loss has been recorded as of March 31, 2000.
Judgment In Hazardous Waste Lawsuit. On January 31, 2000, the United
States District Court for the Southern District of Florida - Case No.
98-6201-CIV - entered a judgment against the Company and its President, Jack L.
Aronowitz, in connection with a lawsuit brought by the United States of America
on behalf of the Environment Protection Agency under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, relating to the
clean-up of a facility that during 1985 through 1992 contained alleged hazardous
substances. The Company occupied this facility during part of 1992. The judgment
holds the defendants, jointly and severally, liable for $401,177, representing
their share of site clean-up costs, plus post-judgment interest as allowed by
law. On April 24, 2000, the parties reached a tentative settlement in the amount
of $650,000 payable over an 21-month period with approximately $110,000 payable
on June 1, 2000 and quarterly payments made thereafter on the balance plus
interest at the rate of 5.3% per year. The Company expects the United States
will enter into a formal agreement memorializing this settlement, however, there
can be no assurance that the United States will enter into such an agreement.
The Company's Articles of Incorporation provide for indemnification, to the
fullest extent permitted by law, of any person made party to an action by reason
of the fact that such person is an officer or director of the Company.
The Company has not yet determined whether to pursue an appeal of the
court's ruling, but has filed a notice of appeal on or about March 31, 2000 to
protect its right to pursue such an appeal. If the Company were to appeal the
court's ruling, the Company may be required to post an appeal bond in order to
stay execution of the judgment. There can be no assurances that an appeal, if
taken, would be successful, or the posting of an appeal bond or enforcement of
the judgment would not have a material adverse impact on the Company's liquidity
and capital resources. Management believes that payment of this judgment and
related expenses is probable and has estimated that the ultimate loss related to
the resolution of this matter will be approximately $650,000 and, accordingly,
has recorded an accrual for loss equal to this amount as of March 31, 2000.
6. SUBSEQUENT EVENTS
On May 8, 2000, the Company announced that it entered into a
subscription agreement with Swartz Private Equity, LLC of Roswell, Georgia for
the purchase of up to a $25 million in common stock under a private equity line.
The equity line provides the Company the ability to issue Swartz common stock
and warrants periodically in amounts up to $2 million per draw, subject to prior
effectiveness of a registration statement and subject to certain market
conditions. Pricing for each common stock sale is based on current market prices
at the time of each draw of the equity line. The term of this investment
agreement is for a 36-month period from the time of effective registration with
the Securities and Exchange Commission. The new capital will be used for working
capital, strategic alliances (including joint ventures, acquisitions and
mergers), plant, equipment and machinery, including capital expenditures, and
general corporate purposes.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY BACKGROUND
Technical Chemicals and Products, Inc. (the "Company" or "TCPI")
manufactures point-of-care medical diagnostic products for use at home, in
physician offices, and other healthcare locations and markets them worldwide
through multiple distribution channels under its own HealthCheck(R) brand as
well as OEM (original equipment manufacture) and private label programs.
TCPI's key diagnostic products on the market and in development include
its HealthCheck(R) brand of at home testing and screening products, noninvasive
TD Glucose(TM) Monitoring System for diabetics to monitor glucose levels,
HealthCheck Total and HDL Cholesterol Home Screening Tests, professional use
TriMeter(TM) system for analytical monitoring of Total and HDL Cholesterol and
blood glucose from a finger-stick, Drug of Abuse screening tests available in
TCPI's branded ScanGuard(TM) and private label One-Step slide, strip or
multi-test cassette formats, and over-the counter and professional pregnancy and
fertility family planning products in multiple formats - including TCPI's
accurate and easy to use One Step-One Minute Pregnancy TestTM.
Many of TCPI's diagnostic products incorporate its patented and
proprietary membrane-based technology platform. The Company also owns a
patent-protected and proprietary portfolio of transdermal and dermal drug
delivery technologies and skin permeation enhancers. TCPI presently holds 26
U.S. and foreign patents, and has 61 domestic and foreign patent applications
pending.
FORWARD LOOKING STATEMENTS
Information in this Form 10-Q, including any information incorporated
by reference herein, includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, and is subject to the safe-harbor created by
such sections. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements.
Statements regarding development and FDA clearance of future products,
future prospects, business plans and strategies, future revenues and revenue
sources, the resolution of pending litigation, future liquidity and capital
resources, health care market directions, future acceptance of the Company's
products, possible recommendations of health care professionals or governmental
agencies regarding use of diagnostic products, possible growth in markets for
at-home diagnostic testing, the possibility and timing of additional equity
investments, mergers, acquisitions or other strategic transactions, as well as
other statements contained in this report that address activities, events or
developments that the Company expects, believes or anticipates will or may occur
in the future, and similar statements are forward-looking statements. These
statements are based upon assumptions and analyses made by the Company in light
of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, risks and
uncertainties. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results might differ materially
from those suggested or projected in the forward-looking statements. Factors
that may cause actual future events to differ significantly from those predicted
or assumed include, but are not limited to: the satisfactory completion of
clinical trials demonstrating efficacy of the TD GlucoseTM Monitoring System;
FDA and foreign regulatory clearance of the TD Glucose Monitoring System; delays
in product development; risks associated with the Company's ability to
successfully develop and market new products on a profitable basis or at all;
availability of labor and sufficient parts and materials to complete the design,
construction and manufacturing scale-up of required equipment; ability to
complete the design, construction and manufacturing scale-up on a timely basis
within budget parameters; receipt of any required regulatory approvals for
manufacturing equipment or related facilities; future advances in technologies
and medicine; the uncertainties of health care reform; risks related to the
early stage of the Company's existence and its products' development; the
Company's ability to execute its business plans; engineering development; lead
time for delivery of equipment; the Company's dependence on outside parties such
as its key customers, suppliers, licensing and alliance
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
FORWARD LOOKING STATEMENTS (Continued)
partners; competition from major pharmaceutical, medical and diagnostic
companies; risks and expense of government regulation and effects of changes in
regulation (including risks associated with obtaining requisite FDA and other
governmental approvals for the Company's products); the limited experience of
the Company in manufacturing and marketing products; uncertainties connected
with product liability exposure and insurance; risks associated with domestic
and international growth and expansion; risks associated with international
operations (including risk associated with international economies, currencies
and business conditions); risks associated with obtaining and maintaining
patents and other protections of intellectual property; risks associated with
uncertainty of litigation and appeals, and the payment of judgments not reversed
on appeal or otherwise; the Company's limited cash reserves and sources of
liquidity; uncertqinty regardiang timing and effectiveness of registration
statements; uncertainties in availability of expansion capital in the future and
other risks associated with capital markets, including funding of ongoing
operations, risks associated with the Company's ability to negotiate and obtain
additional financing, equity investments or strategic transactions on favorable
terms or at all, as well as those listed in the Company's other press releases
and in its other filings with the Securities and Exchange Commission. The
Company may determine to discontinue or delay the development of any or all of
its products under development at any time. Moreover, the Company may not be
able to successfully develop and market new products, enter into strategic
alliances or implement any or all of its operating strategy unless it is able to
generate additional liquidity and working capital.
For a complete description of the Company's business, products and
liquidity, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
The Company's operations during the first quarter of 2000 continued to
reflect the incurrence of significant losses connected with the ongoing research
and development activities, and marketing associated with worldwide distribution
of our existing and future products. The impact of these losses upon the
Company's liquidity and financial resources are more fully discussed below.
Net Sales. The Company's net sales for the first quarter of 2000 were
approximately $1.2 million as compared to approximately $1.4 million reported in
the first quarter a year earlier. Sales of the Company's HealthCheck(R) home
diagnostic products during the first quarter of 2000 increased by more than 38%
due to the ongoing penetration of the retail pharmacy marketplace and also
online sales which began during January 2000. Sales of the Company's specialty
chemicals and biological buffers also increased substantially over the
comparable quarter a year ago. These gains were more than offset by a
significant decrease in sales of TCPI's worldwide OEM (original equipment
manufacture), domestic private label family planning pregnancy and fertility
tests, and sales of drug of abuse screening tests as compared to the first
quarter of 1999. Tighter inventory management by the Company's international
distributor occurred during the first quarter of 2000 and resulted in reduced
shipments as compared to the prior year quarter. In the U.S., the year-to-year
quarterly decline in private label sales reflected a significant initial
stocking order for a major new customer that occurred during the first quarter
of 1999 as compared to ongoing sales to that customer in the first quarter of
2000.
Gross Profit. The Company's gross profit from net sales for the first
three months of 2000 was $478,000 as compared to $572,000 in the same period of
1999. Gross profit, expressed as a percent of net sales, for the first quarter
of 2000 and 1999 was relatively unchanged at 40.3% and 41.3%, respectively. The
decline in gross profit corresponded to the reduction in net sales for the first
quarter of 2000.
Operating Expenses. The Company's total operating expenses for the
first quarter of 2000 decreased by 8.1% to approximately $3.1 million from
approximately $3.3 million in the prior year. The mix of selling, general and
administrative; litigation; and research and development expenses are as
follows:
Selling, General and Administrative. Selling, general and
administrative (SG&A) expenses declined by 15.5% to approximately $1.6 million
in the first quarter of 2000 from SG&A expenses of approximately $1.9 million
incurred during the first quarter of 1999. This decrease was accomplished
through ongoing cost containment programs.
Litigation. Litigation expenses for the first quarter of 2000 were
$722,000 as compared to $405,000 incurred in the same quarter a year earlier.
This increase reflected higher comparable expenses incurred during the current
year quarter related to the ongoing defense of certain legal matters as well as
an additional approximately $150,000 to recognize the settlement of certain
litigation.
Research and Development. During the first quarter of 2000, the
Company's R&D efforts continued to focus primarily on the ongoing development of
the Company's TD Glucose monitoring technology as well as its development of
cholesterol testing products. In addition, the first quarter of the current year
did not contain any R&D expenses related to transdermal drug delivery
technologies. These activities were suspended in mid-1999 with the closing of
the California facility. The result was a reduction of quarterly R&D expenses to
$290,000 from $549,000 in the prior year.
Net Loss. The Company's net loss for the first quarter ended March 31,
2000 was relatively unchanged at approximately $2.5 million from a comparable
net loss in the same quarter a year earlier. The Company's net loss attributable
to common stockholders declined to approximately $2.6 million in the first
quarter of 2000 from a net loss attributable to common stockholders of
approximately $2.9 million in the first quarter of 1999. This
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improvement was due to a significant reduction in the accrued dividend and
accretion to redemption value related to the 1998 issuance of convertible
preferred stock in which $97,000 was recognized in the first quarter of 2000 as
compared to $339,000 in the
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (Continued)
first quarter of 1999. While the accretion was completed as of December 31,
1999, dividends on outstanding preferred stock continue to accrue. Additionally,
the Company's net loss per share, basic and diluted, for the first quarter of
2000 was reduced to $.11 per share as compared to a net loss per share, basic
and diluted, of $.28 per share for the first quarter of 1999 due primarily to an
increase in the average number of common shares outstanding.
FINANCIAL CONDITION
The Company had cash and investments of approximately $2.4 million at
March 31, 2000 as compared to approximately $4.0 million at December 31, 1999.
Working capital at March 31, 2000 was approximately $4.0 million as compared to
approximately $6.0 million at December 31, 1999. The Company had current assets
of approximately $6.4 million and stockholders' equity of approximately $18.1
million at March 31, 2000. This compares to current assets of approximately $8.4
million and stockholders' equity of approximately $20.4 million at December 31,
1999. These decreases in working capital and current assets were due primarily
to the Company's use of cash to fund its operations.
The Company expects to continue to draw upon its working capital and
plans to utilize such funds to purchase production equipment, complete clinical
trials and regulatory submissions relating to the TD Glucose Monitoring System
and Total and HDL cholesterol monitoring products, develop new diagnostic
products, conduct clinical trials, continue its investment in marketing and
facility expansion, and continue its day-to-day business.
On May 8, 2000, the Company announced that it entered into a
subscription agreement with Swartz Private Equity, LLC of Roswell, Georgia for
the purchase of up to a $25 million in common stock under a private equity line.
The equity line provides the Company the ability to issue Swartz common stock
and warrants periodically in amounts up to $2 million per draw, subject to prior
effectiveness of a registration statement and subject to certain market
conditions. Pricing for each common stock sale is based on current market prices
at the time of each draw of the equity line. The term of this investment
agreement is for a 36-month period from the time of effective registration with
the Securities and Exchange Commission. The new capital will be used for working
capital, strategic alliances (including joint ventures, acquisitions and
mergers), plant, equipment and machinery, including capital expenditures, and
general corporate purposes. The Company has not yet sold any stock pursuant to
this agreement, and due to conditions contained in the agreement, there can be
no assurance that the Company will be able to sell stock in sufficient amounts
or at all, to satisfy its financial needs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $1.7 million in
the first quarter of 2000 as compared to approximately $1.4 million in the same
quarter a year earlier. This difference is due to a greater net loss as compared
to the year ago period as well as a shift in comparable prior year period
operating assets and liabilities that reflected higher accounts payable and
accrued expenses of $262,000 as compared to $133,000 in the prior year quarter
and also a change in other assets and liabilities in the current year quarter of
$139,000 as compared to none recognized a year earlier.
No significant net cash amounts were provided by financing activities
in the first quarter of 2000 or the first quarter of 1999.
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During 1999 and 2000, the Company has sustained significant operating
losses that have resulted in substantial consumption of its cash reserves. The
Company believes it will continue to incur net losses and have negative cash
flow in the immediate future. Based on the current rate of losses and cash flow,
the Company plans to reduce its operating losses, contain expenses, increase
sales of its products, or sell certain assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
While the Company has entered into an agreement with Swartz Private
Equity, LLC for the purchase of up to $25 million in common stock under a
private equity line, this transaction is subject to certain terms and market
conditions, including effective registration with the Securities and Exchange
Commission. If the Company is unable to successfully obtain funds under this
agreement due to unfavorable market conditions or the Company's inability to
achieve effective registration on a timely basis or at all, or otherwise obtain
additional capital from other sources on satisfactory terms, or significantly
reduce its operating losses, the Company would have to consider selling some or
all of its technologies, reduce or terminate completely its research and
development activities, or reduce or discontinue some or all of its operations,
or lastly, apply for protection from its creditors under the federal bankruptcy
laws.
