CUSIP No. 883906406
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ThermoEnergy Corporation
(Name of Issuer)
Common Stock, par value $0.001
(Title of Class of Securities)
883906406
(CUSIP Number)
Joseph P. Bartlett, Esq.
Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
(310) 201-7481
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
December 18, 2007
(Date of Event which Requires Filing of this Statement)
If the reporting person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g),
check the following box / /.
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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CUSIP No. 883906409
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1. Name of Reporting Persons.
I.R.S. Identification Nos. of above persons (entities only).
David Gelbaum, Trustee, The Quercus Trust
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2. Check the Appropriate Box If a Member of a Group (See Instructions) (a) [X]
(b) [_]
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3. SEC Use Only
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4. Source of Funds (See Instructions) PF
--------------------------------------------------------------------------------
5. Check If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d)
or 2(e) [_]
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6. Citizenship or Place of Organization U.S.
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7. Sole Voting Power NUMBER OF -0-
SHARES -----------------------------------------------------------------
BENEFICIALLY 8. Shared Voting Power
OWNED BY 16,666,667
EACH -----------------------------------------------------------------
REPORTING 9. Sole Dispositive Power
PERSON -0-
WITH -----------------------------------------------------------------
10. Shared Dispositive Power
16,666,667
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11. Aggregate Amount Beneficially Owned by Each Reporting Person
16,666,667
--------------------------------------------------------------------------------
12. Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) [_]
--------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 32.9%(1)
--------------------------------------------------------------------------------
14. Type of Reporting Person (See Instructions) IN
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_______________________
(1) Based on 34,062,552 shares of Common Stock, par value $0.0001 per share,
("Common Stock") outstanding prior to the transaction, and 50,729,219
shares outstanding immediately following the transaction, in each case
calculated in accordance with Rule 13d.
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CUSIP No. 883906409
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1. Name of Reporting Persons.
I.R.S. Identification Nos. of above persons (entities only).
Monica Chavez Gelbaum, Trustee, The Quercus Trust
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2. Check the Appropriate Box If a Member of a Group (See Instructions) (a) [X]
(b) [_]
--------------------------------------------------------------------------------
3. SEC Use Only
--------------------------------------------------------------------------------
4. Source of Funds (See Instructions) PF
--------------------------------------------------------------------------------
5. Check If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d)
or 2(e) [_]
--------------------------------------------------------------------------------
6. Citizenship or Place of Organization U.S.
--------------------------------------------------------------------------------
7. Sole Voting Power NUMBER OF -0-
SHARES -----------------------------------------------------------------
BENEFICIALLY 8. Shared Voting Power
OWNED BY 16,666,667
EACH -----------------------------------------------------------------
REPORTING 9. Sole Dispositive Power
PERSON -0-
WITH -----------------------------------------------------------------
10. Shared Dispositive Power
16,666,667
--------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
16,666,667
--------------------------------------------------------------------------------
12. Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) [_]
--------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 32.9%(1)
--------------------------------------------------------------------------------
14. Type of Reporting Person (See Instructions) IN
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________________________
(1) Based on 34,062,552 shares of Common Stock, par value $0.0001 per share,
("Common Stock") outstanding prior to the transaction, and 50,729,219
shares outstanding immediately following the transaction, in each case
calculated in accordance with Rule 13d.
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CUSIP No. 883906409
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1. Name of Reporting Persons.
I.R.S. Identification Nos. of above persons (entities only).
The Quercus Trust
--------------------------------------------------------------------------------
2. Check the Appropriate Box If a Member of a Group (See Instructions) (a) [X]
(b) [_]
--------------------------------------------------------------------------------
3. SEC Use Only
--------------------------------------------------------------------------------
4. Source of Funds (See Instructions) PF
--------------------------------------------------------------------------------
5. Check If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d)
or 2(e) [_]
--------------------------------------------------------------------------------
6. Citizenship or Place of Organization U.S.
--------------------------------------------------------------------------------
7. Sole Voting Power NUMBER OF -0-
SHARES -----------------------------------------------------------------
BENEFICIALLY 8. Shared Voting Power
OWNED BY 16,666,667
EACH -----------------------------------------------------------------
REPORTING 9. Sole Dispositive Power
PERSON -0-
WITH -----------------------------------------------------------------
10. Shared Dispositive Power
16,666,667
-------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
16,666,667
--------------------------------------------------------------------------------
12. Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) [_]
--------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 32.9%(1)
--------------------------------------------------------------------------------
14. Type of Reporting Person (See Instructions) OO
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________________________
(1) Based on 34,062,552 shares of Common Stock, par value $0.0001 per share,
("Common Stock") outstanding prior to the transaction, and 50,729,219
shares outstanding immediately following the transaction, in each case
calculated in accordance with Rule 13d.
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CUSIP No. 883906409
Item 1. Security and Issuer
Issuer: ThermoEnergy Corp.
Security: Common Stock, par value $0.001 per share ("Common Stock")
Item 2. Identity and Background
(a) This Statement is being filed by The Quercus Trust (the "Trust"),
David Gelbaum, an individual, as co-trustee of the Trust, and Monica Chavez
Gelbaum, an individual, as co-trustee of the Trust (collectively, the "Reporting
Persons").
(b) The Reporting Persons' business address is 1835 Newport Blvd. A109 -
PMB 467, Costa Mesa, California 92627.
(c) David Gelbaum and Monica Chavez Gelbaum are investors; the Trust is a
revocable trust formed for estate planning purposes.
(d) None of the Reporting Persons has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the Reporting Persons has, during the past five years, been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) Each of Mr. and Ms. Gelbaum is a citizen of the United States of
America. The Trust is a California statutory trust.
Item 3. Source and Amount of Funds or Other Consideration
All shares of Common Stock were purchased using personal funds.
Item 4. Purpose of Transaction
The shares of Common Stock were purchased by the Trust for investment
purposes. The Reporting Persons have no plans or proposals which relate to or
which would result in any of the actions specified in clauses (a) through (j) of
Item 4 of Schedule 13D. However, the Reporting Persons retain their rights to
modify their plans with respect to the transactions described in this Schedule
13D, to vote, acquire or dispose of securities of the Issuer and to formulate
plans and proposals which could result in the occurrence of any such events,
subject to applicable laws and regulations.
Item 5. Interest in Securities of the Issuer
(a) As of the date of this Schedule 13D, each reporting person
beneficially owns 6,666,667 shares of Common Stock, and warrants to purchase an
additional 10,000,000 shares of Common Stock, each of which are held of record
by the Trust.
(b) Each of David Gelbaum and Monica Chavez Gelbaum, acting alone, has
the power to exercise voting and investment control over the shares of Common
Stock owned by the Trust.
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CUSIP No. 883906409
(c) During the last 60 days, the Trust has purchased shares of Common
Stock as follows:
On December 18, 2007, The Quercus Trust entered into a Securities
Purchase Agreement with ThermoEnergy Corporation (the "Company"), pursuant to
which the Company agreed to issue to Quercus up to 16,000,001 shares of the
Company's Common Stock and Common Stock Purchase Warrants entitling the holder
to purchase up to 19,333,334 additional shares of the Company's Common Stock.
Pursuant to the Agreement, at an initial closing on December 18, 2007,
the Company issued and sold to Quercus, for an aggregate purchase price of
$5,000,000, 6,666,667 shares of the Company's Common Stock and a Warrant for the
purchase of 10,000,000 shares of the Company's Common Stock. The Warrant permits
the holder to purchase, at any time on or before December 31, 2012, up to
10,000,000 shares of the Company's Common Stock at a purchase price of $1.50 per
share. The Warrant contains conventional anti-dilution provisions for adjustment
of the exercise price in the event the Company issue additional shares of the
Company's Common Stock or securities convertible into Common Stock (subject to
certain specified exclusions) at a price less than $1.00 per share. The Warrant
also includes conventional provisions permitting "cashless" exercise under
certain specified circumstances.
The Agreement provides that Quercus will purchase an additional 9,333,334
shares of the Company's Common Stock and an additional Warrant (in form
substantially identical to the Warrant issued at the initial closing) for the
purchase of 9,333,334 shares of the Company's Common Stock upon the satisfaction
of certain conditions set forth in the Agreement . The aggregate purchase price
payable by Quercus for the additional shares and Warrant will range from
$7,000,000 to $8,500,000, depending on the date on which the conditions to the
second closing are satisfied.
In the Agreement, the Company agreed to file one or more registration
statements under the Securities Act of 1933 covering the resale by Quercus of
the shares of the Company's Common Stock issued pursuant to the Agreement and
the shares of the Company's Common Stock issued upon exercise of the Warrants.
The registration rights provisions of the Agreement contain conventional terms
including indemnification and contribution undertakings and a provision for
liquidated damages in the event the required registration statements are not
filed, or are not declared effective, prior to deadlines set forth in the
Agreement.
The Agreement also grants to Quercus a right of first refusal to
participate in any subsequent financing the Company undertake prior to the
second anniversary of the second closing (subject to certain conventional
exceptions) in order to permit Quercus to maintain its fully-diluted ownership
interest in the Company's Common Stock.
The Agreement, including the form of Warrant, is filed as Exhibit B to
the Schedule 13D, and the foregoing descriptions are qualified in their entirety
by reference to such Exhibits.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer
(a) Pursuant to the Power of Attorney filed as Exhibit "B" to
Amendment No. 1 to Schedule 13D filed on August 24, 2007 with respect to the
issuer Emcore Corp., David Gelbaum has been appointed as Monica Chavez Gelbaum's
Attorney-In-Fact.
(b) Securities Purchase Agreement dated December 18, 2007.
Item 7. Material to Be Filed as Exhibits
Exhibit A: Agreement Regarding Joint Filing of Schedule 13D.
Exhibit B: Securities Purchase Agreement
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CUSIP No. 883906409
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
each of the undersigned certifies that the information set forth in this
statement is true, complete and correct and agrees that this statement may be
filed jointly with the other undersigned parties.
Dated: December 31, 2007 /s/ David Gelbaum
----------------------------------------------
David Gelbaum, Co-Trustee of The Quercus Trust
/s/ David Gelbaum, as Attorney-In-Fact for
Monica Chavez Gelbaum
----------------------------------------------
Monica Chavez Gelbaum, Co-Trustee of The
Quercus Trust
/s/ David Gelbaum
----------------------------------------------
The Quercus Trust, David Gelbaum, Co-Trustee
of The Quercus Trust
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CUSIP No. 883906409
Exhibit A
Agreement Regarding Joint Filing of Schedule 13D
------------------------------------------------
The undersigned agree that the Schedule 13D with respect to the Common
Stock of Electro Energy Inc. is a joint filing being made on their behalf.
Dated: December 31, 2007 /s/ David Gelbaum
----------------------------------------------
David Gelbaum, Co-Trustee of The Quercus Trust
/s/ David Gelbaum, as Attorney-In-Fact for
Monica Chavez Gelbaum
----------------------------------------------
Monica Chavez Gelbaum, Co-Trustee of The
Quercus Trust
/s/ David Gelbaum
----------------------------------------------
The Quercus Trust, David Gelbaum, Co-Trustee
of The Quercus Trust
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Schedule B
THERMOENERGY CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of December
18, 2007, by and between ThermoEnergy Corporation, a Delaware corporation (the
"COMPANY"), and The Quercus Trust (the "INVESTOR").
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506
promulgated thereunder, the Company desires to issue and sell to the Investor,
and the Investor desires to purchase from the Company certain securities of the
Company, as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agree as
follows:
ARTICLE 1
DEFINITIONS
Section 1.1. DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"ACTION" means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.
"ADJUSTED PURCHASE PRICE" has the meaning set forth in Section 2.2.
"AFFILIATE" means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the City of New
York are authorized or required by law or other governmental action to close.
"BUY-IN" has the meaning set forth in Section 5.1(c).
"CLAIM" has the meaning set forth in Section 4.6(c).
"CLOSING" means each closing of the purchase and sale of Shares and a Warrant
pursuant to Article 2.
"CLOSING DATE" means the Initial Closing Date and date on which the Second
Closing, if any, occurs pursuant to Section 2.2 hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.
"COMPANY COUNSEL" means Nixon Peabody, LLP.
"COMPANY DELIVERABLES" has the meaning set forth in Section 2.2(a).
"COMPANY STOCK OPTIONS" has the meaning set forth in Section 3.1(g).
"CONTINGENT OBLIGATIONS" has the meaning set forth in Section 3.1(r).
"CONVERTIBLE SECURITIES" has the meaning set forth in Section 3.1(g).
"CUT BACK SHARES" has the meaning assigned thereto in Section 4.1(a).
"DELAWARE COURTS" has the meaning set forth in Section 7.9.
"DEVELOPMENT CONTRACT" means a fully executed contract between the Company and
the City of New York, New York (or any agency thereof) for the development of
the 26th Ward wastewater treatment plant substantially as set forth in the
business plan previously provided by the Company to the Investor.
"EFFECTIVE DATE" means the date that any Registration Statement filed pursuant
to Article 4 is first declared effective by the Commission.
"EFFECTIVENESS PERIOD" has the meaning set forth in Section 4.1(b).
"ENVIRONMENTAL LAW" has the meaning set forth in Section 3.1(aa).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business, whether or not incorporated, that
together with the Company would be deemed to be a single employer for purposes
of Section 4001 of ERISA or Sections 414(b), (c), (m), (n) or (o) of the
Internal Revenue Code of 1986, as amended.
"EVALUATION PERIOD" has the meaning set forth in Section 3.1(r).
"EVENT" has the meaning set forth in Section 4.1(d).
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"EVENT DATE" has the meaning set forth in Section 4.1(d).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXEMPT ISSUANCE" means the issuance by the Company (a) to employees, officers,
directors of, and consultants to, the Company of shares of Common Stock or
options for the purchase of shares of Common Stock pursuant to stock option or
long-term incentive plans approved by the Board, (b) of shares of Common Stock
upon the exercise of Warrants issued hereunder, (c) of shares of Common Stock
upon conversion of shares of Series A Preferred Stock, (d) of shares of Common
Stock upon exercise of Prior Warrants or conversion of Prior Convertible
Securities, (e) of securities issued pursuant to acquisitions, licensing
agreements, or other strategic transactions, (f) of securities issued in
connection with equipment leases, real property leases, loans, credit lines,
guaranties or similar transactions approved by the Board, (g) of securities
issued in connection with join ventures or similar strategic relationships
approved by the Board, (h) of securities in a merger, or (i) of securities in a
public offering registered under the Securities Act; provided that in the case
of securities issued pursuant clauses (e), (g) and (h), the purpose of such
issuance may not be primarily to obtain cash financing.
"FILING DATE" means the date that is 60 days after the Initial Closing Date.
"FINANCING NOTICE" has the meaning set forth in Section 5.5(b).
"FIRST CLOSING UNIT" means a Unit consisting of one Share and a Warrant to
purchase one and one-half shares of Common Stock, issued in combination.
"GAAP" means generally accepted accounting principles as in effect from time to
time in the United States of America.
"GOVERNMENTAL AUTHORITY" has the meaning set forth in Section 3.1(e).
"HAZARDOUS SUBSTANCE" has the meaning set forth in Section 3.1(aa).
"INDEBTEDNESS" has the meaning set forth in Section 3.1(r).
"INDEMNIFIED PARTY" has the meaning set forth in Section 4.6(c).
"INDEMNIFIED PERSON" has the meaning set forth in Section 4.6(a).
"INDEMNIFYING PARTY" has the meaning set forth in Section 4.6(c).
"INITIAL CLOSING DATE" means the Business Day immediately following the date on
which all of the conditions set forth in Sections 6.1 and 6.2 hereof are
satisfied, or such other date as the parties may agree.
"INITIAL PURCHASE PRICE" has the meaning set forth in Section 2.1.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in Section 3.1(o).
"INVESTOR DELIVERABLES" has the meaning set forth in Section 2.2(b).
"LIEN" means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.
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"LOSSES" has the meaning set forth in Section 5.7.
"MATERIAL ADVERSE EFFECT" means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material impairment of the Company's
ability to perform on a timely basis its obligations under any Transaction
Document.
"NASD RULES" has the meaning set forth in Section 4.3(o).
"OFAC" has the meaning set forth in Section 3.1(ee).