In addition, as described elsewhere in this Form 10-Q under "Legal
Proceedings," the Company has pending judgments in various legal proceedings,
some of which are currently secured by bonds collateralized by existing working
capital. If TCPI was required to satisfy all or a significant portion of these
judgments on a basis faster than presently anticipated, the Company's present
liquidity condition would be further negatively impacted.
The Company's future working capital and capital expenditure
requirements may vary materially from those now planned depending on numerous
factors, including additional manufacturing scale-up costs for the Company's
current and future products, possible future acquisitions, the focus and
direction of the Company's research and development programs, competitive and
technological advances, future strategic alliances and relationships with
marketing partners, the FDA regulatory process, the regulatory process in
foreign countries, and the Company's marketing and distribution strategy. If the
Company's growth exceeds its plans, additional working capital may be needed.
The Company's long-term ability to meet its liquidity requirements and
to continue operations will depend on (i) its ability to raise additional
capital, (ii) the successful completion of clinical trials and receipt of
governmental approvals to begin manufacturing and selling its new products, and
(iii) the ability of the Company to sell its new products at a profit. The
Company's future working capital requirements may vary materially from those now
planned depending on numerous factors, including:
(1) the outcome of clinical testing of products under development
(including the TD Glucose Monitoring System and the Total and
HDL cholesterol monitoring products), delays or changes in
government required testing and clearance or approval
procedures and the Company's ability to receive FDA clearance
or approval for the marketing of its products under
development;
(2) competitive and technological advances that may require the
Company to modify the design of its products under
development;
(3) the Company's ability to successfully resolve pending
litigation; and
(4) manufacturing costs for the Company's current and future
products.
In 1998, the Company issued 15,000 shares of its Series A Convertible
Preferred Stock (the "Preferred Stock"). The Preferred Stock is convertible into
the Company's common stock at an exchange ratio based on the market price of the
Company's Common Stock. To date, the holder of the Preferred Stock converted
12,300 shares of Preferred Stock into 19,435,490 shares of Common Stock, and
presently has 2,700 shares of its Preferred Stock outstanding. Based upon the
terms of the Preferred Stock, as of May 9, 2000 the outstanding shares of
Preferred Stock would be convertible into 2,879,000 shares of Common Stock. For
additional information related to this Preferred
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Stock transaction, see the Company's Annual Reports on Form 10-K for the years
ended December 31, 1999 and 1998, respectively, and the Company's Report on Form
8-K filed on May 21, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
At March 31, 2000, the Company had only cash equivalents and high
grade, short-term securities, which are not typically subject to material market
risk. The Company has no outstanding loans. A hypothetical 10% change in
interest rates would have an immaterial impact on the fair value of these
instruments.
YEAR 2000
The term "Year 2000 issue" is a general term used to describe the
various problems that may have resulted from the improper processing of dates
and date-sensitive calculations by computers and other machinery as the year
2000 was reached. These problems generally arise from the fact that most of the
world's computer hardware and software has historically used only two digits to
identify the year in a date, often meaning that the computer will fail to
distinguish dates in the "2000s" from dates in the "1900s". These problems may
also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
The Company, its division and operating subsidiaries, implemented a
Year 2000 readiness program with the objective of having all significant
business systems function properly with respect to the Year 2000 issue before
January 1, 2000. Since 1997, the Company has added to its existing computer
capabilities as well as installed new computer systems and programs to
accommodate anticipated future growth of TCPI's business and internal
operations. Costs related to the Company's actions to become Year 2000 compliant
were funded through cash from operating activities. The total estimated costs
related to Year 2000 compliance efforts were approximately $60,000, of which
$55,000 was expensed and $5,000 capitalized.
The Company did not experience any Year 2000 computer related
difficulties. However, due to the general uncertainty with respect to the Year
2000 issue, there can be no assurance that all Year 2000 issues have been
foreseen and corrected, or that no future material disruption of the Company's
business will occur directly or indirectly as it relates to the Year 2000
compliance status of the Company's key vendors and customers or a general
failure of external local, national or international systems (including power,
communications, postal or transportation systems) necessary for the ordinary
conduct of business.
While the Company has developed a contingency plan that would allow for
the supply of materials and services from alternate key vendors as well as
inventory of necessary materials sufficient in the event a disruption occurs as
a result of the Year 2000 issue, these contingency plans are subject to
uncertainties.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to claims and suits arising in the ordinary
course of business. At this time, it is not possible to estimate the final
outcome of these legal matters or the ultimate loss or gain except as otherwise
stated, if any, related to these lawsuits, or if any such loss will have a
material adverse effect on the Company's results of operations or financial
position, except as otherwise stated.
HIV Saliva Collector Technology. A lawsuit was brought against the
Company in 1995 in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida (Joseph D'Angelo, Americare Transtech, Inc., Americare
Biologicals, Inc. and International Medical Associates, Inc. v. Technical
Chemicals & Products, Inc., Jack Aronowitz, Henry Schur, Analyte Diagnostics,
Inc., John Faro and Nicholas Levandoski) - Case No. CACE 95-011256 - related to
saliva collector technology for an HIV diagnostic test.
On December 30, 1998, a jury returned a verdict in this lawsuit finding
that TCPI did not misappropriate the plaintiffs' trade secrets, but found that
Mr. Aronowitz had intentionally misappropriated such trade secrets and assessed
damages of $500,000 against him, individually. Additionally, the jury found that
both the Company and Mr. Aronowitz intentionally interfered with the plaintiffs'
business relationships and assessed approximately $328,000 in damages against
TCPI in connection with this second claim, but awarded no damages against Mr.
Aronowitz, individually, in connection with that claim. Separately, the jury
assessed more than $4.1 million in damages against other unrelated corporate and
individual defendants.
On January 29, 1999, TCPI and Mr. Aronowitz filed their appeal to the
Florida Fourth District Court of Appeal in West Palm Beach, Florida - Case No. 4
DCA 99-00423. On March 29, 2000, the court issued its opinion reversing the
judgment against Mr. Aronowitz for misappropriation of trade secrets. However,
the appellate court affirmed the judgment against TCPI for tortious interference
with a business relationship. The court's decision is not final until the
disposition of any timely filed motion for rehearing, which the Company has
filed as to the tortious interference claim against the Company. The Company
also plans to vigorously pursue any other available proceedings to have the
judgment relating to the tortious interference matter reversed or set aside.
TCPI has previously obtained appeal bonds staying enforcement of the
judgment against the Company and Mr. Aronowitz. Until such time as the appellate
court's decision is final, the Company will maintain the appeal bonds. If the
appellate court does not reverse its finding as to Mr. Aronowitz on
reconsideration or rehearing, the bond relating to the claims against Mr.
Aronowitz will no longer be required. Further, the Company believes that a bond
may be required to stay enforcement of the tortious interference judgment if the
Company seeks to set it aside. There can be no assurance that the appellate
court will not reverse its decision as to Mr. Aronowitz on reconsideration or
rehearing, that the Company will be successful in reversing or setting aside the
judgment as to the Company, or that the Company will be able to obtain any
necessary bond or otherwise to stay enforcement of the judgment against the
Company.
The liability, if any, that may result from this matter and efforts to
set the judgment aside cannot be reasonably estimated at this time and therefore
no accrual for loss has been recorded in the financial statements as of March
31, 2000.
Noninvasive Glucose Monitoring Technology. In November 1997, a lawsuit
was brought against the Company and Mr. Aronowitz in the United States District
Court for the Southern District of Florida, styled Americare Diagnostics, Inc.,
Joseph P. D'Angelo, et al. v. Technical Chemicals and Products, Inc., et al. -
Case No. 97-3654-CIV-JORDAN - relating to noninvasive glucose monitoring
technology in which the plaintiffs allege, among other things, patent
infringement, misappropriation of trade secrets, breach of contract, breach of
fiduciary duty, breach of confidential relations, breach of trust, unfair
competition and conversion. The Company and Mr. Aronowitz have answered the
complaint and have filed counterclaims against the plaintiffs for declaratory
judgment that the patent-in-
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PART II OTHER INFORMATION (Continued)
ITEM 1. LEGAL PROCEEDINGS (Continued)
suit is invalid; patent misuse; patent prosecution fraud; trade libel; slander
of title; commercial disparagement; unfair competition under the Lanham Act;
tortious interference with a contract or advantageous business relationship; and
for injunctive relief. In December 1999, the discovery phase of this lawsuit
ended and the court is presently proceeding with various pending motions. A
trial date has not been set.
Shareholder Class Action. During November 1998 through January 1999,
several lawsuits were filed in the United States District Court for the Southern
District of Florida - Case No. 98-7334-CIV-DAVIS - against the Company and its
Chairman on behalf of various shareholders of TCPI alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5
promulgated thereunder. In general, plaintiffs allege that defendants made
untrue and misleading statements in the Company's public disclosure documents
and in certain press releases, articles and reports. The disclosures relate
primarily to the development, clinical testing and viability of the Company's TD
Glucose Monitoring System. The plaintiffs are seeking certification as a class
and an unspecified amount of damages, interest, costs and attorneys' fees. The
Company believes the allegations lack merit and plans to contest the allegations
vigorously. On April 19, 1999, an Amended Consolidated Class Action Complaint
was served upon the Company. In response, on June 18, 1999, the Company filed a
motion to dismiss the Amended Consolidated Class Action Complaint. Plaintiff's
response to this motion, as well as defendant's reply, have been served, but the
court has not yet ruled. Discovery has been stayed pending resolution of the
motion to dismiss. At this time, it is not possible to estimate the ultimate
loss, if any, related to these claims and therefore no accrual for loss has been
recorded as of March 31, 2000.
The Company maintains Directors and Officer's Liability Insurance;
however, there can be no assurance that such insurance coverage will be adequate
to fund the costs of a settlement, an award, if any, or attorneys' fees. The
Company's Articles of Incorporation provide for indemnification, to the fullest
extent permitted by law, of any person made party to an action by reason of the
fact that such person is an officer or director of the Company.
Lanham Act. On July 1, 1999, the Company and Mr. Aronowitz, seeking
damages and injunctive relief, filed suit against Joseph P. D'Angelo, Americare
Health Scan, Inc., Americare Biologicals, Inc., Medex, Inc., Teratech Corp.
d/b/a HIV Cybermall, Confidential Home Testing, The Creative Connection, Inc.,
Debra Lapierre and Stanley A. Lapides, in the United States District Court for
the Southern District of Florida - Case No. 99-1862-CIV-JORDAN. The suit alleges
violations of the Lanham Act, libel/defamation per-se, misappropriation of trade
secrets and confidential information, cancellation of the Federal trademark
"ANA-SAL," violations of the Florida Deceptive and Unfair Trade Practices Act,
and common law unfair competition. Certain defendants filed a motion to dismiss,
and on December 15, 1999, the court dismissed the count relating to unfair and
deceptive trade practices and unfair competition and struck certain allegations,
but found that the remaining counts stated causes of action. On January 4, 2000,
the Company and Mr. Aronowitz filed a Second Amended Complaint which omitted the
count dismissed by the court and the allegations that the court struck. The
Defendants Joseph P. D'Angelo, Americare Health Scan, Inc., and Americare
Biologicals, Inc. have alleged counterclaims of malicious prosecution and abuse
of process. The Company and Mr. Aronowitz filed a motion to dismiss these
counterclaims, and these defendants have since withdrawn those counterclaims. A
default has been entered against Medex, Inc., and the Defendants The Creative
Connection, Inc., and Debra Lapierre, have made a motion for a summary judgment.
This case is currently in the discovery phase which is scheduled to close on
June 30, 2000. A trial date is set for April of 2001.
Home Diagnostics Litigation. In November 1993, the Company and Jack L.
Aronowitz filed suit against Home Diagnostics, Inc. ("HDI"), for patent
infringement, among other claims, in the United States District Court for the
Southern District of Florida - Case No. 93-CIV-6999-DAVIS. The patents-in-suit
are U.S. Patent Nos. 4,744,192 (the "'192 Patent") and 4,877,580 (the "'580
Patent").
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PART II OTHER INFORMATION (Continued)
ITEM 1. LEGAL PROCEEDINGS (Continued)
On September 3, 1996, the court entered judgment against the Company
and Mr. Aronowitz after a bench trial that was held in September 1995. On April
9, 1998, the U.S. Court of Appeals for the Federal Circuit affirmed in part and
reversed in part the lower court's decision and remanded the case to the
district court for further proceedings, including for a determination whether
Mr. Aronowitz owned the patents-in-suit at the time the action was commenced and
whether HDI infringed the `192 Patent. The appellate court found infringement of
the `580 Patent and remanded to the district court for a determination whether
the `580 Patent was within the scope of certain licensing agreements between
TechniMed Corporation, a prior assignee of the patents-in-suit, and HDI.
On remand, the district court denied a request by the Company and Mr.
Aronowitz to reopen the trial record and directed the parties to submit, based
on the existing record, proposed findings of fact and conclusions of law on the
issues that were remanded. Proposed findings of fact and conclusions of law have
been submitted, and on March 20, 2000, the court heard argument by the parties'
counsel on certain issues on remand. On May 1, 2000, the court issued certain
findings of fact and conclusions of law, finding that (i) Mr. Aronowitz owned
the patents-in-suit at the time the suit was commenced, and (ii) HDI did not
infringe the `192 patent. The Company is awaiting a ruling on the remaining
issues on remand, in particular, those relating to the `580 patent.
Defamation Action. On June 16, 1999, the Company and Jack L. Aronowitz
were sued by Joseph P. D'Angelo and related companies in the Circuit Court of
the 17th Judicial Circuit in and for Broward County, Florida - Case No.
99-010726-CACE-18 - alleging libel per quod, libel per se, slander, and false
light. The Company filed a motion for summary judgment, which the court granted
in part, dismissing Counts I and II for libel against the Company and Mr.
Aronowitz. Discovery in this matter is continuing, and no trial date has been
set yet.
Arbitration. On August 27, 1999, the U.S. District Court for the
Northen District of California - Case No. C-97-00525CAL - confirmed an
arbitration award against the Company in favor of Hooper & Associates, Inc. for
$197,807. Gary Hooper was the president and chief operating officer of Pharma
Patch, PLC. The Company acquired certain assets of Pharma Patch, PLC in November
1995. The arbitration award found that Mr. Hooper was entitled to that amount
pursuant to an employment agreement between Mr. Hooper and Pharma Patch, PLC. At
this time, a bond has been posted in this matter to stay enforcement of the
judgment which Hooper & Associates is seeking to enforce in Florida (Technical
Chemicals and Products, Inc. v. Hooper & Associates, Broward County Circuit
Court - Case No. 019847.) As a result, enforcement of the arbitration award has
been stayed by a Florida court. On May 11, 2000, the court heard arguments on
the continuation of the stay enforcement. The court has ordered limited
discovery and a continuation of the stay until at least June 10, 2000.