"OUTSIDE DATE" means June 30, 2009.
"PENALTY BASE" has the meaning set forth in Section 4.1(d).
"PERSON" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
"PLACEMENT AGENT" has the meaning set forth in Section 3.1(s).
"PLAN OF DISTRIBUTION" has the meaning set forth in Section 4.2(o).
"POST-EFFECTIVE AMENDMENT" means a post-effective amendment to the Registration
Statement.
"POST-EFFECTIVE AMENDMENT FILING DEADLINE" means the seventh Business Day after
the Registration Statement ceases to be effective pursuant to applicable
securities laws due to the passage of time or the occurrence of an event
requiring the Company to file a Post-Effective Amendment.
"PRE-NOTICE" has the meaning set forth in Section 5.5(b). "PRIOR WARRANTS" has
the meaning set forth in Section 3.1(g).
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PROSPECTUS" has the meaning set forth in Section 4.3.
"PROPOSED FINANCING" has the meaning set forth in Section 5.5(a).
"PROPOSED FINANCING NOTICE" has the meaning set forth in Section 5.5(b).
"PURCHASE PRICE" means either the Initial Purchase price or the Adjusted
Purchase Price, as the context indicates.
"REGISTRABLE SECURITIES" means the Shares and the Warrant Shares; provided,
however, that the Investor shall not be required to exercise the Warrants in
order to have the Warrant Shares included in any Registration Statement.
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"REGISTRATION PERIOD" means the period commencing on the date hereof and ending
on the date on which all of the Registrable Securities may be sold to the public
without registration under the Securities Act in reliance on paragraph (k) of
Rule 144.
"REGISTRATION STATEMENT" means a registration statement filed on the appropriate
Form with, and declared effective by, the Commission under the Securities Act
and covering the resale by the Investor of the Registrable Securities.
"REQUESTED INFORMATION" has the meaning set forth in Section 4.3(a).
"REQUIRED EFFECTIVENESS DATE" means the earlier of (i) the date that is 150 days
after the Initial Closing Date, or, in the case of the registration of Cut Back
Shares, 120 days after the Restriction Termination Date or (ii) five Business
Days after receipt by the Company from the Commission of notice of "no review"
of the Registration Statement.
"RESTRICTION TERMINATION DATE" has the meaning assigned thereto in Section
4.1(a).
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 415 RESPONSE EFFORT" has the meaning assigned thereto in Section 4.1(a).
"SECOND CLOSING UNIT" means a Unit consisting of one Share and a Warrant to
purchase one share of Common Stock, issued in combination.
"SEC OBJECTION" has the meaning assigned thereto in Section 4.1(a).
"SEC RESTRICTIONS" has the meaning assigned thereto in Section 4.1(a).
"SEC REPORTS" has the meaning set forth in Section 3.1(h).
"SECURITIES" means the Shares, the Warrant, and the Warrant Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" means the shares of the preferred stock of the
Company, par value $0.01 per share, that have been designated as "Series A
Convertible Preferred Stock."
"SHARES" means the shares of Common Stock issuable to the Investor at the
Closings.
"SUBSIDIARY" means any "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X promulgated by the Commission under the Exchange Act.
"TRADING DAY" means (i) a day on which the Common Stock is traded on a Trading
Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
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"TRADING MARKET" means whichever of the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market, or the Nasdaq Over-the-Counter
Market on which the Common Stock is listed or traded on the date in question.
"TRANSFER AGENT" has the meaning set forth in Section 5.1(c).
"TRANSACTION DOCUMENTS" means this Agreement, the Warrant and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
"UNIT" means a First Closing Unit or a Second Closing Unit, as the context
indicates.
"WARRANT" means any of the Common Stock Purchase Warrants, in the form of
Exhibit A, which are issuable to the Investor at the Closings.
"WARRANT SHARES" means the shares of Common Stock issuable upon exercise of the
Warrants.
ARTICLE 2
PURCHASE AND SALE
Section 2.1. ISSUANCE OF SECURITIES AT THE INITIAL CLOSING. Upon the
terms and subject to the conditions set forth in this Agreement, and in
accordance with applicable law, the Company agrees to sell to the Investor, and
the Investor agrees to purchase from the Company, for the purchase price of
$0.75 per Unit (the "INITIAL PURCHASE PRICE"), on the Initial Closing Date,
6,666,667 First Closing Units, each Unit to consist of (i) one Share and (ii) a
Warrant to purchase 1.5 shares of Common Stock.
Section 2.2. ISSUANCE OF SECURITIES AT THE SECOND CLOSINGS. If but only
if the Development Contract is executed and delivered on or before the Outside
Date, on the fifth Business Day following the filing by the Company with the
Commission of a Current Report on Form 8-K reporting the execution and delivery
of the Development Contract, the Company will sell to the Investor, and the
Investor will purchase from the Company, at the purchase price per Unit
determined in accordance with the following sentence (the "ADJUSTED PURCHASE
PRICE"), 9,333,334 Second Closing Units, each Unit to consist of (i) one Share
and (ii) a Warrant to purchase one share of Common Stock. The purchase price per
Unit payable for the Second Closing Units shall be as set forth below:
IF THE DEVELOPMENT CONTRACT IS EXECUTED AND DELIVERED
ON OR BEFORE: ADJUSTED PURCHASE PRICE
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60 days after the Initial Closing Date $ 0.91072
90 days after the Initial Closing Date $ 0.83036
120 days after the Initial Closing Date $ 0.77679
More than 120 days after the Initial Closing Date $ 0.75
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6
Section 2.3. PAYMENT OF PURCHASE PRICE. As consideration for the
issuance of the Securities being purchased at each Closing, the Investor shall
on the respective Closing Date pay to the Company, by wire transfer or other
form of immediately available funds, an amount equal to applicable aggregate
Purchase Price for the Securities being purchased at such Closing.
Section 2.4. DELIVERY OF SECURITIES. At each Closing, the Company
shall, against payment by the Investor of the applicable Purchase Price, (i)
issue to the Investor the Warrants included in the Units being purchased at such
Closing and (ii) execute and deliver to the transfer agent for the Common Stock
irrevocable instructions to issue to the Investor the number of Shares included
in the Units being purchased at such Closing.
Section 2.5. ADDITIONAL CLOSING DELIVERIES. At each Closing, the Company
shall deliver or cause to be delivered to the Investor the following (the
"COMPANY DELIVERABLES"):
(i) The legal opinion of Company Counsel, in substantially the form of
Exhibit B hereto, addressed to the Investor;
(ii) The Certificate of Incorporation of the Company, together with all
amendments thereto, certified by the Secretary of State of the
State of Delaware as of a date not more than five Business Days
prior to the Closing Date;
(iii) Copies of each of the following documents, in each case certified
by the Secretary of the Company to be in full force and effect on
the Closing Date:
(A) resolutions of the board of directors of the Company
approving the execution, delivery and performance of the
Transaction Documents and the transactions contemplated
thereby;
(B) the By-laws of the Company; and
(C) irrevocable instructions to the Company's transfer agent as
to the reservation and issuance of the Warrant Shares; and
(iv) A good standing certificate of the Company issued by the Secretary
of State of the State of Delaware dated as of a date no earlier
than five Business Days prior to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to the Investor:
(a) SUBSIDIARIES. The Company has no direct or indirect Subsidiaries
other than as specified in the SEC Reports. Except as disclosed in
the SEC Reports, the Company owns, directly or indirectly, all of
the capital stock of each Subsidiary free and clear of any and all
Liens other than Liens disclosed in the SEC Reports, and all the
issued and outstanding shares of capital stock of each Subsidiary
are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
7
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and each
Subsidiary is duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents. Each of the Company and each Subsidiary is duly
qualified to conduct its respective business and is in good
standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, and
no proceedings have been instituted in any such jurisdiction
revoking, limiting or curtailing, or seeking to revoke, such power
and authority or qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution
and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the
Company in connection therewith. Each Transaction Document has
been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable
principles of general application.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will
not (i) conflict with or violate any provision of the Company's or
any Subsidiary's certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
or result in the imposition of any Lien upon any of the material
properties or assets of the Company or of any Subsidiary pursuant
to, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.