Separately, the Company is pursuing certain claims against Mr. Hooper related to
other matters. At this time, it is not possible to estimate the ultimate loss,
if any, related to the resolution of these matters and therefore no accrual for
loss has been recorded as of March 31, 2000.
Judgment In Hazardous Waste Lawsuit. On January 31, 2000, the United
States District Court for the Southern District of Florida - Case No.
98-6201-CIV - entered a judgment against the Company and its President, Jack L.
Aronowitz, in connection with a lawsuit brought by the United States of America
on behalf of the Environment Protection Agency under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, relating to the
clean-up of a facility that during 1985 through 1992 contained alleged hazardous
substances. The Company occupied this facility during part of 1992. The judgment
holds the defendants, jointly and severally, liable for $401,177, representing
their share of site clean-up costs, plus post-judgment interest as allowed by
law. On April 24, 2000, the parties reached a tentative settlement in the amount
of $650,000 payable over an 21-month period with approximately $110,000 payable
on June 1, 2000 and quarterly payments made thereafter on the balance plus
interest at the rate of 5.3% per year. The Company expects the United States
will enter into a formal agreement memorializing this settlement, however, there
can be no assurance that the United States will enter into such an
19
<PAGE>
agreement. The Company's Articles of Incorporation provide for indemnification,
to the fullest extent permitted by law, of any person made party to an action by
reason of the fact that such person is an officer or director of the Company.
PART II OTHER INFORMATION (Continued)
ITEM 1. LEGAL PROCEEDINGS (Continued)
The Company has not yet determined whether to pursue an appeal of the
court's ruling, but has filed a notice of appeal on or about March 31, 2000 to
protect its right to pursue such an appeal. If the Company were to appeal the
court's ruling, the Company may be required to post an appeal bond in order to
stay execution of the judgment. There can be no assurances that an appeal, if
taken, would be successful, or the posting of an appeal bond or enforcement of
the judgment would not have a material adverse impact on the Company's liquidity
and capital resources. Management believes that payment of this judgment and
related expenses is probable and has estimated that the ultimate loss related to
the resolution of this matter will be approximately $650,000 and, accordingly,
has recorded an accrual for loss equal to this amount as of March 31, 2000.
ITEM 5. OTHER INFORMATION
Subsequent Events
On May 8, 2000, the Company announced that it entered into a
subscription agreement with Swartz Private Equity, LLC of Roswell, Georgia for
the purchase of up to a $25 million in common stock under a private equity line.
The equity line provides the Company the ability to issue Swartz common stock
and warrants periodically in amounts up to $2 million per draw, subject to prior
effectiveness of a registration statement and subject to certain market
conditions. Pricing for each common stock sale is based on current market prices
at the time of each draw of the equity line. The term of this investment
agreement is for a 36-month period from the time of effective registration with
the Securities and Exchange Commission. The new capital will be used for working
capital, strategic alliances (including joint ventures, acquisitions and
mergers), plant, equipment and machinery, including capital expenditures, and
general corporate purposes.
20
<PAGE>
PART II OTHER INFORMATION (Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Code Exhibit Description
- ------ ---- -------------------
<S> <C> <C>
3.1 E Amended and Restated Articles of Incorporation of the Company.
3.2 E Amended and Restated Bylaws of the Company.
3.3 D Articles of Amendment to the Articles of Incorporation of the Company.
4.1 E See Exhibits 3.3 above for provisions of the Amended and Restated Articles of Incorporation of the
4.2 C Form of Common Stock Certificate of the Company.
4.3 Filed Warrant to purchase Common Stock dated April 19, 2000 (1 of 2) between the Company and Swartz
4.4 Filed Warrant to purchase Common Stock dated April 19, 2000 (2 of 2) between the Company and Swartz
4.5 Filed Warrant between the Company and Swartz Private Equity, LLC.
10.2 E Amended and Restated 1992 Incentive Stock Option Plan.
10.3 E Cancellation and Exclusive License Agreement between Jack Aronowitz and the Company dated January
10.4 E Stock Option Agreement between the Company and Martin Gurkin, Stuart R. Streger, Colin Morris,
10.6 B Lease - Pompano Beach, Florida.
10.6.1 I Business Lease Extension - Pompano Beach, Florida.
10.8 C Warrant Agreement between the Company and Jack L. Aronowitz.
10.8.1 A Amended Employment Agreement dated October 9, 1998 between the Company and Jack L.
10.9 A Employment Agreement dated October 9, 1998 between the Company and Jay E. Eckhaus.
10.14 E Letter Agreement between the Company and Redstone Securities, Inc. dated January 15, 1996.
10.15 F Stock Option Agreement with Martin Gurkin dated November 1996.
10.16 E Letter Agreement with Flora, Inc. dated February 5, 1996.
10.17 G Employment Agreement dated September 10, 1999 between the Company and Elliott Block, Ph.D.
10.18 H Employment Agreement dated November 22, 1999 between the Company and Walter V. Usinowicz, Jr.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Code Exhibit Description
- ------ ---- -------------------
<S> <C> <C>
10.19 H Employment Agreement dated May 27, 1999 between the Company and Robert M. Morrow.
10.20 Filed Investment Agreement dated May 3, 2000 between the Company and Swartz Private
Herewith Equity, LLC.
10.21 Filed Registration of Rights Agreement dated May 3, 2000 between the Company and Swartz
Herewith Private Equity,
A Incorporated by reference to Exhibits 10.2, 10.3 and 10.4 of the Company's Form 10-Q filed on
B Incorporated by reference to the Exhibit of the same number in the Company's Registration Statement
C Incorporated by reference to the Exhibit of the same number in Amendment No. 4 to the Company's
D Incorporated by reference to Exhibit 3.1 of Form 8-K filed on May 21, 1998.
E Incorporated by reference to the Exhibit of the same number in the Company's Registration Statement
F Incorporated by reference to the Exhibit of the same number in Amendment No. 2 to the Company's
G Incorporated by reference to Exhibit 10.17 of the Company's Form 10-Q filed on November 9, 1999.
H Incorporated by reference to Exhibit A of Form 8-K filed on December 15, 1999.
I Incorporated by reference to Exhibit 10.17 of the Company's Form 10-K filed on March 30, 2000.
(b) Reports On Form 8-K
During the quarter ended March 31, 2000, the Company filed one Form
8-K on February 18, 2000.
</TABLE>
22
<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, thereunto duly authorized.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
Date: May 15, 2000 By: /s/ Walter V. Usinowicz, Jr.
---------------------------------
Walter V. Usinowicz, Jr.
Vice President and Chief Financial Officer
(Duly authorized officer and principal
accounting officer)
23
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT AGREEMENT
BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN AS EXHIBIT J.
Warrant to Purchase
"N" shares Warrant Number ____
----
Warrant to Purchase Common Stock
of
Technical Chemicals and Products, Inc.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from Technical Chemicals and
Products, Inc., a Florida corporation (the "Company"), up to "N" fully paid and
nonassessable shares, wherein "N" is defined below, of the Company's common
stock, $0.001 par value per share ("Common Stock"), subject to adjustment as
provided herein, at a price equal to the Exercise Price as defined in Section 3
below, at any time beginning on the Date of Issuance (defined below) and ending
at 5:00 p.m., New York, New York time the date that is five (5) years after the
Date of Issuance (the "Exercise Period"); provided, that, with respect to each
"Put," as that term is defined in that certain Investment Agreement (the
"Investment Agreement") by and between the initial Holder and Company, dated on
or about May 3, 2000, "N" shall equal ten percent (10%) of the number of shares
of Common Stock purchased by the Holder in that Put.
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on _____________, ______
("Date of Issuance"). The term of this Warrant is five (5) years from the Date
of Issuance.
Exhibit D
1
<PAGE>
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: Walter V. Usinowicz, Jr.; 3341 SW 15th Street; Pompano
Beach, FL 33069; Telephone: (954) 979-0400, ext. 237, Facsimile: (954) 979-6125,
or at such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form sent to the Company
and its Transfer Agent by facsimile (such surrender and payment of the Exercise
Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile. The Company shall not be required to deliver the shares of Common
Stock to the Holder until the requirements of Section 2(a) above are satisfied.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price"), shall initially equal $Y per
share ("Initial Exercise Price"), where "Y" shall equal 110% of the Market Price
for the applicable Put (as both are defined in the Investment Agreement) or, if
the Date of Exercise is more than one (1) year after the Date of Issuance, the
lesser of (i) the Initial Exercise Price or (ii) the "Lowest Reset Price," as
that term is defined below. The Company shall calculate a "Reset Price" on each
annual anniversary date of the Date of Issuance which shall equal one hundred
and ten percent (110%) of the average closing bid price of the Common Stock for
the five (5) trading days ending on such annual anniversary date of the Date of
Issuance. The "Lowest Reset Price" shall equal the lowest Reset Price determined
on any six-month anniversary date of the Date of Issuance preceding the Date of
Exercise, taking into account, as appropriate, any adjustments made pursuant to
Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
2
<PAGE>
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Price of the Common Stock for
the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities
Dealers Automated Quotation System ("Nasdaq") Small Cap
Market, or if the Common Stock is not traded on the Nasdaq
Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common
Stock is listed on a stock exchange, the Market Price shall be
the Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the O.T.C. Bulletin Board, the National Market System
("NMS"), the New York Stock Exchange, the Nasdaq Small Cap Market, or if no
longer traded on the O.T.C. Bulletin Board, the NMS, the New York Stock
Exchange, the Nasdaq Small Cap Market, the "Closing Bid Price" shall equal the
closing price on the principal national securities exchange or the
over-the-counter system on which the Common Stock is so traded and, if not
available, the mean of the high and low prices on the principal national
securities exchange on which the Common Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised in a cashless exercise transaction if, on the Date of
Exercise, the shares of Common Stock to be issued upon exercise of this Warrant
would upon such issuance be then registered pursuant to an effective
registration statement filed pursuant to that certain Registration Rights
Agreement dated on or about May 3, 2000 by and among the Company and certain
investors, or otherwise be registered under the Securities Act of 1933, as
amended.
3
<PAGE>
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about May 3, 2000 between the Company
and certain investors and, accordingly, has the benefit of the registration
rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
4
<PAGE>
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the net
effect of increasing the Exercise Price in relation to the split adjusted and
distribution adjusted price of the Common Stock. The number of shares of Common
Stock subject hereto shall increase proportionately with each decrease in the
Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to preemptive rights, rights of first
refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
5
<PAGE>
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
(10) days, and shall deliver to the assignee(s) designated by Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Florida,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the address set
forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be
given or made by the Company to or on Holder
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
shall be sufficiently given or made if sent by certified or registered mail,
return receipt requested, postage prepaid, and addressed, to the address of
Holder set forth in the Company's records, until another address is designated
in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ___________, 200__.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By: ________________________________
Jack Aronowitz, Chairman
7
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: TECHNICAL CHEMICALS AND PRODUCTS, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of Technical
Chemicals and Products, Inc., a Florida corporation (the "Company"), evidenced
by the attached warrant (the "Warrant"), and herewith makes payment of the
exercise price with respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated: _________________
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Print Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of Technical
Chemicals and Products, Inc., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: _________ ______________________________
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of
assignee (including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
9
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
312,500 shares
Warrant to Purchase Common Stock
Of
TECHNICAL CHEMICAL AND PRODUCTS, INC.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof pursuant to Section 8 hereof ("Holder"), has the right to purchase from
TECHNICAL CHEMICALS AND PRODUCTS, INC., a Florida corporation (the "Company"),
up to 312,500 fully paid and nonassessable shares of the Company's common stock,
$.001 par value per share ("Common Stock"), subject to adjustment as provided
herein, at a price equal to the Exercise Price as defined in Section 3 below, at
any time beginning on the Date of Issuance (defined below) and ending at 5:00
p.m., New York, New York time the date that is five (5) years after the Date of
Issuance (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on March 17, 2000 ("Date of
Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
Of this Warrant to purchase three hundred twelve thousand five hundred
(312, 500) shares of Common Stock of the Company, the Warrant is exercisable as
to one hundred twelve thousand five hundred (112,500) shares of Common Stock of
the Company after the ten (10) business day document review period, as the same
may be extended by mutual consent, in writing, of the Company and the Holder
(the "Review Period") referenced in the Equity Line Letter of Agreement dated on
or about March 17, 2000, between Holder and Company (the "Letter of Agreement")
has ended, shall be further exercisable as to the an additional one hundred
twelve thousand (112,500) shares of Common Stock of the Company upon the
execution of all Closing Documents (as defined in the Letter of Agreement) and
shall be further exercisable as to the remaining eighty seven thousand five
hundred (87,500) shares of Common Stock of the Company upon the earlier of (i)
the date of effectiveness of Company's registration statement (the "Registration
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Statement") to be filed pursuant to the Closing Documents, or (ii) September 17,
2000.
Anything in this Warrant to the contrary notwithstanding, if
the Company delivers written notice to Swartz Private Equity, LLC prior to the
expiration of the Review Period that the legal documents and terms and
conditions contained therein for the transaction are unacceptable and the
Company wishes to terminate the transaction, Holder shall return this Warrant to
the Company and all of Holder's rights under this Warrant shall be null and void
and of no effect.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: Walter V. Usinowicz, Jr., VP & CFO; Technical Chemicals
and Products, Inc.; 3341 SW 15th Street, Pompano Beach, FL 33069; Telephone:
(954) 979-0400, x 237; Facsimile: (954) 979-6125, or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form sent to the Company and its Transfer Agent by
facsimile (such surrender and payment of the Exercise Price hereinafter called
the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price per share ("Exercise Price") shall initially equal
(the "Initial Exercise Price") the lowest Closing Bid Price for the five (5)
trading days immediately preceding March 17, 2000, which is $1.9063.