8
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority (a
"GOVERNMENTAL AUTHORITY") or other Person in connection with the
execution, delivery and performance by the Company of the
Transaction Documents and the consummation of the transactions
contemplated thereby, other than (i) the filing of a Notice of
Sale of Securities on Form D with the Commission under Regulation
D of the Securities Act (ii) filings required under applicable
state securities laws, and (iii) the filing with the Commission of
one or more Registration Statements in accordance with the
requirements of Article 4 of this Agreement,.
(f) ISSUANCE OF THE SECURITIES. The Securities have been duly
authorized. Each Share, when issued and paid for in accordance
with this Agreement, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens. Each Warrant, when
issued and paid for in accordance with this Agreement, will be
duly and validly issued. The Company has reserved and set aside
from its duly authorized capital stock a sufficient number of
shares of Common Stock to satisfy in full the Company's
obligations to issue the Warrant Shares upon exercise of the
Warrants. The Warrants Shares, when issued and paid for upon
exercise of the Warrants in accordance with their terms, will be
duly and validly issued, fully paid and nonassessable, free and
clear of all Liens.
(g) CAPITALIZATION. The authorized capital stock of the Company
consists of 150,000,000 shares of Common Stock and 20,000,000
shares of Preferred Stock, par value $0.01, of which 10,000,000
shares have been designed Series A Preferred Stock and 10,000,000
shares are undesignated. As of the close of business on the
Business Day immediately prior to the date hereof, (i) 5,306,670
shares of Series A Preferred Stock were issued and outstanding,
all of which are validly issued, fully-paid and non-assessable,
(ii) 34,062,552 shares of Common Stock were issued and
outstanding, all of which are validly issued, fully-paid and
non-assessable, (iii) 83,797 shares of Common Stock were held by
the Company in Treasury, (iv) 6,516,900 shares of Common Stock
were reserved for issuance upon exercise of outstanding options
granted to employees, directors, and consultants of the Company
(the "COMPANY STOCK OPTIONS"); (v) 15,916,616 shares of Common
Stock were reserved for issuance upon exercise of outstanding
warrants to purchase Common Stock (the "PRIOR WARRANTS"); (vi)
5,306,670 shares of Common Stock were reserved for issuance upon
conversion of outstanding shares of Series A Preferred Stock, and
(vii) 10,206,253 shares of Common Stock were reserved for issuance
upon conversion of other convertible notes, debentures or
securities ("PRIOR CONVERTIBLE SECURITIES"). No Person has any
right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except pursuant to (i)
the outstanding shares of Series A Preferred Stock, (ii) the
Company Stock Options, (iii) the Prior Warrants or (iv) the Prior
Convertible Securities, or as a result of the purchase and sale of
the Securities as contemplated by this Agreement, there are no
outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable
for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. The issue and sale of
the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the
Investor) and will not result in a right of any holder of Company
securities to adjust the exercise or conversion price under such
securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or any other
Person is required for the issuance and sale of the Securities.
There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders.
9
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Securities Act and
the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the twelve months preceding the date hereof (the
foregoing materials, being collectively referred to herein as the
"SEC REPORTS"). As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations
of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance
with GAAP applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) FINANCIAL STATEMENTS AND MATERIAL CHANGES. Except as set forth in
the SEC Reports (including the financial statements included
therein), (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any
liabilities or obligations (contingent or otherwise) other than
(A) trade payables, accrued expenses and other liabilities
incurred in the ordinary course of business consistent with past
practice and (B) liabilities incurred in the ordinary course of
business not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the
Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its
capital stock, and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant
to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential
treatment of information.
(j) LITIGATION AND INVESTIGATIONS. There is no Action which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC
Reports, could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof (in his
capacity as such), is or has been the subject of any Action
involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty,
except as specifically disclosed in the SEC Reports. There has not
been, and to the knowledge of the Company, there is not pending
any investigation by the Commission involving the Company or any
current or former director or officer of the Company (in his or
her capacity as such). The Commission has not issued any stop
order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary
under the Exchange Act or the Securities Act. There are no
outstanding comments by the Staff of the Commission on any filing
by the Company or any Subsidiary under the Exchange Act or the
Securities Act.
10
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that
has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim
that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal,
state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not,
individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could
not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, and neither the
Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such permits.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them
that is material to their respective businesses and good and
marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and
clear of all Liens, except for Liens that do not materially affect
the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the
Company and the Subsidiaries. All real property and facilities
held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the
Company and the Subsidiaries are in material compliance, except as
could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material
for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have
could, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect (collectively, THE
"INTELLECTUAL PROPERTY RIGHTS"). No claims or Actions have been
made or filed by any Person against the Company to the effect that
Intellectual Property Rights used by the Company or any Subsidiary
violate or infringe upon the rights of such claimant. To the
knowledge of the Company, after commercially reasonable
investigation, all of the Intellectual Property Rights are
enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
11
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are
engaged. The Company has no reason to believe that it will not be
able to renew its and the Subsidiaries' existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business on terms consistent with the market for the Company's and
such Subsidiaries' respective lines of business.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth in
the SEC Reports, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the
Company is a party to any transaction with the Company or any
Subsidiary (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 entity in which
any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
(r) SARBANES-OXLEY; INTERNAL ACCOUNTING CONTROLS. The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 (including the rules and regulations of the Commission
adopted thereunder) which are applicable to it as of the Closing
Date. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the
filing date of the most recently filed periodic report under the
Exchange Act (such date, the "EVALUATION DATE"). The Company
presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no significant changes in the Company's
internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the Company's
knowledge, in other factors that could significantly affect the
Company's internal controls. The Company maintains a standard
system of accounting established and administered in accordance
with GAAP.
(s) CERTAIN FEES. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement except to Merriman Curhan Ford & Co. (the "PLACEMENT
AGENT"). The Investor shall have no obligation with respect to any
fees or with respect to any claims (other than such fees or
commissions owed by the Investor pursuant to written agreements
executed by the Investor which fees or commissions shall be the
sole responsibility of the Investor) made by or on behalf of the
Placement Agent or any other Persons for fees of a type
contemplated in this Section that may be due in connection with
the transactions contemplated by this Agreement.
12
(t) CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
Investor's representations and warranties set forth in Section
3.2(b)-(e), no registration under the Securities Act is required
for the offer and sale of the Securities by the Company to the
Investor under the Transaction Documents.
(u) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
of, and immediately following the Closing will not have become, an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(v) NO ADDITIONAL AGREEMENTS. The Company does not have any agreement
or understanding with the Investor with respect to the
transactions contemplated by the Transaction Documents other than
as specified in the Transaction Documents.
(w) FULL DISCLOSURE. All disclosures provided to the Investor
regarding the Company, its business and the transactions
contemplated hereby, furnished by or on behalf of the Company
(including the Company's representations and warranties set forth
in this Agreement) are true and correct in all material respects
and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they were made, not misleading.
(x) ENVIRONMENTAL MATTERS. To the Company's knowledge, after
commercially reasonable investigation: (i) the Company and its
Subsidiaries have complied with all applicable Environmental Laws;
(ii) the properties currently owned or operated by Company
(including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances;
(iii) the properties formerly owned or operated by Company or its
Subsidiaries were not contaminated with Hazardous Substances
during the period of ownership or operation by Company and its
Subsidiaries; (iv) Company and its Subsidiaries are not subject to
liability for any Hazardous Substance disposal or contamination on
any third party property; (v) Company and its Subsidiaries have
not been associated with any release or threat of release of any
Hazardous Substance; (vi) Company and its Subsidiaries have not
received any notice, demand, letter, claim or request for
information alleging that Company and its Subsidiaries may be in
violation of or liable under any Environmental Law; and (vii)
Company and its Subsidiaries are not subject to any orders,
decrees, injunctions or other arrangements with any Governmental
Authority or subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or
relating to Hazardous Substances.
As used in this Agreement, the term "ENVIRONMENTAL LAW" means any federal,
state, local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or natural
resources; (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
As used in this Agreement, the term "HAZARDOUS SUBSTANCE" means any substance
that is: (i) listed, classified or regulated pursuant to any Environmental Law;
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any Governmental Authority pursuant to any Environmental
Law.