Notwithstanding the above, if the Date of Exercise is more than twelve months
after the Date of Issuance, the Exercise Price shall be reset to equal the
lesser of (i) the Exercise Price then in effect, or (ii) the "Lowest Reset
Price," as that term is defined below. The Company shall calculate a "Reset
Price" on each annual anniversary date of the Date of Issuance which shall equal
one hundred percent (100%) of the lowest Closing Bid Price of the Company's
Common Stock for the five (5) trading days ending on such annual anniversary
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date of the Date of Issuance. The "Lowest Reset Price" shall equal the lowest
Reset Price determined on any six-month anniversary date of the Date of Issuance
preceding the Date of Exercise, taking into account, as appropriate, any
adjustments made pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction under this subsection (ii) if and
only if, on the Date of Exercise, there is not then in effect a current
registration statement that covers the resale of the shares of Common Stock to
be issued upon exercise of this Warrant, provided that the Holder may not
exercise this Warrant in a cashless exercise transaction prior to September 17,
2000 if the Company:
(a) files a registration statement ( "Registration Statement")
covering the resale of the common shares issuable pursuant to
the transaction set forth in the Letter of Agreement and
issuable upon exercise of this warrant by June 17, 2000, and
(b) uses its reasonable best efforts to have the Registration
Statement declared effective and responds to any comments
thereon from the Securities and Exchange Commission within 30
days of receipt thereof.
In the event that the Company fails to do either (a) or (b) above, the
Holder may exercise this Warrant in a cashless exercise transaction under this
subsection (ii) anytime after such failure.
In order to effect a Cashless Exercise, the Holder shall surrender this
Warrant at the principal office of the Company together with notice of cashless
election, in which event the Company shall issue Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Price of the Common Stock for
the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities
Dealers Automated Quotation System ("Nasdaq") Small Cap
Market, or if the Common Stock is not traded on the Nasdaq
Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common
Stock is listed on a stock exchange, the Market Price shall be
the Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
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price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the the Nasdaq Small Cap Market, the National Market System
("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, or if no
longer traded on the Nasdaq Small Cap Market, the National Market System
("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, the "Closing
Bid Price" shall equal the closing price on the principal national securities
exchange or the over-the-counter system on which the Common Stock is so traded
and, if not available, the mean of the high and low prices on the principal
national securities exchange on which the Common Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
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4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. In addition to any other registration
rights of the Holder, if the Common Stock issuable upon exercise of this Warrant
is not registered for resale at the time the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its Common Stock under the Act
(other than a registration relating solely for the sale of securities to
participants in a Company stock plan or a registration on Form S-4 promulgated
under the Act or any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity)(a "Piggyback Registration Statement"), the Company shall cause to be
included in such Piggyback Registration Statement ("Piggyback Registration") all
of the Common Stock issuable upon the exercise of this Warrant ("Registrable
Securities") to the extent such inclusion does not violate the registration
rights of any other securityholder of the Company granted prior to the date
hereof. Nothing herein shall prevent the Company from withdrawing or abandoning
the Piggyback Registration Statement prior to its effectiveness.
(c) Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would interfere
with the successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in the
Piggyback Registration Statement, to the extent such Registrable Securities may
be included in such Piggyback Registration Statement, shall be allocated among
all Holders who had requested Piggyback Registration pursuant to the terms
hereof, in the proportion that the number of Registrable Securities which each
such Holder seeks to register bears to the total number of Registrable
Securities sought to be included by all Holders. If required by the managing
underwriter of such an underwritten public offering, the Holders shall enter
into a reasonable agreement limiting the number of Registrable Securities to be
included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification.
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(i) Stock Split. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger number of shares (a "Stock Split"), then upon the
effective date thereof, the number of shares of Common Stock which Holder shall
be entitled to purchase upon Exercise of this Warrant shall be increased in
direct proportion to the increase in the number of shares of Common Stock by
reason of such recapitalization, reclassification or similar transaction, and
the Exercise Price shall be proportionally decreased.
(ii) Reverse Stock Split. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be proportionally
increased. The Company shall give Holder the same notice it provides to holders
of Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given ten
(10) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more.
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(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as the Company reasonably
believes shall be sufficient for the Exercise of this Warrant and payment of the
Exercise Price. The Company covenants and agrees that upon the Exercise of this
Warrant, all shares of Common Stock issuable upon such exercise shall be duly
and validly issued, fully paid, nonassessable and not subject to preemptive
rights, rights of first refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or unless the Company has received an opinion
from the Company's counsel to the effect that such registration is not required,
or the Holder has furnished to the Company an opinion of the Holder's counsel,
which counsel shall be reasonably satisfactory to the Company, to the effect
that such registration is not required; the transfer complies with any
applicable state securities laws; and, if no registration covering the resale of
the Warrant Shares is effective at the time the Warrant Shares are issued, the
Holder consents to a legend being placed on certificates for the Warrant Shares
stating that the securities have not been registered under the Securities Act
and referring to such restrictions on transferability and sale.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
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(10) days, and shall deliver to the assignee(s) designated by Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
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10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Georgia,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the address set
forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be
given or made by the Company to or on Holder shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, to the address of Holder set forth in the Company's
records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
____ day of April, 2000.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By: ________________________________
Walter V. Usinowicz, Jr.
Vice President, Chief Financial Officer
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EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: TECHNICAL CHEMICALS AND PRODUCTS, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of TECHNICAL
CHEMICALS AND PRODUCTS, INC. a Florida corporation (the "Company"), evidenced by
the attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated: _________
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Print Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of TECHNICAL
CHEMICALS AND PRODUCTS, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
11
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
312,500 shares
Warrant to Purchase Common Stock
Of
TECHNICAL CHEMICAL AND PRODUCTS, INC.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof pursuant to Section 8 hereof ("Holder"), has the right to purchase from
TECHNICAL CHEMICALS AND PRODUCTS, INC., a Florida corporation (the "Company"),
up to 312,500 fully paid and nonassessable shares of the Company's common stock,
$.001 par value per share ("Common Stock"), subject to adjustment as provided
herein, at a price equal to the Exercise Price as defined in Section 3 below, at
any time beginning on the Date of Issuance (defined below) and ending at 5:00
p.m., New York, New York time the date that is five (5) years after the Date of
Issuance (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on March 17, 2000 ("Date of
Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
Of this Warrant to purchase three hundred twelve thousand five hundred
(312,500) shares of Common Stock of the Company, the Warrant is exercisable as
to one hundred twelve thousand five hundred (112,500) shares of Common Stock of
the Company after the ten (10) business day document review period, as the same
may be extended by mutual consent, in writing, of the Company and the Holder
(the "Review Period") referenced in the Equity Line Letter of Agreement dated on
or about March 17, 2000, between Holder and Company (the "Letter of Agreement")
has ended, shall be further exercisable as to the an additional one hundred
twelve thousand five hundred (112, 500) shares of Common Stock of the Company
upon the execution of all Closing Documents (as defined in the Letter of
Agreement) and shall be further exercisable as to the remaining eighty seven
thousand five hundred (87, 500) shares of Common Stock of the Company upon the
earlier of (i) the date of effectiveness of Company's registration statement
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(the "Registration Statement") to be filed pursuant to the Closing Documents, or
(ii) September 17, 2000.
Anything in this Warrant to the contrary notwithstanding, if
the Company delivers written notice to Swartz Private Equity, LLC prior to the
expiration of the Review Period that the legal documents and terms and
conditions contained therein for the transaction are unacceptable and the
Company wishes to terminate the transaction, Holder shall return this Warrant to
the Company and all of Holder's rights under this Warrant shall be null and void
and of no effect.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: Walter V. Usinowicz, Jr., VP & CFO; Technical Chemicals
and Products, Inc.; 3341 SW 15th Street, Pompano Beach, FL 33069; Telephone:
(954) 979-0400, x 237; Facsimile: (954) 979-6125, or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form sent to the Company and its Transfer Agent by
facsimile (such surrender and payment of the Exercise Price hereinafter called
the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price per share ("Exercise Price") shall initially equal
(the "Initial Exercise Price") the lowest Closing Bid Price of the Company's
Common Stock for the five (5) trading days immediately preceding the date, if
any, that the Company and Swartz Private Equity, LLC enter into Closing
Documents pursuant to the Letter of Agreement (the "Closing Market Price"),
provided that if the Company and Swartz Private Equity, LLC have not entered
into the Closing Documents by May 31, 2000, the Initial Exercise Price shall
equal $1.9063. Notwithstanding the above, if the Date of Exercise is more than
twelve months after the Date of Issuance, the Exercise Price shall be reset to
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equal the lesser of (i) the Exercise Price then in effect, or (ii) the "Lowest
Reset Price," as that term is defined below. The Company shall calculate a
"Reset Price" on each annual anniversary date of the Date of Issuance which
shall equal one hundred percent (100%) of the lowest Closing Bid Price of the
Company's Common Stock for the five (5) trading days ending on such annual
anniversary date of the Date of Issuance. The "Lowest Reset Price" shall equal
the lowest Reset Price determined on any six-month anniversary date of the Date
of Issuance preceding the Date of Exercise, taking into account, as appropriate,
any adjustments made pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction under this subsection (ii) if and
only if, on the Date of Exercise, there is not then in effect a current
registration statement that covers the resale of the shares of Common Stock to
be issued upon exercise of this Warrant, provided that the Holder may not
exercise this Warrant in a cashless exercise transaction prior to September 17,
2000 if the Company:
(a) files a registration statement ( "Registration Statement")
covering the resale of the common shares issuable pursuant to
the transaction set forth in the Letter of Agreement and
issuable upon exercise of this warrant by June 17, 2000, and
(b) uses its reasonable best efforts to have the Registration
Statement declared effective and responds to any comments
thereon from the Securities and Exchange Commission within 30
days of receipt thereof.
In the event that the Company fails to do either (a) or (b) above, the
Holder may exercise this Warrant in a cashless exercise transaction under this
subsection (ii) anytime after such failure.
In order to effect a Cashless Exercise, the Holder shall surrender this
Warrant at the principal office of the Company together with notice of cashless
election, in which event the Company shall issue Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Price of the Common Stock for
the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities
Dealers Automated Quotation System ("Nasdaq") Small Cap
Market, or if the Common Stock is not traded on the Nasdaq
Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common
Stock is listed on a stock exchange, the Market Price shall be
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the Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the the Nasdaq Small Cap Market, the National Market System
("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, or if no
longer traded on the Nasdaq Small Cap Market, the National Market System
("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, the "Closing
Bid Price" shall equal the closing price on the principal national securities
exchange or the over-the-counter system on which the Common Stock is so traded
and, if not available, the mean of the high and low prices on the principal
national securities exchange on which the Common Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. In addition to any other registration
rights of the Holder, if the Common Stock issuable upon exercise of this Warrant
is not registered for resale at the time the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its Common Stock under the Act
(other than a registration relating solely for the sale of securities to
participants in a Company stock plan or a registration on Form S-4 promulgated
under the Act or any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity)(a "Piggyback Registration Statement"), the Company shall cause to be
included in such Piggyback Registration Statement ("Piggyback Registration") all
of the Common Stock issuable upon the exercise of this Warrant ("Registrable
Securities") to the extent such inclusion does not violate the registration
rights of any other securityholder of the Company granted prior to the date
hereof. Nothing herein shall prevent the Company from withdrawing or abandoning
the Piggyback Registration Statement prior to its effectiveness.
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(c) Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would interfere
with the successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in the
Piggyback Registration Statement, to the extent such Registrable Securities may
be included in such Piggyback Registration Statement, shall be allocated among
all Holders who had requested Piggyback Registration pursuant to the terms
hereof, in the proportion that the number of Registrable Securities which each
such Holder seeks to register bears to the total number of Registrable
Securities sought to be included by all Holders. If required by the managing
underwriter of such an underwritten public offering, the Holders shall enter
into a reasonable agreement limiting the number of Registrable Securities to be
included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification.
(i) Stock Split. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger number of shares (a "Stock Split"), then upon the
effective date thereof, the number of shares of Common Stock which Holder shall
be entitled to purchase upon Exercise of this Warrant shall be increased in
direct proportion to the increase in the number of shares of Common Stock by
reason of such recapitalization, reclassification or similar transaction, and
the Exercise Price shall be proportionally decreased.
(ii) Reverse Stock Split. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be proportionally
increased. The Company shall give Holder the same notice it provides to holders
of Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
5
<PAGE>
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given ten
(10) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as the Company reasonably
believes shall be sufficient for the Exercise of this Warrant and payment of the
Exercise Price. The Company covenants and agrees that upon the Exercise of this
Warrant, all shares of Common Stock issuable upon such exercise shall be duly
6
<PAGE>
and validly issued, fully paid, nonassessable and not subject to preemptive
rights, rights of first refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or unless the Company has received an opinion
from the Company's counsel to the effect that such registration is not required,
or the Holder has furnished to the Company an opinion of the Holder's counsel,
which counsel shall be reasonably satisfactory to the Company, to the effect
that such registration is not required; the transfer complies with any
applicable state securities laws; and, if no registration covering the resale of
the Warrant Shares is effective at the time the Warrant Shares are issued, the
Holder consents to a legend being placed on certificates for the Warrant Shares
stating that the securities have not been registered under the Securities Act
and referring to such restrictions on transferability and sale.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
(10) days, and shall deliver to the assignee(s) designated by Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
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10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Georgia,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the address set
forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be
given or made by the Company to or on Holder shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, to the address of Holder set forth in the Company's
records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
____ day of April, 2000.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By:
---------------------------------------
Walter V. Usinowicz, Jr.,
Vice President, Chief Financial Officer
8
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: TECHNICAL CHEMICALS AND PRODUCTS, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of TECHNICAL
CHEMICALS AND PRODUCTS, INC. a Florida corporation (the "Company"), evidenced by
the attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated: _________
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Print Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of TECHNICAL
CHEMICALS AND PRODUCTS, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
- -----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
10
TECHNICAL CHEMICALS AND PRODUCTS, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT
OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
7 DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 3rd day of May, 2000, by and between Technical
Chemicals and Products, Inc., a corporation duly organized and existing under
the laws of the State of Florida (the "Company"), and the undersigned Investor
executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Twenty Five
Million Dollars ($25,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
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"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar month
or (ii) the last day of the next calendar month. Each Calendar Month shall end
on the day immediately preceding the beginning of the next succeeding Calendar
Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the Nasdaq National
Market System, or, if the Nasdaq National Market System is not the principal
securities exchange or trading market for such security, the last closing bid
price during Normal Trading of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by such principal securities exchange or trading market, or if the foregoing do
not apply, the last closing bid price during Normal Trading of such security in
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the over-the-counter market on the electronic bulletin board for such security,
or, if no closing bid price is reported for such security, the average of the
bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Investor in this Offering. If the
Company and the Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the Investor in
this offering and any fees and costs associated therewith shall be paid by the
Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Warrants" shall have the meaning set forth in Section
2.4.1, the form of which is attached hereto as Exhibit U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
the Commitment Warrant.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Technical Chemicals and Products, Inc., a
corporation duly organized and existing under the laws of the State of Florida.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
trading on the NMS, the Nasdaq Small Cap Market, the O.T.C. Bulletin Board, the
American Stock Exchange or the New York Stock Exchange; or is suspended or
delisted with respect to the trading of the shares of Common Stock on such
market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
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<PAGE>
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section
9.