13
(y) TAXES. The Company and its Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns when
due (or obtained appropriate extensions for filing) and have paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been or might be asserted
or threatened against it or any Subsidiary which would have a
Material Adverse Effect.
(z) PRIVATE OFFERING. Assuming the correctness of the representations
and warranties of the Investors set forth in this Agreement, the
offer and sale of the Convertible Notes and the Warrants hereunder
are, and upon (i) exercise of the Warrants, the issuance of the
Warrant Shares and (ii) upon conversion of the Convertible Notes,
the issuance of the Conversion Shares will be, exempt from
registration under the Securities Act. The Company has offered the
Convertible Notes and the Warrants for sale only to the Investor.
(aa) ERISA. Neither the Company nor any ERISA Affiliate maintains,
contributes to or has any liability or contingent liability with
respect to any employee benefit plan subject to ERISA.
(bb) FOREIGN ASSETS CONTROL REGULATIONS AND ANTI-MONEY LAUNDERING.
(i) OFAC. Neither the issuance of the Convertible Note and Warrant
to the Investor, nor the use of the respective proceeds thereof, shall
cause the Investor to violate the U.S. Bank Secrecy Act, as amended, and
any applicable regulations thereunder or any of the sanctions programs
administered by the U.S. Department of the Treasury's Office of Foreign
Assets Control ("OFAC") of the United States Department of Treasury, any
regulations promulgated thereunder by OFAC or under any affiliated or
successor governmental or quasi-governmental office, bureau or agency and
any enabling legislation or executive order relating thereto. Without
limiting the foregoing, neither the Company nor any Subsidiary (i) is a
person whose property or interests in property are blocked or subject to
blocking pursuant to Section 1 of Executive Order 13224 of September 23,
200l Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)), (ii) engages in any dealings or transactions prohibited by
Section 2 of such executive order, or is otherwise associated with any
such person in any manner violative of Section 2, or (iii) is a person on
the list of Specially Designated Nationals and Blocked Persons or subject
to the limitations or prohibitions under any other OFAC regulation or
executive order.
(ii) PATRIOT ACT. The Company and each of its Subsidiaries are in
compliance, in all material respects, with the USA PATRIOT Act. No part
of the proceeds of the sale of the Shares and the Warrants hereunder will
be used, directly or indirectly, for any payments to any governmental
official or employee, political party, official of a political party,
candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any
improper advantage, in violation of the United States Foreign Corrupt
Practices Act of 1977, as amended.
14
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
hereby represents and warrants to the Company as follows:
(a) AUTHORITY. This Agreement has been duly executed by the Investor,
and when delivered by the Investor in accordance with terms
hereof, will constitute the valid and legally binding obligation
of the Investor, enforceable against him in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable
principles of general application.
(b) INVESTMENT INTENT. The Investor is acquiring the Securities as
principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or
any part thereof, without prejudice, however, to the Investor's
right at all times to sell or otherwise dispose of all or any part
of such Securities in compliance with applicable federal and state
securities laws. The Investor does not have any agreement or
understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(c) INVESTOR STATUS. The Investor is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and a "qualified
institutional buyer" as defined in Rule 144A under the Securities
Act. The Investor is not a registered broker-dealer under Section
15 of the Exchange Act.
(d) ACCESS TO INFORMATION. The Investor acknowledges that he has
reviewed the SEC Reports and has been afforded (i) the opportunity
to ask such questions as he has deemed necessary of, and to
receive answers from, representatives of the Company concerning
the terms and conditions of the offering of the Securities and the
merits and risks of investing in the Securities; (ii) access to
information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable him to
evaluate his investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make
an informed investment decision with respect to the investment.
(e) GENERAL SOLICITATION. The Investor is not purchasing the
Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television
or radio or presented at any seminar or any other general
solicitation or general advertisement.
(f) DISCLOSURE. The Investor acknowledges and agrees that the Company
neither makes nor has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.1.
15
ARTICLE 4
REGISTRATION RIGHTS
Section 4.1. SHELF REGISTRATION.
(a) As promptly as possible, and in any event on or prior to
the Filing Date, the Company shall prepare and file with the Commission a
"shelf" Registration Statement covering the resale of all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on a Form S-3; in the event Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form in accordance herewith and (ii) attempt
to register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statements then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the Commission. If at any time the staff of the Commission takes
the position that the offering of some or all of the Registrable Securities in a
Registration Statement is not eligible to be made on a delayed or continuous
basis under the provisions of Rule 415 under the Securities Act or requires any
Investor to be named as an "underwriter" (an "SEC OBJECTION"), the Company shall
promptly notify the Investor of such SEC Objection and if the Investor shall
request, the Company shall use its commercially reasonable efforts to persuade
the staff of the Commission that the offering contemplated by the Registration
Statement is a valid secondary offering and not an offering "by or on behalf of
the issuer" as defined in Rule 415 and that the Investor is not an "underwriter"
(a "RULE 415 RESPONSE EFFORT"). The Investor shall have the right to participate
or have its counsel participate in any meetings or discussions with the staff of
the Commission regarding such position and to comment or have its counsel
comment on any written submission made to the staff of the Commission with
respect thereto, and to have such comments relayed to the staff of the
Commission with the consent of the Company, not to be unreasonably withheld. No
such written submission shall be made to the staff of the Commission to which
the Investor's counsel reasonably objects. In the event that, despite the
Company's commercially reasonable efforts and compliance with the terms of this
Section 4.1(a), the staff of the Commission refuses to alter its position, the
Company shall (i) remove from the Registration Statement such portion of the
Registrable Securities (the "CUT BACK SHARES") and/or (ii) agree to such
restrictions and limitations on the registration and resale of the Registrable
Securities as the staff of the Commission may require to assure the Company's
compliance with the requirements of Rule 415; provided, however, that the
Company shall not agree to name any Investor as an "underwriter" in such
Registration Statement without the prior written consent of such Investor
(collectively, the "SEC RESTRICTIONS"). Notwithstanding any other provision of
this Agreement to the contrary, no liquidated damages shall accrue pursuant to
Section 4.1(d) (i) during the pendency of a Rule 415 Response Effort or (ii) on
or as to any Cut Back Shares until such time as the Company is able, using
commercially reasonable efforts, to effect the filing of an additional
Registration Statement with respect to the Cut Back Shares in accordance with
any SEC Restrictions (such date, the "RESTRICTION TERMINATION Date"). From and
after the Restriction Termination Date, all of the provisions of this Article 4
(including the liquidated damages provisions) shall again be applicable to the
Cut Back Shares; provided, however, that for such purposes, references to the
Filing Date shall be deemed to be the date that is 30 days after the Restriction
Termination Date.
(b) The Company shall use its best efforts to cause each
Registration Statement filed hereunder to be declared effective by the
Commission as promptly as possible after the filing thereof, but in any event
prior to the Required Effectiveness Date, and shall use its best efforts to keep
the Registration Statement continuously effective under the Securities Act until
the earlier of (i) the fifth anniversary of the Effective Date, (ii) the date
when all Registrable Securities covered by such Registration Statement have been
sold publicly, or (iii) the date on which the Registrable Securities are
eligible for sale without volume limitation pursuant to subparagraph (k) of Rule
144 (the "EFFECTIVENESS PERIOD"). The Company shall notify the Investor in
writing promptly (and in any event within one Business Day) after receiving
notification from the Commission that the Registration Statement has been
declared effective.
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(c) As promptly as possible, and in any event no later than
the Post-Effective Amendment Filing Deadline, the Company shall prepare and file
with the Commission a Post-Effective Amendment. The Company shall use its best
efforts to cause the Post-Effective Amendment to be declared effective by the
Commission as promptly as possible after the filing thereof. The Company shall
notify the investor in writing promptly (and in any event within one Business
Day) after receiving notification from the Commission that the Post-Effective
Amendment has been declared effective.