"Indemnitees" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section
2.3.1 (b).
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (each as
defined in the Registration Rights Agreement) becomes ineffective or unavailable
for use for the sale or resale, as applicable, of any or all of the Registrable
Securities (as defined in the Registration Rights Agreement) for any reason (or
in the event the prospectus under either of the above is not current and
deliverable) during any time period required under the Registration Rights
Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section
2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon the closing of any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
4
<PAGE>
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar Trading
Volume of the common stock of such entity is equal to or in excess of $500,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders
of outstanding shares of Common Stock, such that following such purchase, tender
or exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean Twenty Five Million Dollars
($25,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"NASD" shall have the meaning set forth in Section 6.9.
"NMS" shall mean the Nasdaq National Market System.
"Normal Trading" shall mean trading that occurs between 9:30 AM and
4:00 PM, New York City Time, on any Business Day, and shall expressly exclude
"after hours" trading.
"NYSE" shall have the meaning set forth in Section 6.9.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20 Business
Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
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"Principal Market" shall mean the Nasdaq National Market, the Nasdaq
Small Cap Market, the O.T.C. Bulletin Board, , the American Stock Exchange or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as Exhibit D.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.11(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as Exhibit I, or such other form as
agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section
2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by
the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
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"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a), the form of which is attached hereto as Exhibit R.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as Exhibit A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Act.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"Six Month Anniversary" shall mean the date that is the same Numeric
Day of the sixth (6th) calendar month after the Investment Date, and the date
that is the same Numeric Day of each sixth (6th) calendar month thereafter,
provided that if such date is not a Business Day, the next Business Day
thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period
of time beginning on the date of this Agreement and ending on the Termination
Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
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"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in
Section 2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or
certificates (or electronically delivered shares, as appropriate) (in
denominations as instructed by Investor) representing the shares of Common Stock
to which the Investor is then entitled to receive, registered in the name of
Investor or its nominee (as instructed by Investor) and not containing a
restrictive legend or stop transfer order, including but not limited to the Put
Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as Exhibit L.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the
satisfaction of the conditions to closing set forth in Sections 2.2 and 2.3
below, Investor hereby agrees to purchase such amounts of Common Stock and
accompanying Warrants as the Company may, in its sole and absolute discretion,
from time to time elect to issue and sell to Investor according to one or more
Puts pursuant to Section 2.3 below.
2.2 Investment Commitment.
2.2.1 Investment Commitment Closing. The closing of
this Agreement (the "Investment Commitment Closing") shall be deemed to occur
when this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
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executed by both the Company and the Transfer Agent, and the other Conditions to
Investor's Obligations set forth in Section 2.2.2 below have been met.
2.2.2 Conditions to Investor's Obligations. As a
prerequisite to the Investment Commitment Closing and the Investor's obligations
hereunder, all of the following (the "Conditions to Investor's Obligations")
shall have been satisfied prior to or concurrently with the Company's execution
and delivery of this Agreement:
(a) the following documents shall have been delivered to
the Investor: (i) the Registration Rights Agreement
(executed by the Company and Investor), (ii) the
Investment Commitment Opinion of Counsel (signed by
the Company's counsel), (iii) the Transfer Agent
Instructions (executed by the Company and the
Transfer Agent), and (iv) a Secretary's Certificate
as to (A) the resolutions of the Company's board of
directors authorizing this transaction, (B) the
Company's Certificate of Incorporation, and (C) the
Company's Bylaws;
(b) this Investment Agreement, accepted by the Company,
shall have been received by the Investor;
(c) the Company's Common Stock shall be listed for
trading and actually trading on the NMS, the Nasdaq
Small Cap Market, the O.T.C. Bulletin Board, the
American Stock Exchange or the New York Stock
Exchange;
(d) other than continuing losses described in the Risk
Factors set forth in the Disclosure Documents
(provided for in Section 3.2.4), as of the Closing
there have been no material adverse changes in the
Company's business prospects or financial condition
since the date of the last balance sheet included in
the Disclosure Documents, including but not limited
to incurring material liabilities; and
(e) the representations and warranties of the Company in
this Agreement shall be true and correct in all
material respects and the conditions to Investor's
obligations set forth in this Section 2.2.2 shall
have been satisfied as of such Closing; and the
Company shall deliver an Officer's Certificate,
signed by an officer of the Company, to such effect
to the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration Statement
is declared effective by the SEC (the "Effective Date"), the Company may, in its
sole and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the preceding
Pricing Period End Date:
(a) Delivery of Advance Put Notice.At least
ten (10) Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the form
of which is attached hereto as Exhibit E, the date of such Advance Put Notice
being the "Advance Put Notice Date") to Investor stating the Put Date for which
the Company shall, subject to the limitations and restrictions contained herein,
exercise a Put and stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the Company
intends to sell to the Investor for the Put (the "Intended Put Share Amount").
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The Company may, at its option, also designate in any Advance Put
Notice (i) a maximum dollar amount of Common Stock, not to exceed $2,000,000,
which it shall sell to Investor during the Put (the "Company Designated Maximum
Put Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which
the Investor may purchase Shares pursuant to such Put Notice (a "Company
Designated Minimum Put Share Price"). The Company Designated Minimum Put Share
Price, if applicable, shall be no greater than 80% of the Closing Bid Price of
the Company's common stock on the Advance Put Notice Date. The Company may
decrease (but not increase) the Company Designated Minimum Put Share Price for a
Put at any time by giving the Investor written notice of such decrease not later
than 12:00 Noon, New York City time, on the Business Day immediately preceding
the Business Day that such decrease is to take effect. A decrease in the Company
Designated Minimum Put Share Price shall have no retroactive effect on the
determination of Trigger Prices and Excluded Days for days preceding the
Business Day that such decrease takes effect.
Notwithstanding the above, if, at the time of delivery of an Advance
Put Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as Exhibit F) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming the
intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount"
is the number of shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the lesser of (i) the Intended Put
Share Amount, and (ii) the Individual Put Limit. The "Individual Put Limit"
shall equal the lesser of (i) 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's Principal
Market, excluding any block trades of 50,000 or more shares of Common Stock, for
all Evaluation Days (as defined below) in the Pricing Period, (ii) the number of
Put Shares which, when multiplied by their respective Put Share Prices, equals
the Maximum Put Dollar Amount, and (iii) the 9.9% Limitation, but in no event
shall the Individual Put Limit exceed 15% of the sum of the aggregate daily
reported Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 50,000 or more shares of Common
Stock, for the twenty (20) Business Days immediately preceding the Put Date
(this limitation, together with the limitation in (i) immediately above, are
collectively referred to herein as the "Volume Limitations"). Company agrees not
to trade Common Stock or arrange for Common Stock to be traded for the purpose
of artificially increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater
of (i) the Company Designated Minimum Put Share Price, plus $.10, or (ii) the
Company Designated Minimum Put Share Price divided by .92.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price of the Common Stock is
less than the Trigger Price.
An "Evaluation Day" shall mean each Business Day during a
Pricing Period that is not an Excluded Day.
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(c) Put Share Price. The purchase price for
the Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market
Price for such Put, minus $.10, or (ii) 92% of the Market Price for such Put,
but shall in no event be less than the Company Designated Minimum Put Share
Price for such Put, if applicable.
(d) Delivery of Put Notice. After delivery
of an Advance Put Notice, on the Put Date specified in the Advance Put Notice
the Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the
Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Put Notice Confirmation," the form of which is
attached hereto as Exhibit H) of the Put Notice to Company specifying that the
Put Notice has been received and affirming the Put Date and the Intended Put
Share Amount.
(e) Delivery of Required Put Documents. On
or before the Put Date for such Put, the Company shall deliver the Required Put
Documents (as defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the Investor,
the Put Shares of Common Stock shall be transmitted electronically pursuant to
such electronic delivery system as the Investor shall request; otherwise
delivery shall be by physical certificates. If the Company has not delivered all
of the Required Put Documents to the Investor on or before the Put Date, the Put
shall be automatically cancelled, unless the Investor agrees to delay the Put
Date by up to three (3) Business Days, in which case the Pricing Period begins
on the Business Day following such new Put Date. If the Company has not
delivered all of the Required Put Documents to the Investor on or before the Put
Date (or new Put Date, if applicable), and the Investor has not agreed in
writing to delay the Put Date, the Put is automatically canceled (an
"Impermissible Put Cancellation") and, unless the Put was otherwise canceled in
accordance with the terms of Section 2.3.11, the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation for the
canceled Put and the Company may deliver an Advance Put Notice for the
subsequent Put no sooner than ten (10) Business Days after the date that such
Put was canceled, unless otherwise agreed by the Investor.
(f) Limitation on Investor's Obligation to
Purchase Shares. Notwithstanding anything to the contrary in this Agreement, in
no event shall the Investor be required to purchase, and an Intended Put Share
Amount may not include, an amount of Put Shares, which when added to the number
of Put Shares acquired by the Investor pursuant to this Agreement during the 31
days preceding the Put Date with respect to which this determination of the
permitted Intended Put Share Amount is being made, would exceed 9.99% of the
number of shares of Common Stock outstanding (on a fully diluted basis, to the
extent that inclusion of unissued shares is mandated by Section 13(d) of the
Exchange Act) on the Put Date for such Pricing Period, as determined in
accordance with Section 13(d) of the Exchange Act (the "Section 13(d)
Outstanding Share Amount"). Each Put Notice shall include a representation of
the Company as to the Section 13(d) Outstanding Share Amount on the related Put
Date. In the event that the Section 13(d) Outstanding Share Amount is different
on any date during a Pricing Period than on the Put Date associated with such
Pricing Period, then the number of shares of Common Stock outstanding on such
date during such Pricing Period shall govern for purposes of determining whether
the Investor, when aggregating all purchases of Shares made pursuant to this
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Agreement in the 31 calendar days preceding such date, would have acquired more
than 9.99% of the Section 13(d) Outstanding Share Amount. The limitation set
forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's
right to require the Investor to purchase any subsequent Put Shares shall
terminate permanently (each, an "Automatic Termination") upon the occurrence of
any of the following:
(a) at any time, either the Company or any
director or executive officer of the Company has engaged in a transaction or
conduct related to the Company that has resulted in (i) a Securities and
Exchange Commission enforcement action, administrative proceeding or civil
lawsuit arising from or out of conduct after the date hereof, or (ii) a civil
judgment or criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;
(b) the aggregate number of days that
comprise Ineffective Periods and Delisting Events exceeds 120 days;
(c) at any time the Company has filed for
and/or is subject to any bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors instituted by or against the Company or any subsidiary
of the Company;
(d) the Company shall not exercise a Put
after the sooner of (i) the date that is three (3) years after the Effective
Date, or (ii) the Put Closing Date on which the aggregate of the Put Dollar
Amounts for all Puts equal the Maximum Offering Amount; and
(e) the Company has breached any covenant in
Section 2.6 or Section 9 hereof, or has materially breached any covenant in
Section 6 and has not remedied such breach within 10 days after receiving
written notice thereof.
(f) if no Registration Statement has been
declared effective by the date that is one (1) year after the date of this
Agreement, the Automatic Termination shall occur on the date that is one (1)
year after the date of this Agreement.
2.3.3 Put Limitations. The Company's right to
exercise a Put shall be limited as follows:
(a) notwithstanding the amount of any Put,
the Investor shall not be obligated to purchase any additional Put Shares once
the aggregate Put Dollar Amount paid by Investor equals the Maximum Offering
Amount;
(b) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has announced during the Extended Put Period a subdivision or combination,
including a reverse split, of its Common Stock or has subdivided or combined its
Common Stock;
(c) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has paid a dividend of its Common Stock or has made any other distribution of
its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has made, during the Extended Put Period, a distribution of all or any portion
of its assets or evidences of indebtedness to the holders of its Common Stock;
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(e) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which a Major
Transaction has occurred during the Extended Put Period.
2.3.4 Conditions Precedent to the Right of the
Company to Deliver an Advance Put Notice or a Put Notice and the Obligation of
the Investor to Purchase Put Shares. The right of the Company to deliver an
Advance Put Notice or a Put Notice and the obligation of the Investor hereunder
to acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (i) the date of delivery of such Advance Put Notice or Put
Notice and (ii) the applicable Put Closing Date, of each of the following
conditions:
(a) the Company's Common Stock shall be listed for and
trading on the NMS, the Nasdaq Small Cap Market, the
O.T.C. Bulletin Board, the American Stock Exchange or
the New York Stock Exchange; and the Put Shares shall
be so listed, and to the Company's knowledge there is
no notice of any suspension or delisting with respect
to the trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing
of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities
and the requirement that the Registration Statement
shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company
shall have satisfied and shall be in compliance with
any and all obligations pursuant to this Agreement
and the Warrants;
(c) the representations and warranties of the Company are
true and correct in all material respects as if made
on such date and the conditions to Investor's
obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall
deliver a certificate, signed by an officer of the
Company, to such effect to the Investor;
(d) the Company shall have reserved for issuance a
sufficient number of Common Shares for the purpose of
enabling the Company to satisfy any obligation to
issue Common Shares pursuant to any Put and to effect
exercise of the Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration
Rights Agreement, the prospectus included therein is
current and deliverable, and to the Company's
knowledge there is no notice of any investigation or
inquiry concerning any stop order with respect to the
Registration Statement; and
(f) if the Aggregate Issued Shares after the Closing of
the Put would exceed the Cap Amount, the Company
shall have obtained the Stockholder 20% Approval as
specified in Section 6.11, if the Company's Common
Stock is listed on the NASDAQ Small Cap Market or
NMS, and such approval is required by the rules of
the NASDAQ.