(d) If: (i) any Registration Statement is not filed on or
prior to the Filing Date (or the Restriction Termination Date, as applicable) or
a Post-Effective Amendment is not filed on or prior to the Post-Effective
Amendment Filing Deadline, or (ii) the Company fails to file with the Commission
a request for acceleration of effectiveness in accordance with Rule 461
promulgated under the Securities Act, within five Business Days after the date
that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or will not be
subject to further review, or (iii) the Company fails to respond to any comments
made by the Commission within 15 Business Days after the receipt of such
comments, or (iv) a Registration Statement filed hereunder is not declared
effective by the Commission by the Required Effectiveness Date (which date shall
be extended by 30 days in the case of a comment regarding Rule 415), or a
Post-Effective Amendment is not declared effective on or prior to the fifteenth
Business Day following the Post-Effective Amendment Filing Deadline, or (v)
after a Registration Statement is filed with and declared effective by the
Commission, such Registration Statement ceases to be effective as to all
Registrable Securities to which it is required to relate at any time prior to
the expiration of the Effectiveness Period for a period of more than 60 days
without being succeeded by an amendment to such Registration Statement or by a
subsequent Registration Statement filed with and declared effective by the
Commission, or (vi) an amendment to a Registration Statement is not filed by the
Company with the Commission within 15 Business Days after the Commission's
having notified the Company that such amendment is required in order for such
Registration Statement to be declared effective (any such failure or breach
being referred to as an "Event" and the date on which such Event occurs being
referred to as "EVENT DATE"), then: (x) on each such Event Date the Company
shall pay to the Investor an amount in cash, as liquidated damages and not as a
penalty, equal to 1% of the aggregate Purchase Price paid by the Investor
pursuant to this Agreement for the Registrable Securities covered by such
Registration Statement (the "PENALTY BASE"); and (y) on the same day of each
successive month following such Event Date (so long as the applicable Event
shall not have been cured by such date) until the applicable Event is cured, the
Company shall pay to the Investor an amount in cash, as liquidated damages and
not as a penalty, equal to 1% of the Penalty Base. Such payments shall be the
Investor's sole and exclusive remedy for such Events. If the Company fails to
pay any liquidated damages pursuant to this Section in full within seven
Business Days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Investor, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full.
(e) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities.
(f) If the Company issues to the Investor any Common Stock
pursuant to the Transaction Documents that is not included in the initial
Registration Statement, then the Company shall file an additional Registration
Statement covering such number of shares of Common Stock on or prior to the
Filing Date and shall use it best efforts, but in no event later than the
Required Effectiveness Date, to cause such additional Registration Statement to
be declared effective by the Commission.
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Section 4.2. REGISTRATION PROCESS. In connection with the registration of
the Registrable Securities pursuant to Section 4.1, the Company shall:
(a) Prepare and file with the Commission the Registration Statement and
such amendments (including post-effective amendments) to the Registration
Statement and supplements to the prospectus included therein (a "PROSPECTUS") as
the Company may deem necessary or appropriate and take all lawful action such
that the Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, not misleading and that the Prospectus forming part of the
Registration Statement, and any amendment or supplement thereto, does not at any
time during the Registration Period include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.;
(b) Comply with the provisions of the Securities Act with respect to
the Registrable Securities covered by the Registration Statement until the
earlier of (i) such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the
Investor as set forth in the Prospectus forming part of the Registration
Statement or (ii) the date on which the Registration Statement is withdrawn;
(c) Prior to the filing with the Commission of the Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
to the Investor and reflect in such documents all such comments as the Investor
(and its counsel) reasonably may propose and furnish to the Investor and its
legal counsel identified to the Company (i) promptly after the same is prepared
and publicly distributed, filed with the Commission, or received by the Company,
one copy of the Registration Statement, each Prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of the Prospectus and all
amendments and supplements thereto and such other documents, as the Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities;
(d) (i) register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors reasonably request, (ii) prepare and file in such
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify, (B) subject
itself to general taxation in any such jurisdiction or (C) file a general
consent to service of process in any such jurisdiction;
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(e) As promptly as practicable after becoming aware of such event,
notify the Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify the Investor (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the Commission of any stop order or other
suspension of the effectiveness of the Registration Statement and take all
lawful action to effect the withdrawal, rescission or removal of such stop order
or other suspension;
(g) Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investor of his Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;
(h) Make generally available to its security holders as soon as
practicable, but in any event not later than 18 months after the Effective Date
of the Registration Statement, an earnings statement of the Company and its
subsidiaries complying with Section 11(a) of the Securities Act and the rules
and regulations of the Commission thereunder;
(i) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the underwriters reasonably agree
should be included therein and to which the Company does not reasonably object
and make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after it is notified of the matters to be
included or incorporated in such Prospectus supplement or post-effective
amendment;
(j) Make reasonably available for inspection by the Investor, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the Company's officers, directors and employees to
supply all information reasonably requested by the Investor or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
PROVIDED, HOWEVER, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any nonpublic information shall be kept confidential
by such Investors and any such underwriter, attorney, accountant or agent
(pursuant to an appropriate confidentiality agreement in the case of any such
holder or agent), unless such disclosure is made pursuant to judicial process in
a court proceeding (after first giving the Company an opportunity promptly to
seek a protective order or otherwise limit the scope of the information sought
to be disclosed) or is required by law, or such records, information or
documents become available to the public generally or through a third party not
in violation of an accompanying obligation of confidentiality; and PROVIDED,
FURTHER, that, if the foregoing inspection and information gathering would
otherwise disrupt the Company's conduct of its business, such inspection and
information gathering shall, to the maximum extent possible, be coordinated on
behalf of the Investors and the other parties entitled thereto by one firm of
counsel designated by and on behalf of the majority in interest of Investors and
other parties;
19
(k) In connection with any offering, make such representations and
warranties to the Investor and to the underwriters if an underwritten offering,
in form, substance and scope as are customarily made by a company to
underwriters in secondary underwritten offerings;
(l) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the underwriters;
(m) Cooperate with the Investor to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to the Registration Statement, which certificates shall, if required
under the terms of this Agreement, be free of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any Investor may request and maintain a transfer agent for the
Common Stock;
(n) Use its commercially reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed or qualified for
trading on the principal Trading Market, if any, on which the Common Stock is
traded or listed on the Effective Date of the Registration Statement; and
(o) Include in each Prospectus and Registration the Plan of
Distribution attached hereto as Exhibit C (the "PLAN OF DISTRIBUTION"), unless
and to the extent that such Plan of Distribution requires modification due to
inaccuracy or due to a change in the Commission's rules and regulations under
the Securities Act.
Section 4.3. OBLIGATIONS AND ACKNOWLEDGEMENTS OF THE INVESTOR. In
connection with the registration of the Registrable Securities, the Investor
shall have the following obligations and hereby make the following
acknowledgements:
(a) It shall be a condition precedent to the obligations of the Company
to include the Registrable Securities in the Registration Statement that the
Investor (i) shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and (ii) shall execute such
documents in connection with such registration as the Company may reasonably
request. At least five Business Days prior to the first anticipated filing date
of a Registration Statement, the Company shall notify the Investor of the
information the Company requires from the Investor (the "REQUESTED INFORMATION")
if the Investor elects to have any of its Registrable Securities included in the
Registration Statement. If at least two Business Days prior to the anticipated
filing date the Company has not received the Requested Information from the
Investor, then the Company may file the Registration Statement without including
any Registrable Securities of the Investor and the Company shall have no further
obligations under this Article 4 to the Investor after such Registration
Statement has been declared effective. If the Investor notifies the Company and
provides the Company the information required hereby prior to the time the
Registration Statement is declared effective, the Company will file an amendment
to the Registration Statement that includes the Registrable Securities of the
Investor; PROVIDED, HOWEVER, that the Company shall not be required to file such
amendment to the Registration Statement at any time less than 5 Business Days
prior to the Effectiveness Date.
20
(b) The Investor agrees to cooperate with the Company in connection
with the preparation and filing of a Registration Statement hereunder, unless
the Investor has notified the Company in writing of its election to exclude all
of its Registrable Securities from such Registration Statement;
(c) The Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 4.2(e)
or 4.2(f), the Investor shall immediately discontinue its disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4.2(e) and, if so
directed by the Company, the Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Investor's possession, of the Prospectus covering
such Registrable Securities current at the time of receipt of such notice; and
(d) The Investor acknowledges that it may be deemed to be a statutory
underwriter within the meaning of the Securities Act with respect to the
Registrable Securities being registered for resale by it, and if the Investor
includes Registrable Securities for offer and sale within a Registration
Statement the Investor hereby consents to the inclusion in such Registration
Statement of a disclosure to such effect.