2.3.5 Documents Required to be Delivered on the Put
Date as Conditions to Closing of any Put. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put Documents") on or before
the applicable Put Date:
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(a) a number of Unlegended Share
Certificates (or freely tradeable electronically delivered shares, as
appropriate) equal to the Intended Put Share Amount, in denominations of not
more than 50,000 shares per certificate;
(b) the following documents: Put Opinion of
Counsel, Officer's Certificate, Put Notice, Registration Opinion, and any report
or disclosure required under Section 2.3.6 or Section 2.5, provided that the
Company shall not be required to provide a "Bring Down Cold Comfort Letter," as
defined below, if the Company has filed either a Form 10-Q or a Form 10-K within
the twenty (20) Business Days immediately preceding the Put Date for such Put;
(c) all documents, instruments and other
writings required to be delivered on or before the Put Date pursuant to any
provision of this Agreement in order to implement and effect the transactions
contemplated herein.
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2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be
delivered to the Investor, (i) whenever required by Section 2.3.6(b) or by
Section 2.5.3, and (ii) on the date that is three (3) Business Days prior to
each Put Date (the "Registration Opinion Deadline"), an opinion of the Company's
independent counsel, in substantially the form of Exhibit R (the "Registration
Opinion"), addressed to the Investor stating, inter alia, that no facts
("Material Facts") have come to such counsel's attention that have caused it to
believe that the Registration Statement is subject to an Ineffective Period or
to believe that the Registration Statement, any Supplemental Registration
Statement (as each may be amended, if applicable), and any related prospectuses,
contain an untrue statement of material fact or omits a material fact required
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. If a Registration Opinion cannot be
delivered by the Company's independent counsel to the Investor on the
Registration Opinion Deadline due to the existence of Material Facts or an
Ineffective Period, the Company shall promptly notify the Investor and as
promptly as possible amend each of the Registration Statement and any
Supplemental Registration Statements, as applicable, and any related prospectus
or cause such Ineffective Period to terminate, as the case may be, and deliver
such Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Pricing Period End Date, the Company acquires knowledge of
such Material Facts or any Ineffective Period occurs, the Company shall promptly
notify the Investor and shall deliver a Put Cancellation Notice to the Investor
pursuant to Section 2.3.11 by facsimile and overnight courier by the end of that
Business Day.
(b) (i) the Company shall engage its
independent auditors to perform the procedures in accordance with the provisions
of Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as
shall have been reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the date
that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor
shall have requested delivery of an Agreed Upon Procedures Report pursuant to
Section 2.5.3, the Company shall engage its independent auditors to perform
certain agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this Section
2.3.6(b) cannot be delivered by the Company's independent auditors, the Company
shall, if necessary, promptly revise the Registration Statement and the Company
shall not deliver a Put Notice until such report is delivered.
2.3.7 Investor's Obligation and Right to Purchase
Shares. Subject to the conditions set forth in this Agreement, following the
Investor's receipt of a validly delivered Put Notice, the Investor shall be
required to purchase (each a "Purchase") from the Company a number of Put Shares
equal to the Put Share Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company
and the Investor shall deliver all documents, instruments and writings required
to be delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is five
(5) Business Days following the applicable Pricing Period End Date (or such
other time or later date as is mutually agreed to by the Company and the
Investor) (the "Payment Due Date") at the offices of Investor. On each or before
each Payment Due Date, the Investor shall deliver to the Company, in the manner
specified in Section 8 below, the Put Dollar Amount to be paid for such Put
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Shares, determined as aforesaid. The closing (each a "Put Closing") for each Put
shall occur on the date that both (i) the Company has delivered to the Investor
all Required Put Documents, and (ii) the Investor has delivered to the Company
such Put Dollar Amount and any Late Payment Amount, if applicable (each a "Put
Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount
for such Put Closing on or before the Payment Due Date, then the Investor shall
pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or any
short sale or other hedging or similar arrangement it deems appropriate with
respect to Put Shares after it receives a Put Notice with respect to such Put
Shares so long as such sales or arrangements do not involve more than the number
of such Put Shares specified in the Put Notice.
2.3.10 Cap Amount. Unless the Company has obtained
Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any
time during a Pricing Period the Company discovers the existence of Material
Facts or any Ineffective Period or Delisting Event occurs, the Company shall
cancel the Put (a "Put Cancellation"), by delivering written notice to the
Investor (the "Put Cancellation Notice"), attached as Exhibit Q, by facsimile
and overnight courier. The "Put Cancellation Date" shall be the date that the
Put Cancellation Notice is first received by the Investor, if such notice is
received by the Investor by 6:00 p.m., New York, NY time, and shall be the
following date, if such notice is received by the Investor after 6:00 p.m., New
York, NY time.
(b) Effect of Put Cancellation. Anytime a
Put Cancellation Notice is delivered to Investor after the Put Date, the Put,
shall remain effective with respect to a number of Put Shares (the "Truncated
Put Share Amount") equal to the Individual Put Limit for the Truncated Pricing
Period.
(c) Put Cancellation Notice Confirmation.
Upon receipt by the Investor of a facsimile copy of the Put Cancellation Notice,
the Investor shall promptly send, via facsimile, a confirmation of receipt (the
"Put Cancellation Notice Confirmation," a form of which is attached as Exhibit
S) of the Put Cancellation Notice to the Company specifying that the Put
Cancellation Notice has been received and affirming the Put Cancellation Date.
(d) Truncated Pricing Period. If a Put
Cancellation Notice has been delivered to the Investor after the Put Date, the
Pricing Period for such Put shall end at on the close of trading on the last
full trading day on the Principal Market that ends prior to the moment of
initial delivery of the Put Cancellation Notice (a "Truncated Pricing Period")
to the Investor.
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2.3.12 Investment Agreement Cancellation. The Company
may terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other rights
and obligations under this Agreement, the Registration Rights Agreement or the
Warrants. Notwithstanding the above, any cancellation occurring during an
Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event
that the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial consideration
hereof, following the execution of the Letter of Agreement dated on or about
March 17, 2000 between the Company and the Investor, the Company issued and
delivered to Investor or its designated assignees, warrants (the "Commitment
Warrants") in the form attached hereto as Exhibit U, or such other form as
agreed upon by the parties, to purchase 625,000 shares of Common Stock. Each
Commitment Warrant shall be immediately exercisable at the Commitment Warrant
Exercise Price, and shall have a term beginning on the date of issuance and
ending on the date that is five (5) years thereafter. The Warrant Shares shall
be registered for resale pursuant to the Registration Rights Agreement. The
Investment Commitment Opinion of Counsel shall cover the issuance of the
Commitment Warrant and the issuance of the common stock upon exercise of the
Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statment is or is not
filed, and regardless of whether or not the Registration Statement is approved
or denied by the SEC, the Investor shall retain full ownership of the Commitment
Warrant as partial consideration for its commitment hereunder.
2.4.2 Purchase Warrants. Within five (5) Business
Days of the end of each Pricing Period, the Company shall issue and deliver to
the Investor a warrant ("Purchase Warrant"), in the form attached hereto as
Exhibit D, or such other form as agreed upon by the parties, to purchase a
number of shares of Common Stock equal to 10% of the Put Share Amount for that
Put. Each Purchase Warrant shall be exerciseable at a price (the "Purchase
Warrant Exercise Price") which shall initially equal 110% of the Market Price
for the applicable Put, and shall have annual reset provisions. Each Purchase
Warrant shall be immediately exercisable at the Purchase Warrant Exercise Price,
and shall have a term beginning on the date of issuance and ending on the date
that is five (5) years thereafter. The Warrant Shares shall be registered for
resale pursuant to the Registration Rights Agreement.
2.5 Due Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
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connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company
shall not disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such nonpublic information for review. The Company may, as a
condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in form reasonably satisfactory to
the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and 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 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 Disclosure of Misstatements and Omissions. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the opinion
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 the light of the
circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the Company's independent
counsel in order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably
Believed to be Untrue or are Omitted. In the event after such consultation the
Investor or the Investor's counsel reasonably believes that the Registration
Statement contains an untrue statement or material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
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statements contained therein, in light of the circumstances in which they were
made, not misleading,
(a) the Company shall file with the
SEC an amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the
existence of any such material misstatement or omission, (i) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (ii) in the event the dispute relates to the adequacy of financial
disclosure and the Investor shall reasonably request, the Company's independent
auditors shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
2.6 Commitment Payments.
On the last Business Day of each six (6) Calendar Month period
following the Effective Date (each such period a "Commitment Evaluation
Period"), if the Company has not Put at least $1,000,000 in aggregate Put Dollar
Amount during that Commitment Evaluation Period, the Company, in consideration
of Investor's commitment costs, including, but not limited to, due diligence
expenses, shall pay to the Investor an amount (the "Semi-Annual Non-Usage Fee ")
equal to the difference of (i) $100,000, minus (ii) 10% of the aggregate Put
Dollar Amount of the Put Shares put to Investor during that Commitment
Evaluation Period. In the event that the Company delivers a Termination Notice
to the Investor or an Automatic Termination occurs, the Company shall pay to the
Investor (the "Termination Fee") the greater of (i) the Semi-Annual Non-Usage
Fee for the applicable Commitment Evaluation Period, or (ii) the difference of
(x) $200,000, minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares
put to Investor during all Puts to date, and the Company shall not be required
to pay the Semi-Annual Non-Usage Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 10 of this Agreement.
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3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional information
which Investor or Investor's professional advisor deems necessary to verify the
accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of the foregoing,
within the meaning of Section 15 of the Act for any tax or legal advice (other
than reliance on information in the Disclosure Documents as defined in Section
3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not
limit or modify Investor's right to rely upon covenants, representations and
warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such
knowledge and experience in financial and business matters so as to enable such
Investor to utilize the information made available to it in connection with the
Offering in order to evaluate the merits and risks of the prospective
investment, which are substantial, including without limitation those set forth
in the Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making
Investor's investment decision to subscribe for the Investment Agreement
hereunder, represents that (a) Investor has received and had an opportunity to
review (i) the Company's Annual Report on Form 10-K for the year ended December
31, 1999, (ii) the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1999, (iii) the Risk Factors, attached as Exhibit J, (the "Risk
Factors") (iv) the Capitalization Schedule, attached as Exhibit K, (the
"Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached as
Exhibit L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed,
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has had an opportunity to ask questions of and receive
answers from the Company's officers and directors; and (d) is not relying on any
oral representation of the Company or any other person, nor any written
representation or assurance from the Company other than those contained in the
Disclosure Documents or incorporated herein or therein. The foregoing, however,
does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor
has substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor acknowledges
that Investor is able to fend for Investor's self in the transaction
contemplated by this Agreement, that Investor has the ability to bear the
economic risk of Investor's investment pursuant to this Agreement and that
Investor is an "Accredited Investor" by virtue of the fact that Investor meets
the investor qualification standards set forth in Section 3.1 above. Investor
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has not been organized for the purpose of investing in securities of the
Company, although such investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment
Agreement was not offered to Investor through, and Investor is not aware of, any
form of general solicitation or general advertising, including, without
limitation, (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, and (ii) any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands
that the Investment Agreement is, the Common Stock and Warrants issued at each
Put Closing will be, and the Warrant Shares will be, characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold without
registration under the Act or pursuant to an exemption therefrom. In this
connection, Investor represents that Investor is familiar with Rule 144 under
the Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration
statement under the Act and any applicable state securities laws covering such
proposed disposition and such disposition is made in accordance with such
registration statement and in compliance with applicable prospectus delivery
requirements; or
(b) (i) Investor shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition to the
extent relevant for determination of the availability of an exemption from
registration, and (ii) if reasonably requested by the Company, Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of the
Securities under the Act or state securities laws. It is agreed that the Company
will not require the Investor to provide opinions of counsel for transactions
made pursuant to Rule 144 provided that Investor and Investor's broker, if
necessary, provide the Company with the necessary representations for counsel to
the Company to issue an opinion with respect to such transaction.
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 Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
3.4 Due Authorization.
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3.4.1 Authority. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing this
Agreement. Investor has reached the age of majority (if an individual) according
to the laws of the state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly
organized, validly existing and in good standing as a limited liability company
under the laws of Georgia with full power and authority to purchase the
Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is itself
a partnership, all persons holding an interest in such partnership, directly or
indirectly, including through one or more partnerships), and the person
executing this Agreement has made due inquiry to determine the truthfulness of
the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom Investor
is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an
investment in the Company involves substantial risks, including the potential
loss of Investor's entire investment herein. Investor recognizes that the
Disclosure Documents, this Agreement and the exhibits hereto do not purport to
contain all the information, which would be contained in a registration
statement under the Act;
4.2 No Government Approval. No federal or state agency has
passed upon the Securities, recommended or endorsed the Offering, or made any
finding or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date
of this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to
sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance
that any registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it may
be required to bear the economic risk of Investor's investment for an indefinite
period of time;
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4.6 Exempt Transaction. Investor understands that the
Securities are being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings set
forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire such
Securities.
4.7 Legends. The certificates representing the Put Shares
shall not bear a Restrictive Legend. The certificates representing the Warrant
Shares shall not bear a Restrictive Legend unless they are issued at a time when
the Registration Statement is not effective for resale. It is understood that
the certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend removal
under the terms of Section 6.8 below, shall bear the following legend (the
"Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" annexed hereto as Exhibit C and made a part hereof:
5.1 Organization, Good Standing, and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida, USA and has all requisite corporate
power and authority to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the Securities and Exchange
Commission, The National Association of Securities Dealer, Inc., The Nasdaq
Stock Market, Inc. or any state securities commission, or any other governmental
entity, which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. The Company has the following
subsidiaries: Health-Mark Diagnostics, LLC, a Delaware limited libility
corporation, Health Test, Inc., a Florida corporation, TCPI, Inc., a Florida
corporation and Technical Electronics Corporation, a Florida corporation.
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the Company's
business, financial condition, or prospects since the dates of such Disclosure
Documents. The financial statements as contained in the 10-K and 10-Q have been
prepared in accordance with generally accepted accounting principles,
consistently applied (except as otherwise permitted by Regulation S-X of the
Exchange Act), subject, in the case of unaudited interim financial statements,
to customary year end adjustments and the absence of certain footnotes, and
fairly present the financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
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ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes that are due, except for taxes that it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending or, to the best
of the Company's knowledge, threatened against the Company, except as disclosed
in the Disclosure Documents. This Agreement and the Disclosure Documents do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which, under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals required
for it to execute, deliver and perform each agreement referenced in the previous
sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement, (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
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reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed on the NMS. The Company is
not in violation of the listing requirements of the NMS and does not reasonably
anticipate that the Common Stock will be delisted by the NMS for the foreseeable
future. The Company has filed all reports required under the Exchange Act. The
Company has not furnished to the Investor any material nonpublic information
concerning the Company.