Section 4.4. EXPENSES OF REGISTRATION. All expenses (other than
underwriting discounts and commissions and the fees an expenses of the
Investor's counsel) incurred in connection with registrations, filings or
qualifications pursuant to this Article 4, including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company,
shall be borne by the Company.
Section 4.5 ACCOUNTANT'S LETTER. If the Investor proposes to engage in an
underwritten offering of any Registrable Shares, the Company shall deliver to
the Investor, at the Company's expense, a letter dated as of the effective date
of each Registration Statement or Post-Effective Amendment thereto, from the
independent public accountants retained by the Company, addressed to the
underwriters and to the Investor, in form and substance as is customarily given
in an underwritten public offering, provided that the Investor has made such
representations and furnished such undertakings as the independent public
accountants may reasonably require;
Section 4.6. INDEMNIFICATION AND CONTRIBUTION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and
hold harmless the Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities, and each of their respective officers and
directors and each Person who controls such underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
Person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; PROVIDED, HOWEVER, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 4.3(e), the use
by the Indemnified Person of an outdated or defective Prospectus after the
Company has provided to such Indemnified Person an updated Prospectus correcting
the untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
21
(b) INDEMNIFICATION BY THE INVESTOR AND UNDERWRITERS. The Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, severally and not jointly, as
a consequence of facilitating such disposition of Registrable Securities to (i)
indemnify and hold harmless the Company, its directors (including any person
who, with his or her consent, is named in the Registration Statement as a
director nominee of the Company), its officers who sign any Registration
Statement and each Person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any losses, claims, damages or liabilities to which the Company or such
other persons may become subject, under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement or Prospectus or
arise out of or are based upon the omission or alleged omission to state therein
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, in
the case of the Prospectus), not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the Investor or underwriter
expressly for use therein, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that
the Investor shall not be liable under this Section 4.5(b) for any amount in
excess of the net proceeds paid to the Investor in respect of Registrable
Securities sold by it.
(c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a Person seeking
indemnification pursuant to this Section 4.5 (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the Person against whom indemnification pursuant to this
Section 4.5 is being sought (the"INDEMNIFYING PARTY") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (i) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (ii) the Indemnified Party shall reasonably have concluded that
representation of the Indemnified Party by the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or
(iii) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in the
preceding sentence, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnified Party shall not, without the prior written consent of the
Indemnifying Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnifying Party from all liabilities
with respect to such Claim or judgment or contain any admission of wrongdoing.
22
(d) CONTRIBUTION. If the indemnification provided for in this Section
4.5 is unavailable to or insufficient to hold harmless an Indemnified Party in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each Indemnifying Party shall contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party in connection with the statements or omissions
or alleged statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 4.5(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 4.5(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. 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.
(e) LIMITATION ON INVESTOR'S AND UNDERWRITERS' OBLIGATIONS.
Notwithstanding any other provision of this Section 4.5, in no event shall (i)
the Investor have any liability under this Section 4.5 for any amounts in excess
of the dollar amount of the proceeds actually received by the Investor from the
sale of Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are registered under the Securities Act and
(ii) any underwriter be required to undertake liability to any Person hereunder
for any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to the Registration
Statement.
(f) OTHER LIABILITIES. The obligations of the Company under this
Section 4.5 shall be in addition to any liability which the Company may
otherwise have to any Indemnified Person and the obligations of any Indemnified
Person under this Section 4.5 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company. The remedies provided in
this Section 4.5 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.
23
Section 4.6. RULE 144. With a view to making available to the Investor
the benefits of Rule 144, the Company agrees to use its best efforts to:
(i) comply with the provisions of paragraph (c)(1) of Rule 144; and
(ii) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Investor, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
Section 4.7. COMMON STOCK ISSUED UPON STOCK SPLIT, ETC. The provisions of
this Article 4 shall apply to any shares of Common Stock or any other securities
issued as a dividend or distribution in respect of the Shares or the Warrant
Shares.
ARTICLE 5
OTHER AGREEMENTS OF THE PARTIES
Section 5.1. CERTIFICATES; LEGENDS.
(a) The Securities may only be transferred in compliance with state and
federal securities laws. In connection with any transfer of the Securities other
than (i) pursuant to an effective registration statement, (ii) to the Company,
or (iii) to an Affiliate of the Investor, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. In the event of a private transfer of the Securities,
the transferee shall be required to execute a counterpart to this Agreement,
agreeing to be bound by (and shall have the benefits of) the terms hereof other
than those set forth in Article 2 hereof, and such transferee shall be deemed to
be an "Investor" for purposes of this Agreement.
(b) The certificates representing the Shares and the Warrants to be
delivered at the Closings and the certificates evidencing the Warrant Shares to
be delivered upon exercise of the Warrants will contain appropriate legends
referring to restrictions on transfer relating to the registration requirements
of the Securities Act and applicable state securities laws.
24
(c) In connection with any sale or disposition of the Securities by the
Investor pursuant to Rule 144 or pursuant to any other exemption under the
Securities Act such that the purchaser acquires freely tradable shares and upon
compliance by the Investor with the requirements of this Agreement, the Company
shall, or, in the case of Common Stock, shall cause the transfer agent for the
Common Stock (the "TRANSFER AGENT") to, issue replacement certificates
representing the Securities sold or disposed of without restrictive legends.
Upon the earlier of (i) registration of any Securities for resale pursuant
Article 4 or (ii) Rule 144(k) becoming available with respect to any Securities,
the Company shall (A) deliver to the Transfer Agent irrevocable instructions
that the Transfer Agent shall reissue a certificate representing such Securities
without legends upon receipt by such Transfer Agent of the legended
certificates, together with either (1) a customary representation by the
Investor that Rule 144(k) applies to the shares of Common Stock represented
thereby or (2) a statement by the Investor that the Investor has sold the shares
of Common Stock represented thereby in accordance with the Plan of Distribution
contained in the Registration Statement, and (B) cause its counsel to deliver to
the Transfer Agent one or more blanket opinions to the effect that the removal
of such legends in such circumstances may be effected under the Securities Act.
From and after the earlier of such dates, upon the Investor's written request,
the Company shall promptly cause certificates evidencing the Investor's
Securities to be replaced with certificates which do not bear such restrictive
legends, and Warrant Shares subsequently issued upon due exercise of the
Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Warrant Shares. When the Company is required to cause an
unlegended certificate to replace a previously issued legended certificate, if:
(1) the unlegended certificate is not delivered to an Investor within five
Business Days after submission by the Investor of a legended certificate and
supporting documentation to the Transfer Agent as provided above and (2) prior
to the time such unlegended certificate is received by the Investor, the
Investor, or any third party on behalf of such Investor or for the Investor's
account, purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Investor of shares represented
by such certificate (a "BUY-IN"), then the Company shall pay in cash to the
Investor (for costs incurred either directly by such Purchaser or on behalf of a
third party) the amount by which the total purchase price paid for Common Stock
as a result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates. The Investor shall provide the Company written notice indicating the
amounts payable to the Investor in respect of the Buy-In.
Section 5.2. INTEGRATION. The Company has not and shall not, and shall use its
best efforts to ensure that no Affiliate of the Company shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investor, or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market in a manner that
would require stockholder approval of the sale of the securities to the
Investor.
Section 5.3. SECURITIES LAWS DISCLOSURE; PUBLICITY. By 9:00 a.m. (New York time)
on the Trading Day following the execution of this Agreement, and by 5:00 p.m.
(New York time) on the Initial Closing Date, the Company shall issue press
releases disclosing the transactions contemplated hereby and the Closing. On the
Trading Day following the execution of this Agreement the Company will file a
Current Report on Form 8-K disclosing the material terms of the Transaction
Documents (and attach the Transaction Documents as exhibits thereto), and on
each Closing Date the Company will file an additional Current Report on Form 8-K
to disclose the Closing. In addition, the Company will make such other filings
and notices in the manner and time required by the Commission and the Trading
Market on which the Common Stock is listed.
Section 5.4. USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder (i) for working capital purposes, (ii) to
purchase fixed assets used in the development or production of the Company's
products or (iii) for investment in new technologies related to the Company's
business (including without limitation through the acquisition of other
companies).
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Section 5.5. RIGHT OF FIRST REFUSAL
(a) PROPOSED FINANCINGS. In the event that, during the period
commencing on the Initial Closing Date and continuing to the earlier of (i) the
second anniversary of the Second Closing Date or (ii) the second anniversary of
the Outside Date, the Company seeks to raise additional funds through a private
placement of its securities (a "PROPOSED FINANCING"), other than Exempt
Issuances, the Investor shall have the right to participate in the Proposed
Financing on a pro rata basis, based on the percentage that (a) the number of
shares of Common Stock then held by the Investor PLUS the number of shares of
Common Stock issuable upon conversion of the Warrants bears to (b) the total
number of shares of Common Stock outstanding PLUS the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and the Prior
Convertible Securities and exercise of the Company Stock Options, the Warrants
and the Prior Warrants.
(b) PRE-NOTICE OF PROPOSED FINANCINGS. At least 15 Business Days prior
to the closing of any Proposed Financing, the Company shall deliver to each
Investor a written notice of its intention to effect a Proposed Financing
("PRE-NOTICE"). If within 10 Business Days after receipt of the Pre-Notice, the
Investor delivers to the Company a written request for detailed information
regarding the Proposed Financing, the Company shall promptly, but no later than
the Business Day immediately following its receipt of such request, deliver to
the Investor a notice (a "PROPOSED FINANCING NOTICE") which shall describe in
reasonable detail the proposed terms of such Proposed Financing, the amount of
proceeds intended to be raised thereunder, and the Person with whom such
Proposed Financing is proposed to be effected, and shall have attached thereto
be a term sheet or similar document relating to the Proposed Financing. The
Investor shall notify the Company no later than 6:30 p.m. (Little Rock time) on
the fifth Business Day after receipt of the Proposed Financing Notice of its
willingness to participate in the Proposed Financing on the terms described in
the Proposed Financing Notice, subject to completion of mutually acceptable
documentation and diligence investigation. The Company shall promptly provide to
the Investor such diligence materials as it may reasonably request, subject to
execution of a non-disclosure agreement, in reasonable form, mutually acceptable
to the parties.
(c) INVESTMENT TERMS. The terms on which the Investor shall purchase
securities pursuant to the Proposed Financing shall be the same as such
securities are purchased by other investors in such Proposed Financing. In the
event that the terms of the Proposed Financing are changed, the Borrower shall
provide the Investor with the same notice of the revised terms that is provided
to the other investors in such Proposed Financing in reasonably sufficient time
to allow the Investor to review the Proposed Financing and the Company's
financial condition and prospects in light of the changed terms.
(d) FINANCINGS. In the event that the Investor does not exercise,
within 12 Business Days after receipt of the Financing Notice, its right to
participate in the Proposed Financing, the Company may sell the securities in
the Proposed Financing at a price and on terms which are no more favorable to
the investors in such Proposed Financing than the terms offered to the Investor.
If the Company subsequently changes the price or terms so that the terms are at
a price or more favorable to the investors in the Proposed Financing, the
Company shall re-offer the securities to the Investor as provided in this
Section 5.5.
Section 5.6. NO DISCLOSURE OF MATERIAL NON-PUBLIC INFORMATION. The Company will
not disclose to the Investor any material non-public information concerning the
Company except (a) with the consent of the Investor and (b) if such consent is
given, pursuant to a non-disclosure agreement which provides, among other
things, that the Investor will not disclose the material non-public information
to any person and the Investor or the Agent will not engage in any transactions
involving the Company's securities while in possession of material non-public
information.
26
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
Section 6.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTOR TO PURCHASE
SECURITIES. The obligation of the Investor to acquire Securities at any Closing
is subject to the satisfaction or waiver by the Investor, at or before the
Closing, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The Company shall have delivered a
certificate of the Company's Chief Executive Officer certifying
that the representations and warranties of the Company contained
herein are true and correct in all material respects as of the
date when made and as of the Closing Date as though made on and as
of such Closing Date;
(b) PERFORMANCE. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the
Closing;
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents;
(d) NO ADVERSE CHANGES. Since the date of execution of this Agreement,
no event or series of events shall have occurred that reasonably
could have or result in a Material Adverse Effect;
(e) COMPANY DELIVERABLES. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).
Section 6.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO SELL
SECURITIES. The obligation of the Company to sell Securities at any Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing,
of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing
Date as though made on and as of such date;
(b) PERFORMANCE. The Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Investor at or prior
to the Closing;
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents; and
(d) PURCHASE PRICE. The Investor shall have paid the Purchase Price
payable at such Closing in accordance with Section 2.3.
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ARTICLE 7
MISCELLANEOUS
Section 7.1. FEES AND EXPENSES. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of the Transaction Documents; PROVIDED,
HOWEVER, that, if but only if Securities are sold hereunder at the Initial
Closing, the Company shall, at the Initial Closing, reimburse the Investor for
its reasonable legal fees and expenses of its legal counsel, up to a maximum of
$30,000, incurred in connection with the Investor's due diligence and the
negotiation and preparation of the Agreement. The Company shall pay all stamp
and other taxes and duties levied in connection with the sale of the Shares.
Section 7.2. ENTIRE AGREEMENT. The Transaction Documents, together with the
Exhibits thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents and exhibits.
Section 7.3. NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 6:30 p.m. (Little Rock time)
on a Business Day, (b) the next Business Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Business Day or later than 6:30
p.m. (Little Rock time) on any Business Day, (c) the Business Day following the
date of transmission, if sent by a nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address for such notices and communications shall be as
follows:
If to the Company: ThermoEnergy Corporation
Attn.: Andrew T. Melton
124 West Capitol Avenue, Suite 880
Little Rock, AR 72201
Telephone: (501) 376-6477
Facsimile: (501) 376-5249
With a copy to: Nixon Peabody, LLP
Attn.: William E. Kelly, Esq.
100 Summer Street
Boston, MA 02110
Telephone: (617) 345-1195
Facsimile: (866) 743-4899
If to the Investor: The Quercus Trust
1835 Newport Blvd
A109 - PMB 467
Costa Mesa, CA 92627
Telephone: (949) 646-3785
Facsimile: (949) 903-1598
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28
With a copy to: Greenberg Glusker Fields Claman & Machtinger, LLP
Attn.: Joseph P. Bartlett, Esq.
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-7481
Facsimile: (310) 201-2380;
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or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
Section 7.4. AMENDMENTS; WAIVERS; NO ADDITIONAL CONSIDERATION. No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Investor. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
Section 7.5 TERMINATION. This Agreement may be terminated prior to Initial
Closing:
(a) by written agreement of the Investor and the Company; or
(b) by the Company or the Investor, upon written notice to the other,
if the Closing shall not have taken place by 6:30 p.m., Little
Rock time, on the Outside Date; provided, that the right to
terminate this Agreement under this Section 7.5(b) shall not be
available to any Person whose failure to comply with its
obligations under this Agreement has been the cause of or resulted
in the failure of the Closing to occur on or before such time, to
the extent such delay is caused by such Person.
Upon a termination in accordance with this Section 7.5, the Company and the
Investor shall have no further obligation or liability (including as arising
from such termination) to the other, provided that any liabilities arising prior
to such termination shall not be affected by the termination.
Section 7.6. CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
Section 7.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party.
Section 7.8. NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6 (with respect
to rights to indemnification and contribution).
29
Section 7.9. GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and of the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the state or federal
courts sitting in, or having jurisdiction over, the State of Delaware (the
"DELAWARE COURTS"). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the Delaware Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of the any
of the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such Delaware Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys' fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Proceeding.
Section 7.10. SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closings and the delivery of the
Securities.
Section 7.11. EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof, notwithstanding any subsequent failure or refusal of
the signatory to deliver an original executed in ink.
Section 7.12. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
Section 7.13. REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
30
Section 7.14. REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that, except as expressly set forth
herein with respect to liquidated damages, monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
Section 7.15 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Transaction Documents, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
THE QUERCUS TRUST THERMOENERGY CORPORATION
By: /s/ David Gelbaum By: /s/ Andrew T. Melton
----------------------------- -------------------------------
David Gelbaum Andrew T. Melton
Trustee Executive Vice President and CFO
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