5.7 Capitalization. The capitalization of the Company as of
the date hereof, is, and the capitalization as of the Closing, subject to
exercise of any outstanding warrants and/or exercise of any outstanding stock
options, after taking into account the offering of the Securities contemplated
by this Agreement and all other share issuances occurring prior to this
Offering, will be, as set forth in the Capitalization Schedule as set forth in
Exhibit K. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities.
Except as disclosed in the Capitalization Schedule, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Act (except the Registration Rights
Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted
and exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. The Company has
granted such licenses or has assigned or otherwise transferred a portion of (or
all of) such valid, unrestricted and exclusive patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. The Company has
been granted licenses, know-how, technology and/or other intellectual property
necessary to the conduct of its business. To the best of the Company's knowledge
after due inquiry, the Company is not infringing on the intellectual property
rights of any third party, nor is any third party infringing on the Company's
intellectual property rights. There are no restrictions in any agreements,
licenses, franchises, or other instruments that preclude the Company from
engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company
expects to use the proceeds from this Offering (less fees and expenses) for the
purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as Exhibit L hereto. These purposes and amounts are estimates
and are subject to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 Company Acknowledgment. The Company hereby acknowledges
that Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has made
no representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
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5.12 No Advance Regulatory Approval. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC, or
any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. The
Company is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The
Company is currently eligible and agrees to maintain its eligibility to register
the resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of Nasdaq. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company, nor any
of its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 Key Employees. Each "Key Employee" (as defined in Exhibit
N) is currently serving the Company in the capacity disclosed in Exhibit N. No
Key Employee, to the best knowledge of the Company and its subsidiaries, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries.
5.18 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
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governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 Application of Takeover Protections. The Company and its
board of directors have adopted, as reflected in the Company's Articles of
Incorpration and By-Laws, certain takeover protections. The Company has not
adopted any "poison pill" provision that will be applicable to Investor as a
result of transactions contemplated by this Agreement.
5.22 Other Agreements. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company that have not been disclosed to
the Investor pursuant to a confidentiality agreement.
5.24 Financings. There are no other financings currently
pending or contemplated by the Company that have not been disclosed to the
Investor pursuant to a confidentiality agreement.
5.25 Shareholder Authorization. The Company shall, at its next
annual shareholder meeting, or at a special meeting to be held as soon as
practicable thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) the increase in the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 25,000,000 shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20% Approval and
the Share Authorization Increase Approval, the Company agrees to use its best
efforts to reserve at least 25,000,000 shares of Common Stock for issuance under
this Agreement.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
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6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least
the Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at
least the Termination Date, maintain its corporate existence in good standing
and is, and shall remain a "Reporting Issuer" (defined as a Company which files
periodic reports under the Exchange Act) (provided, however, that the foregoing
covenant shall not prevent the Company from entering into any merger or
corporate reorganization as long as the surviving entity in such transaction, if
not the Company, assumes the Company's obligations with respect to the Common
Stock and has Common Stock listed for trading on a stock exchange or on Nasdaq
and is a Reporting Issuer) and shall pay all its taxes when due except for taxes
which the Company disputes.
6.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
6.4 Asset Transfers. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any Subsidiary
except for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of the
Common Stock or other securities of the Company.
6.5 Rights of First Refusal.
6.5.1 Capital Raising Limitations. During the period
from the date of this Agreement until the date that is one year after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions without obtaining the prior written approval of the Investor of the
Offering (the limitations referred to in this subsection 6.5.1 are collectively
referred to as the "Capital Raising Limitations"). For purposes hereof, the
following shall be collectively referred to herein as, the "Equity Securities":
(i) Common Stock or any other equity securities, (ii) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering.
6.5.2 Investor's Right of First Refusal. For any
private capital raising transactions of Equity Securities which close after the
date hereof and on or prior to the date that is one (1) year after the
Termination Date of this Agreement, not including any warrants issued in
conjunction with this Investment Agreement, the Company agrees to deliver to
Investor, at least ten (10) days prior to the closing of such transaction,
written notice describing the proposed transaction, including the terms and
conditions thereof, and providing the Investor and its affiliates an option
during the ten (10) day period following delivery of such notice to purchase the
securities being offered in such transaction on the same terms as contemplated
by such transaction.
6.5.3 Exceptions to Rights of First Refusal.
Notwithstanding the above, the Rights of First Refusal shall not apply to any
transaction involving issuances of securities in connection with a merger,
consolidation, acquisition or sale of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company or exercise of options by employees,
consultants or directors, or a primary underwritten offering of the Company's
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Common Stock, or the transactions set forth on Schedule 6.5.1. The Capital
Raising Limitations also shall not apply to (a) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (b) the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan for the benefit of the Company's
employees, directors or consultants, or (c) the issuance of debt securities,
with no equity feature, incurred solely for working capital purposes. If the
Investor, at any time, is more than five (5) business days late in paying any
Put Dollar Amounts that are then due, the Investor shall not be entitled to the
benefits of Sections 6.5.1 and 6.5.2 above until the date that the Investor has
paid all Put Dollar Amounts that are then due.
6.6 Financial 10-K Statements, Etc. and Current Reports on
Form 8-K. The Company shall deliver to the Investor copies of its annual reports
on Form 10-K, and quarterly reports on Form 10-Q and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the Term
of this Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as Exhibit B, or in such form as agreed upon
by the parties, and shall, concurrent with each Put Date, receive an opinion
letter from the Company's legal counsel, in the form attached as Exhibit I or in
such form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the NMS.
Thereafter, the Company shall (i) use its best efforts to continue the listing
and trading of its Common Stock on the NMS or to become eligible for and listed
and available for trading on the Nasdaq Small Cap Market, or the New York Stock
Exchange ("NYSE"); and (ii) comply in all material respects with the Company's
reporting, filing and other obligations under the By-Laws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.10 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock, by delivering instructions
in the form of Exhibit T hereto, to issue certificates, registered in the name
of each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal is not permitted by Section
6.8 hereof and the Company shall cause the Transfer Agent to issue such
certificates without a Legend. Nothing in this Section shall affect in any way
Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3 hereof
to resell the Securities pursuant to an effective registration statement and to
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deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of applicable securities laws. If
(a) an Investor provides the Company with an opinion of counsel, which opinion
of counsel shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from
registration or (b) an Investor transfers Securities, pursuant to Rule 144, to a
transferee which is an accredited investor, the Company shall permit the
transfer, and, in the case of Put Shares and Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to an
Investor by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 6.10 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 6.10, that an Investor shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed on
NASDAQ, the Company shall obtain approval of its stockholders to authorize (i)
the issuance of the full number of shares of Common Stock which would be
issuable pursuant to this Agreement but for the Cap Amount and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Stockholder 20% Approval").
6.12 Press Release. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be unreasonably
withheld by Investor.
6.13 Change in Law or Policy. In the event of a change in law,
or policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall retain full
ownership of the Commitment Warrant as partial consideration for its commitment
and its consulting, legal and other services rendered hereunder.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing;
Severability. Investor's and the Company's representations and warranties shall
survive the Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. 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, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be
assignable without the Company's written consent. If assigned, the terms and
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conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Investor may assign Investor's rights
hereunder, in connection with any private sale of the Common Stock of such
Investor, so long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions of
this Agreement in a form acceptable to the Company and provides an original copy
of such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. The use in this
Agreement of a masculine, feminine or neither pronoun shall be deemed to include
a reference to the others.
7.5 Written Notices, Etc. Any notice, demand or request
required or permitted to be given by the Company or Investor pursuant to the
terms of this Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile or upon receipt if by overnight or two (2)
day courier, addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing;
provided, however, that in order for any notice to be effective as to the
Investor such notice shall be delivered and sent, as specified herein, to all
the addresses and facsimile telephone numbers of the Investor set forth at the
end of this Agreement or such other address and/or facsimile telephone number as
Investor may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants, whether oral, written, or
otherwise except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The
parties acknowledge that any and all actions, whether at law or at equity, and
whether or not said actions are based upon this Agreement between the parties
hereto, shall be filed in any state or federal court sitting in Atlanta,
Georgia. Georgia law shall govern both the proceeding as well as the
interpretation and construction of the Transaction Documents and the transaction
as a whole. In any litigation between the parties hereto, the prevailing party,
as found by the court, shall be entitled to an award of all attorney's fees and
costs of court. Should the court refuse to find a prevailing party, each party
shall bear its own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
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8.1 Subscription
(a) Wire transfer of Subscription Funds. Investor shall
deliver Put Dollar Amounts (as payment towards any
Put Share Price) by wire transfer, to the Company
pursuant to a wire instruction letter to be provided
by the Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby
acknowledges and agrees, subject to the provisions of
any applicable laws providing for the refund of
subscription amounts submitted by Investor, that this
Agreement is irrevocable and that Investor is not
entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such
Investor and delivered pursuant hereto, and that this
Agreement and such other agreements shall survive the
death or disability of such Investor and shall be
binding upon and inure to the benefit of the parties
and their heirs, executors, administrators,
successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more
than one person, the obligations of all such owners
under this Agreement shall be joint and several, and
the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to
be made by and be binding upon each such person and
his heirs, executors, administrators, successors,
legal representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
9. Indemnification.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless Investor and all of
its stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against any of
the Indemnitees based on a violation of Section 5 of the Securities Act caused
by the integration of the private sale of common stock to the Investor and the
public offering pursuant to the Registration Statement.
To the extent permitted by law, the Investor (in such case, the
"Indemnitor") will indemnify and hold harmless the Company and the officers and
directors of the Company (collectively, in such case, the "Indemnitees" or the
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"Indemnified Parties"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements or omissions: any untrue statement or alleged untrue
statement of a material fact that is provided, in writing to the Company and is
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
and the Investor will reimburse the Company, officer or director for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 9(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Investor (which consent shall not be unreasonably withheld).
To the extent that the foregoing undertaking by the Company (or the
Investor, as applicable) may be unenforceable for any reason, the Company (or
the Investor, as applicable) shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which it would be
required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
[INTENTIONALLY LEFT BLANK]
33
<PAGE>
10. Accredited Investor. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify] ____________________________________.
34
<PAGE>
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 3rd day of May, 2000.
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------ -------------------------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
____________________________________ SECURITY DELIVERY INSTRUCTIONS:
-------------------------------
Name: Please Print Please type or print address where your security is to be
delivered
____________________________________ ATTN: ___________________________________________
Title/Representative Capacity
(if applicable)
- ------------------------------------ --------------------------------------------------
Name of Company You Represent Street Address
(if applicable)
- ------------------------------------ --------------------------------------------------
Place of Execution of this Agreement City, State or Province, Country, Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
- ----------------------------- -------------------------
Please print address where any Notice Please print address where Copy is
is to be delivered to be delivered
ATTN: ___________________________________________ ATTN: ___________________________________
- ------------------------------------------------- ------------------------------------------
Street Address Street Address
- -------------------------------------------------
- -------------------------------------------------
City, State or Province, Country, Offshore Postal Code City, State or Country, Offshore Postal Code
Telephone: ______________________________________ Telephone: _________________________________
Facsimile: ______________________________________ Facsimile: __________________________________
Facsimile: ______________________________________ Facsimile: __________________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 3rd DAY OF MAY, 2000.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By:__________________________________
Jack Aronowitz, Chairman
Address:
Attn: Walter V. Usinowicz, Jr.
3341 SW 15th Street
Pompano Beach, FL 33069
Telephone (954) 979-0400, ext. 237
Facsimile (954) 979-6125
</TABLE>
35
<PAGE>
ADVANCE PUT NOTICE
TECHNICAL CHEMICALS AND PRODUCTS, INC. (the "Company") hereby intends, subject
to the Individual Put Limit (as defined in the Investment Agreement), to elect
to exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to _____________________________, the Investor, as of the
Intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Swartz
Private Equity, LLC dated on or about May 3, 2000.
Date of Advance Put Notice: ___________________
Intended Put Date :___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By:_______________________________
Jack Aronowitz, Chairman
Address:
Attn: Walter V. Usinowicz, Jr.
3341 SW 15th Street
Pompano Beach, FL 33069
Telephone (954) 979-0400, ext. 237
Facsimile (954) 979-6125
EXHIBIT E
36
<PAGE>
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
TECHNICAL CHEMICALS AND PRODUCTS, INC.'s (the "Company") Advance Put Notice on
the Advance Put Date written below, and its intention to elect to exercise a Put
to sell shares of common stock ("Intended Put Share Amount") of the Company to
the Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about May 3, 2000.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: ___________________________________
___________________________________
___________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT F
37
<PAGE>
PUT NOTICE
TECHNICAL CHEMICALS AND PRODUCTS, INC. (the "Company") hereby elects to exercise
a Put to sell shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about May 3, 2000.
Put Date :_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar
Amount (Optional):
________________________________________.
Company Designation Minimum Put Share
Price (Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By:__________________________________
Jack Aronowitz, Chairman
Address:
Attn: Walter V. Usinowicz, Jr.
3341 SW 15th Street
Pompano Beach, FL 33069
Telephone (954) 979-0400, ext. 237
Facsimile (954) 979-6125
EXHIBIT G
38
<PAGE>
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Technical Chemicals and Products, Inc. (the "Company") Put Notice and election
to exercise a Put to sell ___________________________ shares of common stock
("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Swartz Private Equity, LLC dated on or about May 3, 2000.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
_____________________________________
Investor's Name
By: _________________________________
(Signature)
Address: _____________________________________
_____________________________________
_____________________________________
Telephone No.: _____________________________________
Facsimile No.: _____________________________________
EXHIBIT H
39
<PAGE>
PUT CANCELLATION NOTICE
TECHNICAL CHEMICALS AND PRODUCTS, INC. (the "Company") hereby cancels the Put
specified below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Swartz Private Equity, LLC dated on
or about May 3, 2000, as of the close of trading on the date specified below
(the "Cancellation Date," which date must be on or after the date that this
notice is delivered to the Investor), provided that such cancellation shall not
apply to the number of shares of Common Stock equal to the Truncated Put Share
Amount (as defined in the Investment Agreement).
Cancellation Date: ________________________
Put Date of Put Being Canceled: ___________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective
Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By:_____________________________
Jack Aronowitz, Chairman
Address:
Attn: Walter V. Usinowicz, Jr.
3341 SW 15th Street
Pompano Beach, FL 33069
Telephone (954) 979-0400, ext. 237
Facsimile (954) 979-6125
EXHIBIT Q
40
<PAGE>
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Technical Chemicals and Products, Inc.'s, and
Swartz Private Equity, LLC dated on or about May 3, 2000, hereby confirms
receipt of Technical Chemicals and Products, Inc.'s (the "Company") Put
Cancellation Notice, and confirms the following:
Date of this Confirmation: ____________
Put Cancellation Date : _______________
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: ___________________________________
___________________________________
___________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT S
41
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of May 3, 2000, by and among Technical Chemicals and Products, Inc., a
corporation duly incorporated and existing under the laws of the State of
Florida (the "Company"), and the subscriber as named on the signature page
hereto (hereinafter referred to as "Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to
Twenty-Five Million Dollars ($25,000,000), excluding any funds paid upon
exercise of the Warrants, of Common Stock of the Company pursuant to that
certain Investment Agreement of even date herewith (the "Investment Agreement")
between the Company and the Subscriber, the Company has agreed to sell and the
Subscriber has agreed to purchase, from time to time as provided in the
Investment Agreement, shares of the Company's Common Stock for a maximum
aggregate offering amount of Twenty-Five Million Dollars ($25,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to issue to the Subscriber the Commitment Warrants and, from time to
time, the Purchase Warrants, each as defined in the Investment Agreement, to
purchase a number of shares of Common Stock, exercisable for five (5) years from
their respective dates of issuance (collectively, the "Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to provide the Subscriber with certain registration rights with
respect to the Common Stock to be issued in the Offering and the Common Stock
issuable upon exercise of the Warrants as set forth in this Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. As used in this Agreement (including the
Recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both singular and plural forms of the terms
defined):
"Additional Registration Statement" shall have the meaning set
forth in Section 3(b).
"Amended Registration Statement" shall have the meaning set forth
in Section 3(b).
"Business Day" shall have the meaning set forth in the Investment
Agreement.
1
<PAGE>
Exhibit A
"Closing Bid Price" shall have the meaning set forth in the
Investment Agreement.
"Common Stock" shall mean the common stock, par value $0.001,
of the Company.
"Due Date" shall mean the date that is one hundred twenty
(120) days after the date of this Agreement.
"Effective Date" shall have the meaning set forth in Section
2.4.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, together with the rules and regulations
promulgated thereunder.
"Filing Deadline" shall mean the date that is forty-five (45)
days after the date of this Agreement.
"Investment Agreement" shall have the meaning set forth in the
Recitals hereto.
"Holder" shall mean Subscriber, and any other person or entity
owning or having the right to acquire Registrable Securities
or any permitted assignee;
"Piggyback Registration" and "Piggyback Registration
Statement" shall have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the Investment
Agreement.
"Register," "Registered," and "Registration" shall mean and
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule, and the declaration
or ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall have the meaning set forth in
Section 2.1.
"Registration Statement" shall have the meaning set forth in
Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under
the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
2
<PAGE>
"Subscriber" shall have the meaning set forth in the preamble
to this Agreement.
"Supplemental Registration Statement" shall have the meaning
set forth in Section 3(b).
"Warrants" shall have the meaning set forth in the above
Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable
upon exercise of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall
mean those shares of the Common Stock of the Company together with any capital
stock issued in replacement of, in exchange for or otherwise in respect of such
Common Stock, that are: (i) issuable or issued to the Subscriber pursuant to the
Investment Agreement, and (ii) issuable or issued upon exercise of the Warrants;
provided, however, that notwithstanding the above, the following shall not be
considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed
to be Registrable Securities, if and to the extent that those shares of Common
Stock may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Securities Act, including
without limitation, pursuant to Rule 144 under the Securities Act; and
(b) any shares of Common Stock which have been sold
in a private transaction in which the transferor's rights under this Agreement
are not assigned.
2.2 Filing of Initial Registration Statement. The Company
shall, by the Filing Deadline, file a registration statement ("Registration
Statement") on Form S-1 (or other suitable form, at the Company's discretion,
but subject to the reasonable approval of Subscriber), covering the resale of a
number of shares of Common Stock as Registrable Securities equal to at least
Twenty Five Million (25,000,000) shares of Common Stock and shall cover, to the
extent allowed by applicable law, such indeterminate number of additional shares
of Common Stock that may be issued or become issuable as Registrable Securities
by the Company pursuant to Rule 416 of the Securities Act. In the event that the
Company has not filed the Registration Statement by the Filing Deadline, then
the Company shall pay to Subscriber an amount equal to $500, in cash, for each
Business Day after the Filing Deadline until such Registration Statement is
filed, payable within ten (10) Business Days following the end of each calendar
month in which such payments accrue.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall use its
best efforts to have the Registration Statement declared effective by the SEC
3
<PAGE>
(the date of such effectiveness is referred to herein as the "Effective Date")
by the Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Registration Statement shall be
prepared as a "shelf" registration statement under Rule 415, and shall be
maintained effective until all Registrable Securities are resold pursuant to the
Registration Statement.
2.8 Supplemental Registration Statement. Anytime the
Registration Statement does not cover a sufficient number of shares of Common
Stock to cover all outstanding Registrable Securities, the Company shall
promptly prepare and file with the SEC such Supplemental Registration Statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all such Registrable Securities and shall use its best
efforts to cause such Supplemental Registration Statement to be declared
effective as soon as possible.
3. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a Registration Statement with respect to such Registrable
Securities and use its best efforts to cause such Registration Statement to
become effective and to remain effective until all Registrable Securities are
resold pursuant to such Registration Statement, notwithstanding any Termination
or Automatic Termination (as each is defined in the Investment Agreement) of the
Investment Agreement.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement ("Amended Registration Statement") or prepare
and file any additional registration statement ("Additional Registration
Statement," together with the Amended Registration Statement, "Supplemental
Registration Statements") as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Supplemental Registration Statements or such prior registration statement
and to cover the resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
4
<PAGE>
Blue Sky laws of the jurisdictions in which the Holders are located, of such
other jurisdictions as shall be reasonably requested by the Holders of the
Registrable Securities covered by such Registration Statement and of all other
jurisdictions where legally required, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such
event, notify each Holder of Registrable Securities of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Holder as such Holder may reasonably
request.
(g) Provide Holders with notice of the date that a
Registration Statement or any Supplemental Registration Statement registering
the resale of the Registrable Securities is declared effective by the SEC, and
the date or dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity
and a reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity
to review the Registration Statement and all amendments or supplements thereto
prior to their filing with the SEC by giving the Holder at least ten (10)
business days advance written prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by
the SEC or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceeding for such purpose. The Company shall use its best efforts to
prevent the issuance of any stop order and, if any is issued, to obtain the
removal thereof at the earliest possible date.
(k) Use its best efforts to list the Registrable Securities
covered by the Registration Statement with all securities exchanges or markets
on which the Common Stock is then listed and prepare and file any required
filing with the NASD, American Stock Exchange, NYSE and any other exchange or
market on which the Common Stock is listed.
5
<PAGE>
4. Piggyback Registration. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Investment Agreement) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its Common Stock under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely for the sale of securities
to participants in a Company stock plan or a registration on Form S-4
promulgated under the Securities Act or any successor or similar form
registering stock issuable upon a reclassification, upon a business combination
involving an exchange of securities or upon an exchange offer for securities of
the issuer or another entity), the Company shall, at such time, promptly give
each Holder written notice of such registration (a "Piggyback Registration
Statement"). Upon the written request of each Holder given by fax within ten
(10) days after mailing of such notice by the Company, the Company shall cause
to be included in such registration statement under the Securities Act all of
the Registrable Securities that each such Holder has requested to be registered
("Piggyback Registration") to the extent such inclusion does not violate the
registration rights of any other security holder of the company granted prior to
the date hereof; provided, however, that nothing herein shall prevent the
Company from withdrawing or abandoning such registration statement prior to its
effectiveness.
5. Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the related Piggyback
Registration Statement of all Registrable Securities proposed to be included
would interfere with the successful marketing of the securities proposed to be
registered by the Company, then the number of such Registrable Securities to be
included in such Piggyback Registration Statement, to the extent any such
Registrable Securities may be included in such Piggyback Registration Statement,
shall be allocated among all Holders who had requested Piggyback Registration
pursuant to the terms hereof, in the proportion that the number of Registrable
Securities which each such Holder seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders. If required by the
managing underwriter of such an underwritten public offering, the Holders shall
enter into an agreement limiting the number of Registrable Securities to be
included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 or Section 4 by
Holders do not constitute "Registrable Securities" by virtue of Section 2.1 of
this Agreement, and the status of those shares as Registrable Securities is
disputed, the Company shall provide, at its expense, an Opinion of Counsel,
reasonably acceptable to the Holders of the Securities at issue (and
satisfactory to the Company's transfer agent to permit the sale and transfer),
that those securities may be sold immediately, without volume limitation or
other material restrictions, without registration under the Securities Act, by
virtue of Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such securities
to the extent required to effect the registration of its Registrable Securities
6
<PAGE>
or to determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Securities Act. The Company shall include all
information provided by such Holder pursuant hereto in the Registration
Statement, substantially in the form supplied, except to the extent such
information is not permitted by law.
8. Expenses. All expenses, other than commissions and fees and expenses
of counsel to the selling Holders, incurred in connection with registrations,
filings or qualifications pursuant hereto, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors, partners, legal counsel,
and accountants of each Holder, any underwriter (as defined in the Securities
Act, or as deemed by the Securities Exchange Commission, or as indicated in a
registration statement) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of Section 15 of the Securities
Act or the Exchange Act, against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements or omissions: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or (ii) the omission
or alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person; provided however, that the above shall not relieve the Company from any
other liabilities which it might otherwise have.
(b) Each Holder of any securities included in such
registration being effected shall indemnify and hold harmless the Company, its
directors and officers, each underwriter and each other person, if any, who
controls (within the meaning of the Securities Act) the Company or such other
indemnified party, against any liability, joint or several, to which any such
indemnified party may become subject under the Securities Act or any other
7
<PAGE>
statute or at common law, insofar as such liability (or actions in respect
thereof) arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which securities were registered under the
Securities Act at the request of such Holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, or
(ii) any omission or alleged omission by such Holder to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or final prospectus, amendment or
supplement thereto in reliance upon and in conformity with information furnished
in writing to the Company by such Holder specifically for use therein. Such
Holder shall reimburse any indemnified party for any legal fees incurred in
investigating or defending any such liability; provided, however, that such
Holder's obligations hereunder shall be limited to an amount equal to the
proceeds to such Holder of the securities sold in any such registration; and
provided further, that no Holder shall be required to indemnify any party
against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any liability which arises out of the failure of
such party to deliver a prospectus as required by the Securities Act.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume, the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
(d) In the event that the indemnity provided in paragraphs (a)
and/or (b) of this Section 9 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and each Holder agree to
contribute to the aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Holders may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and the Holders in connection with the statements
or omissions which resulted in such Losses. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
8
<PAGE>
information provided by the Company or by the Holders. The Company and the
Holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation that does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 9,
each person who controls a Holder of Registrable Securities within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
partner, employee and agent of a Holder shall have the same rights to
contribution as such holder, and each person who controls the Company within the
meaning of either the Securities Act or the Exchange Act and each director and
officer of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The obligations of the Company and Holders under this
Section 9 shall survive the resale, if any, of the Common Stock, the completion
of any offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
10. Reports Under Exchange Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144; and
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
11. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Technical Chemicals and Products, Inc.;
Attn: Walter V. Usinowicz, Jr.; 3341 SW 15th Street; Pompano Beach, FL 33069;
Telephone: (954) 979-0400, ext. 237, Facsimile: (954) 979-6125; Email:
[email protected] (or at such other location as directed by the Company in
writing) and (ii) the Holders at their respective last address as the party as
shown on the records of the Company. Any notice, except as otherwise provided in
this Agreement, shall be made by fax and shall be deemed given at the time of
transmission of the fax.
9
<PAGE>
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist (as that term is defined in Section 2.1
hereof); but without prejudice to (i) the parties' rights and obligations
arising from breaches of this Agreement occurring prior to such termination (ii)
other indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby agrees to file an
amended registration statement including such transferee or a selling security
holder thereunder; and provided further that the Company may transfer its rights
and obligations under this Agreement to a purchaser of all or a substantial
portion of its business if the obligations of the Company under this Agreement
are assumed in connection with such transfer, either by merger or other
operation of law (which may include without limitation a transaction whereby the
Registrable Securities are converted into securities of the successor in
interest) or by specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Securities Act or the Exchange Act, which matters shall be construed
and interpreted in accordance with such laws. Any dispute arising out of or
relating to this Agreement or the breach, termination or validity hereof shall
be finally settled by the federal or state courts located in Fulton County,
Georgia.
16. Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any
and all claims, damages (including reasonable attorney's fees), and expenses
arising out of the first party's breach of any of the terms of this Agreement.
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Investment Agreement, the Common
Stock certificates, and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein,
[INTENTIONALLY LEFT BLANK]
10
<PAGE>
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 3rd day of May, 2000.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
By: /signed/
--------------------------------
Jack Aronowitz, Chairman
Address:
3341 SW 15th Street
Pompano Beach, FL 33069
Telephone: (954) 979-0400, x237
Facsimile: (954) 979-6125
E- mail: [email protected]
SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: /signed/
--------------------------------
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(The Company's Quarterly Report on Form 10-Q for the Period Ending
March 31, 2000)
</LEGEND>
<CIK> 0000924921
<NAME> WALTER USINOWICZ
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,078
<SECURITIES> 1,336
<RECEIVABLES> 1,193
<ALLOWANCES> 328
<INVENTORY> 1,971
<CURRENT-ASSETS> 6,434
<PP&E> 3,668
<DEPRECIATION> 1,798
<TOTAL-ASSETS> 21,283
<CURRENT-LIABILITIES> 2,402
<BONDS> 0
0
3,005
<COMMON> 30
<OTHER-SE> 15,034
<TOTAL-LIABILITY-AND-EQUITY> 21,283
<SALES> 1,187
<TOTAL-REVENUES> 1,187
<CGS> 709
<TOTAL-COSTS> 709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,541)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,541)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
